Operating Your Startup Business
Choosing the Right Distribution Channels
Written by James Garvin for Gaebler Ventures
More and more firms are seeking multi-channel distribution strategies to reach the maximum potential of customers, however multi-channel management can be complex while causing potential strains on your vendor relations.
One of the most important aspects of your business but often undermined due to its apparent obviousness, is the distribution channel or channels that you decided to sell your product or service through.
Traditional methods of distributing manufactured products were to sell it to a wholesaler who would then sell it to a retailer who would then sell it to a customer. This put the manufacture at 3 degrees removed the end customer who was actually using their product.
Below is a list of possible channels ranked in descending order of degrees of removal from the end customer:
1. Traditional (Mfg to Wholesaler to Retailer)
2. Mfg to Retailer to Consumer
3. Mfg direct to Consumer
b. Self-branded retail store
c. Catalog Mailer
With the growth of firms and the advent of the internet, many consumer focused firms have been trying for years to get closer to their customer by either bypassing wholesalers and selling direct to retailers or better yet bypassing both the wholesaler and retailer and selling direct to the consumer.
It's still rare to see a manufacturer of a good also selling direct to the consumer direct in retail outlets, but sporting good manufacturers such as Nike, Reebok, and Under Armour are examples of firms with wide distribution in several leading sporting and clothing retailers, but whom also have retail presence of their own under their own branded retail stores.
The advantage of selling direct to consumers should be apparent. Firms are able to capture much more direct profit by selling direct to consumers since they have removed wholesalers and retailers who take their own profits into account in the traditional retail channel. Furthermore, selling direct to consumers, allows manufacturers to build closer relationships with their end users with out having to bypass the retailer.
The use of the internet has also changed the traditional paradigm of traditional channels to sell your product. Many manufacturing firms have set-up their own online e-commerce site to convert consumers.
Most recently, Alice.com has partnered with consumer packaged good firms like Proctor & Gamble and Unilver to sell common household goods (food, soap, etc.) direct to consumers. By doing so, this allows CPG firms to pass on savings direct to the consumer saving households potentially hundreds or thousands in shopping expense over the course of a year.
Your channel strategy will ultimately prove to be a valuable factor in the success of your businesses and in today's commerce industries, more and more firms are adapting to a multi-channel strategy. The more channels that are developed, the more costly and challenging they become to manage the balance and integration of multiple channels becomes required. As a start-up, choosing and focusing on a single channel strategy may prove to be the proper strategy so that your firm can concentrate its efforts with its limited resources. As a firm grows, the firm can add additional channels to its strategy to maximize distribution and ultimately profits.
James Garvin began his education studying biotechnology. In recent years he has turned his interest in technology to helping two internet startup companies. The first business was an online personal financial network and the second was an e-marketing platform created to help entrepreneurs demo their web sites. Currently a student at University of California Davis, James is spending his summer incubating two new online businesses and writing about his entrepreneur experiences.
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