Distribution Strategy

How will you distribute your product to retailers? The right solution depends on many factors, but inventors have a bevy of options including:

• Sell direct to retailers;
• Sell to small retailers;
• Sell to major chains;
• Sell through distributors, which sell a broad range of products to many retailers;
• Sell through captive distributors, which sell a broad range of products to one chain of retailers;
• Sell through rack jobbers, wholesalers that lease shelf space at large retailers. The rack jobber buys inventory to furnish products for that space and gets paid by the retailer when the products sell;
• Sell through your own sales force;
• Sell through manufacture’s sales representatives, which are independent salesmen who typically carry seven to ten products that they sell to the same retailer group;
• Sell direct yourself to retailers by attending a large number of trade shows.

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Steps to Success

1. Start with a distribution approach that matches your capability. This includes financial capability, how many orders can you afford to build, and manufacturing capability, how many units can you afford to make. One aspect often overlooked is packaging costs, designing and producing packaging can be a major expense when selling to distributors.
2. Learn what channels will allow you to make money. Retailers typically require a 50 % discount off retail price when buying from a manufacturer, and 40% from distributors. Distributors also need a 30% profit margin. If you have a $10.00 product, the retailer will pay $6.00 from the distributor and you will sell to the distributor for $4.20. Make sure the difference between your costs, including packaging, are low enough that you can make money at a distributor price of $4.20
3. Learn what your product needs to sell.  Will your product sell from a hook with a simple package at a retailer, or will it need a more elaborate package? Will the product need a salesperson at the retailer to sell the product, or will you need a display that highlights the features of your product? Small retailers often offer high levels of customer service and sales assistance. You may also need salespeople, either yours or manufacturing sales representatives to train salespeople.
4. Identify your target retailer.  Step 3 helps you to identify what it takes to sell your product. You should choose a targeted retail group that matches the level of support your product needs and matches your resources. For example, if you have a bike maintenance product, and have limited resources, your targeted retailer might be small bike shops. Those shops have dedicated knowledgeable salespeople and you can expand the states you sell to in a manner that your resources can support.
5. Consider your options in selling to the targeted retailer. You should first interview several owners or buyers at several of the targeted retailers to see just how they decide on what new products to try out. Some may attend trade shows, others may rely on sales reps that call on them, and others might just get leads on new products from trade magazines. The way your targeted retailer buys will vary tremendously based on your product.
6. Learn what types of buying incentive targeted retailers expect for a new product. While conducting interviews also ask what type of terms they typically get for a new product. They may need you to take back unsold inventory after 90 days, or expect 60 to 90-day terms, or request an advertising allowance of 10 to 15 % to promote your product in local media. They may also expect a point of purchase display or other in-store promotional materials.