Is B2B The Right Distribution Channel Fit?

Choose the correct channel fit.

The 4 Ps of marketing are Place, Price, Product and Promotion. By carefully integrating all of these marketing strategies into a marketing mix, companies can ensure they have a visible, in-demand product or service that is competitively priced and promoted to their customers. Lately, I have had a lot of questions about one of the 4 Ps…Place. When a business manufactures a product or offers a service, it needs to market and deliver it to the customer. This movement of goods between the maker and the consumer takes Place through a distribution or marketing channel. It is up to the manufacturers whether they want to deal with the consumers directly or they would like to include intermediaries to reach the end-users. The Place, or distribution, is a critical consideration for marketers, whether you’re selling a physical product, software application or service. Here are some thoughts on different distribution places:

Direct Sales

A direct sales channel is an effective method of distribution if you deal with a small number of customers or you only wish to sell to customers in your local area. If your company sells to other businesses, for example, you may have a small number of large accounts. Dealing with those accounts through a direct sales team enables you to build strong long-term relationships with your customers and protect the business against competition. You can also sell direct to local consumers by opening your own store, offering your own products in addition to lines from other suppliers.

Retail Network

Marketing your products through an existing regional or national network of retailers gives you the opportunity to reach a wider market. You can take advantage of the retailer’s existing infrastructure, rather than trying to set up and manage your own network. However, you must invest in sales and marketing to benefit from this channel. Your sales team must convince retailers to carry your products and ensure that they have sufficient stock to meet customer demand. You can also stimulate sales through the network by providing retailers with marketing support, such as advertisement templates or display material. If you are considering only selling your product wholesale through other retailers, you can boost your marketing budget by running joint campaigns with members of your retail channel. Marketing campaigns that tell customers and prospects that your products are available in retail outlets helps to drive business to the channel and sell more of your products.

Wholesalers

Like retailers, wholesalers act as middlemen that buy products from manufacturers and then sell those goods to end users at an increased price point. Wholesalers buy products in bulk from a manufacturer and distribute them to other resellers, such as retailers or industrial distributors. By dealing with wholesalers, you do not have to commit resources to selling your products to individual retailers; the wholesaler deals with retailers in addition to holding stock of your products. The biggest differences between these business models are scale and audience. Brands benefit from wholesale distribution by moving large volumes of products at once. The tradeoff is wholesalers expect discounts and reduced rates in exchange for buying in bulk. Another factor to consider is that manufacturers can avoid the logistical challenges of selling directly to customers. There’s no store to manage, on-site personnel to train or inventory to stock. Once products have changed hands, those issues are someone else’s concern. That also means brands have limited say about how their products are handled and displayed. They can address those concerns by creating brand guidelines for distributors to follow, but there is some added cost to conduct on-site reviews and assess compliance.

Internet

By setting up a website, you can reach customers around the country, or anywhere in the world. Provide details of your range on a product page, including photographs, product information, prices and delivery charges. You can incorporate ready-made e-commerce software in your website, enabling your customers to place orders and pay for products online. If you don’t offer online ordering, provide a telephone number customers can use to place orders and pay by debit or credit card. E-commerce, digital distribution and other internet-age developments have made distribution questions far more complicated. Businesses might operate brick-and-mortar shops as well as online stores. Digital-only services may be downloaded directly from the provider or distributed through a value-added reseller. A distribution channel such as a network of retailers or the Internet gives a business greater geographical reach, enabling them to expand beyond their local marketplace.

Some Focused Thoughts On The Wholesale Distribution Model

When you offer a consumer product or service, you have to decide whether you want to sell direct to customers (B2C) or wholesale (B2B). In recent years, wholesale has experienced a revolution of its own due to online selling sites like Amazon and Wayfair. While e-commerce enables direct-to-consumer brands to thrive by lowering the barrier to setting up shop, wholesale still offers consumers a convenient shopping experience where they can find everything they need in one place. So how do you choose the best channel? Maybe start by thinking about the pros and cons of going through wholesale (B2B):

