... are you sure they’re going to come? (final installment)

So you’ve got the right product and merchandising strategy, now you’ve got to figure out how to get it on the shelves. Here are four of the most common ways to do so:

1. Commissioned Sales Reps

Many industries rely on commissioned sales reps to reach out to online and brick and mortar retailers to carry as many of your products as possible. Sales reps will carry many manufacturers lines and take a flat commission (typically 10 – 15%). Reps will have a geographic territory that they cover and most rep agreements give them with exclusive rights to sell your product in their territory, including major retailers who are located in the territory.

2. Hire a Sales Manager (Selling Direct)

Another approach you might want to consider is by bringing sales in-house. This strategy makes sense if it’s difficult for you to secure good reps in your industry or if you have deep enough pockets to manage this in-house. This is a time-consuming process and would involve a lot of direct sales and marketing techniques, including:

• Lead generation techniques (i.e., purchasing lists, scanning competitor sites for lists of retailers)
• Direct mail pieces
• Direct sales (store visits, cold calling, sending out samples, etc.)
• etc. 

3. Distribution Partner

 A third option is to find a distribution partner to sell your product. Here you look for someone with a complementary product to yours who already has a strong sales force and relationship with the retailers, who’s looking for a little bit of extra money (typically distribution partners get 24- 30% of sales). In this case you have the benefit of getting great sales reps (without the agony of trying to recruit and motivate them) and you don’t have to worry about the fulfillment, invoicing and collections processes (which are very time-consuming). The distribution partner wins by netting 5 – 15% of your sales (after they’ve paid out sales commissions and fulfillment costs) and by having a new products to keep their customer base engaged in their existing product line (in order words a good excuse to get reorders). Like with a sales rep, you only pay a distribution partner on the sales that have been made, but they also deal with all the order management, inventory, fulfillment, and commissioning issues.

 4. Wholesalers / Traditional Distributors

In some industries, there are great wholesalers / distributors who will sell your product. Unlike the distribution partners described above, wholesalers / distributors only line of business is selling other people’s products. Sometimes this is a welcome resource for small businesses (i.e., publishers, grocery items), but in other cases (namely alcohol with the dreaded three-tier distribution system), it’s required by law and many complain their profit margins are really cut into. Wholesalers work basically like the distribution partners described above, except with wholesalers you still need to maintain your inventory and then they’ll place order to you for the amount of inventory they think they can sell to retail channels.

This is in the final installment in my “If You Build It …” series. If you have questions about how to develop an effective product marketing and sales strategy, feel free to contact me via email and we can chat more.

... are you sure they’re going to come? (continued from last week)

Last week I wrote about how to design your product to stand out in a store. That’s the easy part. But once you’ve developed your product, the next step is convincing buyers to carry it. Unfortunately there are tons of barriers to entry if you’re the new kid on the block. Not only do you have the challenge of identifying who the buyer is, but then you need to convince them to take on your product.

Create a product line, not a product

Retailers both big and small don’t like to take risks, and they typically aren’t huge fans of taking on a new supplier. Not only do they run the risk that the product won’t sell, but adding another supplier means more POs to open, more checks to write, more cartons to open, etc. They’re much happier when their existing suppliers come up with something new.

• Convince them you’re not a one-hit wonder. Retailers will typically change out their offerings at least twice a year, so don’t bank on your initial idea to last forever. You constantly need to be improving your product and adding new ones. Can you launch with at least 3 products? Do you have a lot of product futures in your back pocket?
• Show them some successes. Sometimes it’s good to test market your product. Can you find a few local retailers to carry your product. If successful, you can let other retailers know the huge success the product has had in your market. If you can get some media to generate some buzz, then you’re in much better shape.  
• Demonstrate you are reliable. Retailers don’t want to teach you how to do business in their industry. Make sure you have all the appropriate paperwork (order forms, T&C (terms & conditions), etc.) that are consistent with industry standards. If you don’t have the ordering process down, they may doubt your ability to deliver product.
• Allow returns. In many industries, you can sell your product on a non-returnable basis (at least to the mom-and-pop shops, major retailers typically don't allow for this). One way to get your foot in the door, is to let them return product that hasn't been moving off the shelves (on the first order). If you believe in the product, maybe they will, too.

Beware of the Big Guy

I can’t tell you how many people I’ve spoken to over the years who’ve told me about their new book / kit that’s going to sell like gangbusters at Borders and they’re going to be rich. I too had that fantasy for many years, but I now highly caution my clients about creating a distribution strategy based on major retailers. It took us nearly 5 years to finally get our product into Borders, and when we finally got in, we barely ended up breaking even thanks to their shelving fees and returns, etc. (typically they'll order far more than they expect to sell as it makes their displays look more interesting). Fortunately during the years that waited for that "big deal," we had forged strong relationships with the smaller gift / gourmet / book market and that the Borders deal didn’t really impact our sales. I’ve heard similar stories of people dealing with Target, Macy’s, etc. Until you have a HUGE line where you can take over a section of a major retailer, your best bet is to focus on the smaller stores and not get too hung up on big deals.

