Inventors Distribution Channels
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Many inventors have great products that never quite make it to market because the inventor isn’t able to set up a distribution network. Distribution is a term that stands for the process by which a product moves from the producer to the final consumer. There are many types of distribution networks and virtually any of them can be used by inventors. Each of these distribution networks has advantages and disadvantages. This article describes each network, lists its advantages and disadvantages, and points out when it is an effective network for new product entrepreneur. In many cases inventors will choose to purse more than one distribution channel.
Direct to Consumer
Direct to consumers is often through the Internet, but it can also be accomplished by advertising in local media and then following up with a sales call when people are interested. Companies might use other lead generation techniques such as being in local special event shows, like a Green Home Show, and then follow up on leads generated at the show.
Advantages: A low cost distribution channel, it can help an inventor fine tune their product with a small group of initial users. Works well for complex inventions, such as a gutter blocking where individual sales calls a required to get the product established.
Disadvantages: Internet sales are difficult unless you have an item that will come out high in Internet searches.
When it works: The product’s potential customers have a need, and will search for an usual product like an endurance horse racing saddle. The product is likely to come up in an Internet search as there won’t be much competition. For direct sales, the price needs to be high enough to justify the sales effort required.
Sell to Catalogs
You probably receive several catalogs at home: Signals; Lifestyle Fascination; Harriet Carter; and hundreds of other catalogs are mailed regularly to millions of homes.
Catalogs are often willing to do business with small one product line companies and they are a great way for inventors to launch their products.
Advantages: Willing to work with small inventor companies without a strong sales history.
Disadvantages: Sales are modest, not enough typically to sustain a company in the long term.
When it works: The product is unique item that can be economically produced in small volumes that fits into the overall type of products that the catalog sells.
Sell Direct to Retailers or Dealers
This is not a national breakout strategy for most inventors, instead it is a way to generate sales in local area to prove the product will sell. Often used to convince investors that product will sell.
Advantages: Local retailers are typically open to helping out local inventors; early sales help line up investors; local sales help inventors immediately respond to product problems.
Disadvantages: Cost to produce a small quantity can be high and the inventor could lose money; small quantities might prohibit the inventor from paying for the tooling needed to make the product with commercial viable quality.
When it works: The product can be made economically in small quantities; demonstrations in stores will help sales success; the product doesn’t have direct competition and investors, distributors and representatives are uncertain the product will sell.
Sell to Retailers and Distributors through Manufacturers’ Sales Agents
Inventors often don’t have industry contacts and can’t afford to exhibit at major trade shows or travel around the country to sell their product. They also can’t afford to hire their own sales person. In these case inventors turn to independent sales reps, companies that carry four to fifteen products from small companies. These individuals can introduce products successfully for inventors.
Advantages: Reps work on commission so they don’t have an upfront cost to the inventor; reps know the buyers and provide the quickest route to market; reps can offer sophisticated market intelligence to inventors regarding pricing, packaging and promotional programs.
Disadvantages: Reps will quickly lose interest if they can’t make $15,000 or more per year off your product; Reps won’t support you in quality crisis as they are more attached to the customers then they are to their suppliers; Reps expect you to have inventory and be able to deliver – you need enough cash flow to support production.
When it works: Selling the product is fairly easy, but each buyer only buys a small amount, say $2,000 to $5,000 at a time. Also works in industries, such as outdoor sporting goods, where selling through reps is the common approach to the market.
Sell to Consumers at Shows, Events and Fairs
State fairs, county fairs, kitchen shows and a host of others happen in virtually every market. Inventors can take up booths and sell their product.
Advantages: Inventors get first hand market feed back on how their product is accepted by consumers, they can find out about what pricing works best, and they get a chance to demonstrate the product’s benefits. A great way to prove a product will sell.
Disadvantages: Shows can be expensive if consumers don’t buy sufficient products; low costs products rarely sell enough to cover costs; small volume production can be expensive and sometimes low quality.
When it works: The product is hard to understand without a demonstration; the product sells for more than $15; low quantities of product can be easily produced.
Sell to Retailers and Distributors at Trade Shows
Many industries have large trade shows, both for consumer and industrial products. These shows, such as the Hardware Show and the Housewares Show, attract people from all the major retailers and distributors as well as manufacturers’ sales representatives. You can set up a booth and meet retailers and distributors that might be willing to sell your product.
Advantages: You have an opportunity to meet many potential buyers of your product and potentially pick up orders. You might not have to pay sales commissions if you can get retailers direct. Possible to get large orders at a show.
Disadvantages: The shows are expensive, you might need to spend $15,000 and up to get to purchase a good display, rent a booth and arrange for all the travel and literature expense. You might run into resistance also being a one product company, most retailers find it simpler to buy from companies with bigger product lines to keep their costs down.
When it works: The product meets an important need that everyone is the market recognizes; the inventor can produce sufficient quantities for large orders, the product has sales potential per store to for retailers to justify buying from a one product company.
Sell Direct to Retailers or Dealers
Inventors can set up their own sales organization to sell direct to retailers or dealers. They typically need to hire an experienced and successful industry person and offer him or her a share of the business in return for accepting a lower starting salary.
Advantages: Offers the inventor the best control of the company sales; can build a solid base for a strong company; offers the best opportunity for introducing subsequent products.
Disadvantages: Requires money for production and to pay the sales person; is difficult to execute without offering up significant shares of the company both to investors and the sales individual. Could be extremely expensive if the right sale individual is not hired.
When it works: The product has significant sales potential to attract top sales management and investment to produce the product in significant quantities.
Sell through Another Marketer
Inventors can sometimes locate (typically at trade shows) another manufacturer who runs into resistance from being a one or small line company. Often those companies benefit greatly from having another line to sell along with their products – it cuts their sales costs, and also makes their line more attractive to representatives.
Advantages: Low cost strategy; could have significant sales advantages as marketer will already have buying customers; marketer can provide helpful feedback regarding pricing, packaging and promotional programs; company will receive more exposure at sales shows.
Disadvantages: Inventors products will be considered second priority by marketer; inventors won’t have control of sales efforts; marketer’s portion of sales revenue is typically around 25% rather than a 10% sales commission.
When it works: The product doesn’t have enough benefits or unique features to make it on its own, and needs the help of another product; the inventor can find a suitable partner that is complementary to the product; the inventor can find a marketer who needs a bigger product line to succeed.
Sell through a Joint Venture Marketing Agreement
This type marketing is based upon inventors being able to sell their product most successfully in their own market. Inventors in different parts of the country can sell each other products in their own markets.
Advantages: Cuts marketing and sales cost while still giving inventors a larger national presence; overcomes many of the disadvantages of having a one product company; lets inventors share success stories and pool their market intelligence; companies can share costs at national trade shows.
Disadvantages: Inventors have to spread efforts among several products; can distract inventors from correcting problems with their products; often have to differ decisions on their products to the consensus of the group.
When it works: Inventors are able to locate companies with complementary products in different parts of the country to joint market their product.
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