  • Pros:
    • Increase sales without increasing your marketing spend
      • As a direct-to-consumer brand, a large amount of your budget needs to be allocated to marketing in order to grow. For every new customer acquired, there is often a cost, after all.
      • By selling your products wholesale, you can let another business shoulder the cost of customer acquisition and reinvest your time and money in other areas of your business.
    • Increases brand exposure
      • Just as acquiring new customers costs money, building a loyal audience of fans and customers is not an easy feat. By creating a wholesale partnership with an established brand that has already made a name for itself within your niche, you can leverage the company’s goodwill to get your product into the hands of consumers.
    • Enter new markets with less risk
      • Expanding your business to a new country or territory comes with a series of associated costs, like warehousing and logistics. You might also have to start from scratch marketing to a population that hasn’t heard of you. Finding another retailer with an existing presence and supply chain in a new market can help reduce the risk of international expansion by cutting your setup costs.
      • Ultimately, a wholesale business model benefits both the retailer and the wholesaler by creating efficiencies. The retailer gets a new, often complementary, product to sell, without investing in research and development, and the wholesaler saves money on marketing by gaining direct access to an existing customer base.
    • Greater consumer reach
      • Selling goods through a retail channel extends the geographical reach of your business. Setting up your own outlets or hiring a sales team to cover the territories where an existing retail chain operates would involve significant investment and effort. By utilizing an existing retail network, you can expand your geographical operations quickly and easily. Retailers hold stock of your products at their sites, reducing your own stock-holding and distribution costs. Customers take delivery of the products at the local outlet so that you do not incur delivery costs.
  • Cons:
    • Cuts your margins in half
      • Pricing strategies are one of, if not the most, crucial components to creating a successful wholesale business. When selling direct to customers on your own website or in your own retail store, you get to keep whatever profit margin you set for yourself, which often can be north of 50%.
      • With wholesale, businesses typically give retailers a 50% discount off their regular retail price. The steep discount is to allow retailers to wholesale your product to their customers, while still retaining some profit margin as well. Here is an example of a healthy pricing strategy, where a wholesale business would be retaining 50% profit margin on wholesale orders and 75% profit margin on direct-to-consumer sales.
      • A profitable pricing strategy for wholesale requires a business to be able to maintain a profit margin while offering retailers 50% off the manufacturer’s suggested retail price (MSRP). Therefore, in order to create a successful wholesale business, you’ll need to be able to offer a large discount off of your retail price to those willing to wholesale your product. This can sometimes pose various risks for small businesses, including not being profitable. 
    • Expends a lot of time for managing and communicating with stores
    • Offers less control of branding
      • If you’re worried about brand protection, you can establish a great relationship with one chain and offer an exclusivity agreement.
    • Acquiring distribution through a brick & mortar store may be a greater investment than acquiring a single consumer.

If you choose to go B2B, here are some steps you might want to follow:

  • Establish your terms. There are some specific terms you need to have ready when a store asks you for them. Here are the questions stores might ask:
    • What’s your minimum opening order? Minimum reorder? You can set these minimums based on units ordered or dollar amounts. But, when you’re selling at wholesale cost, you want to establish a minimum so you can cover the cost with volume.
    • What’s your turnaround time? From order placed to delivery, know when your customer can expect your products.
    • What are your payment terms? We used to invoice the store after the order arrived, but after getting burned a few times, we changed our terms to payment due when ready to ship. After the payment clears, we ship to the customer. Some larger retailers require a “net 30” agreement, where you get paid 30 days after the customer receives the product. It’s up to you whether you can wait that long and cover production.
    • How do you ship? Do you offer insurance? Decide how you want to charge for shipping (domestic flat rate, by weight, etc.) and what carrier you want to use. Also, decide what you’re going to do when the package gets lost or damaged (that will happen, trust me). Establish an agreement with the store before indicating whose responsibility the damage/loss is after the package has been shipped. You can offer an optional insurance add-on (for an additional fee) to cover any lost packages or damages.
    • Exchanges and returns? Decide how you want to handle product breakage or instances when the customer is unsatisfied with the product. I suggest offering some sort of exchange window the customer can use when its order is delivered.
  • Create line sheets. Your line sheets are the first impression with the store and should contain the following:
    • Company overview
    • Terms (see the explanation of terms above)
    • Order instructions
    • Product catalog, with: 
      • Wholesale price and MSRP
      • SKU number and product name
      • Sizing and variations
      • Any additional product details
  • Optimize your online site to show you do wholesale. On your site, be sure to include a wholesale tab so people know you offer that. Include a contact form for stores to fill out with details about themselves…information that allows you to send line sheets if you think they’d be a good fit. If your online site is powered through Shopify, you might use an app called Now In Store that syncs your wholesale products to your catalog for easy updates and edits. Once you’ve started to gain stores, you can also put a list or a map in where people can find your product in store locations.
  • Reach out to local buyers. Now that you’ve set your terms and have your line sheets ready, start with local companies where you see a fit for your brand. Try to get a name of a buyer and schedule a meeting where you bring samples and discuss the brand. If you’re looking to get your own foot in the door, you too can offer consignment. However, you might find that as your company grows, it was harder to track down orders and checks on a consignment basis so you may be forced to go to orders only.
  • Attend trade shows. Trade shows are an investment, but can be a ticket to lots of stores and major retailers. Stores come to your booth and learn more about the products and write orders at the show (if they like your products).
  • Once you’ve secured stores, help them sell your product. The more they can sell, the more they will buy from you. Offer display materials or even Skype-in to their sales staff and talk about major selling points. Create a newsletter list for just your stores so you can cater your communication and news about your company to their language.

Summary

Your product/service placement and distribution is part of your brand identity and that always plays a central role in your marketing strategies, no matter what industry changes happen. The decision of choosing the distribution model for product/service depends on various factors: the cost of distribution; sales goals; product type; the targeted market. While multiple channels make products easily accessible to consumers, it might increase their prices and affect the brand’s position in the market. However, in most cases, customers use a combination of on-line and brick & mortar stores to search for, evaluate and make decisions on purchasing products/services. For questions you should ask yourself to help sort out what model will work best for your business, read Distribution Channel Assessment Worksheet.

For more thoughts on the 4 P’s of marketing, view the video entitled Marketing For Business Owners.

Copyright ©John Trenary 2022

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