Next week, nuts and bolts on how to get into the stores...

... are you sure they’re going to come? (continued from last week)

As I mentioned in last week’s blog, you can’t really rely on web sales to make your product-based business profitable. You need to consider retail channels, which is easier said than done. After they realize that 100% web-strategy may not work, many entrepreneurs think:

This product is so cool that everyone is going to go to Macy’s (or Target / Starbucks, etc.) and it’ll just fly off the shelves.

Maybe. Now you have very different challenges:

1) What shelf is this product going to sit on?
Often, when you’re an innovator, finding a home in retail outlets can be challenging. Both major retailers and small boutiques are pretty much set up for things to have obvious homes for the products they sell. If you write a book, they think, which section of the store will I shelve it? If you created a shirt, the they decide if it goes in juniors, casual, dressy, etc.

What if you're creating an entire new category? When Pom Wonderful first came out, there was no real home for it in grocery stores. The owners intentionally created an oddly-shaped bottle that needed to be fridgerated (and they didn’t want it in sitting soda section). Fortunately they had the deep pockets had to pay the stores to reconfigure the fridges in the produce section to accommodate their juice. Now there are other juices that sit next to Pom, but Pom led the way here (and had to front a lot of cash to do so).

2) How is your product going to stand out?
Sometimes it’s pretty easy to find a home for your product in retail channels if it’s a standard item (i.e., article clothing, children’s book, table linens, wine, etc.). Your only problem now is to figure out how to make it stand out, and this is when great design and marketing come in handy.

Pom did a great job creating packaging and merchandising, but but not all of us can afford such tactics. The challenge is creating fantastic packaging, while ensuring that it still can fit in it's obvious home. If you created a new hair care product whose dimensions don’t match the competition, where will the store owner put it?

We designed our Smarts games to fit on shelves in bookstores as well as stand out in a gift store. The covers were striking and when they were out on a table, they moved quickly as great impulse buys. However, in hindsight, I think we could have done more to make our spines more intriguing to the casual book store browser.

3) How are you going to get your product into the store?
This is a biggie. How are you going to get a hold of the buyer at Macy’s / Target / Starbucks? (Hint: it’s nearly impossible to do on your own) And how are you to call on the thousands of independent retailers across the country?

Answer to those question to come next week ….

... are you sure they’re going to come?

Remember the end of Field of Dreams with all the cars lined up to come watch the baseball game. You just knew the Kinsella family would make lots of money selling lemonade and hotdogs to these folks and the farm would be saved. While most of us rooted for Ray and his crazy dream throughout the film, in real life we’d probably agree with Annie that he was going insane.

Like Ray, many entrepreneurs have great ideas and just start building them, but their friends and family don't seem to be as concerned as Annie was. Without divine intersession, how would all those people have learned about the Kinsella's field (especially in the pre-Facebook era)? Although few enterpreneurs are as blessed as Ray, they too believe wholeheartedly in their dream, have faith that “they will come,” and then go ahead and build it without a solid sales and distribution strategy in place. I’ve met with dozens dejected small business owners who have basements full of wonderful dreams that no one’s coming for. Typically these folks start off thinking:

This product is so cool everyone is just going to come to my website and buy tons of product.

The problem with this strategy is it’s really hard to get people to come to your website. You need to work you tail off to build site traffic by providing constantly updated valuable search engine friendly content (for free), running ads, social networking, generating publicity, etc. Even if you create this awesome website and do a fantastic job getting the word out, how many visitors can you actually expect per month? 1000? 2000? And how many are actually going to buy your product? One percent, two percent maybe, but not much more. So, if your product sells for $25, that would garner you about $250 to $500 in sales per month. Not going to make you rich will it? Would that even cover your expenses?

Here’s a fun exercise: figure out how many people you realistically can expect to come to your site by evaluating competitor sites. Go to www.compete.com and check out sites that are similar to yours and see how many visitors they get. So if you can generate as much traffic as your competitor, how many visitors can you convert into buyers?

Hmmm, still sure you want to rely on online sales to get your product out? Maybe you want to get it into retail channels, because …

This product is so cool that everyone is going to go to Macy’s (or Target / Starbucks, etc.) and it’ll just fly off the shelves.

...TO BE CONTINUED NEXT WEEK