Editor's note: This article was excerpted from Successful Sales & Marketing.
Happy are those manufacturers who sell their products directly to consumers. For them, the assembly line (through their retail outlets or direct-mail arm) empties right in the customer's hand, and the money paid goes right to the manufacturer.
For most manufacturers, however, life just isn't that simple. To illustrate the dilemma of distribution, let's put you into the tea business--as Tastee Tea. You purchase tea from all over the world. You make a number of delicious blends: some induce sleepiness, some a sense of well-being and some wide-eyed alertness. You mix those tea blends with a number of aromatic essences and flavors to produce, say, 12 different teas. When the tea is done, how do you physically get it to the customers?
If you sell your tea only to the local market, all you need to do is put a retail outlet on the front of your plant, plug in a cash register, run a few ads and there goes your tea, moving out the front door. But selling only to your local market severely limits the amount of tea you can sell. How far will people drive to get tea?
If you want to sell your tea in other parts of the country, how can you make that happen? You have several choices:
- Open Tastee Tea stores around the country. Unless you've inherited jillions, you probably can't afford this. You also have to ask yourself two burning questions:
- Will people come to a tea store? I don't know of any that just sell tea, do you? Even coffeeshops are carrying more and more baked goods because coffee by itself doesn't draw enough traffic.
- Is this really the most efficient way to sell your tea? Making tea doesn't give you expertise in running teashops.
- Sell Tastee Tea through a mail order catalog. This will prove very costly unless your teas are truly spectacular or you mail to the right list. Even in that case, you will need deep pockets.
- Visit coffee and tea stores around the country and persuade them to carry your Tastee Tea. This is doable (and has been a successful paradigm for many products over the years), but it takes time and pulls you away from tea-making, which is what you're really good at and enjoy. While you're away making sales calls, who's keeping an eye on the Boysenberry Blend?
- Contact several key distributors and have them add Tastee Tea to their line. If you can convince these distributors to carry Tastee Tea, this is the easiest and most efficient way to get into the marketplace. If you select a distributor who carries products that complement yours (coffees, coffee and cappuccino makers, baked goods and so on), you can count on their help in lining up retailers.
Who Are These Distributors, and What Do They Do?
When you turn on your water tap, water happens. Wonderful, isn't it? You've got your hot; you've got your cold. It's clean, dependable and cheap. How does that water get to you? Chances are you haven't a clue--and you probably don't care. Depending on where you live, you have large-scale municipal water or a local or private well. It's the same with electricity and natural gas. These things make your life easier, but it doesn't make much difference how they get to you, just that they do.
Distributors in the American marketplace operate the same way. They're invisible to most consumers. Their names mean nothing to the people who enjoy the products they deliver. But they effectively (if not always efficiently) bridge the geographical gap between producer and retailer. Supermarkets and department stores couldn't exist without a complicated distribution system, capable of moving enormous amounts of product of every size and description.
Distributors add millions to the cost of the products we buy in the supermarket. But from the manufacturer's perspective, they deliver a lot, too.
- They transport goods from large warehouses to the retail outlets. The manufacturer can't afford to move these goods. The retailer can't afford to go pick them up. Enter the distributor, who serves as a superwarehouse, drawing goods from thousands of manufacturers, sorting them by retailer, and then dropping them off on the retailer's loading docks. Imagine the scenario if every manufacturer had its own trucks delivering goods to every retailer in the country. The truck-building, highway and gasoline industries might encourage this type of system, but it would quickly create a disastrous and unproductive gridlock.
- They warehouse materials in different parts of the country. This storage role of distributors saves manufacturers millions in facility costs, since they don't have to build storage buildings to hold the goods that roll off the production line.
- They handle the paperwork between the retail outlets and the manufacturers. Retailers order their Twinkies from distributors, not from the manufacturer. This allows the manufacturer to focus on products, not on logistics, which is the strong point of distributors. Logistically, manufacturers can focus on a limited number of customers...the distributors.
- They handle invoicing and collection. This is an important service for manufacturers. It keeps them out of the collection business, especially for small accounts that the manufacturer wouldn't want to have to deal with.
- They don't sell for you. That's your job, through your advertising and promotion. Distributors put the product in the hands of the retailer. In many markets, you have to have distributors, but they don't relieve you of the primary sales responsibility.
From the retailer's perspective, distributors provide the following main benefits:
- Access to a wide range of products from a single source. It wouldn't be practical for a retailer to order each of the products it carries from every single manufacturer.
- Delivery. To the door, in the quantities and sizes needed, according to schedule.
- Connections to the manufacturer's offerings of co-op advertising, promotional specials and special discounts.
Finding a Distributor for Your Product
The distribution channel you select for your product should be based on a careful analysis of the needs of your product in the marketplace.
How can you motivate distributors to carry your line? This can be difficult for companies and their products breaking into a market that's already flooded with other similar products. If you have an idea for a new plush toy, for example, you will have some tough sledding unless you can find something in your product that's genuinely unique and attractive to the consumer.
You can base your pitch to the distributor on a range of rationales:
- You can offer relatively more money for the distributor than the competition. The percentage of sales distributors charge varies widely depending on the product and the market. There are no national norms--you might pay 5 percent; you might pay 20 percent. Talk to your local or regional trade association for guidance on distributor contracts.
- You can offer more perks for the distributor than the competition. You can buy your way into the distribution chain with 20 extra cases of product for every 250 ordered by the distributor. You can fly the distributor out to your Hawaii sales conference to see what your company is about.
- You can tie your product in with other products that you or other manufacturers create.
- You can show the marketing campaign that supports your product.
- You can demonstrate genuinely strong consumer appeal.
- You already have a track record of introducing successful new products.
- You've already secured other large retail contracts.
Remember, you're marketing to the distributor just as much as you're marketing to the general public. If you can't persuade significant distributors to handle your product, you'll have a very difficult time breaking into the marketplace in a big way.
You can probably find local distributors for your type of product in the Yellow Pages, but that's not the best place to look. When you need a new banker, lawyer or accountant, you usually look for word-of-mouth referrals, for the endorsement of someone you know and trust. It's the same with distributors.