Strategy Chronicles: Distribution

Biz Str. Decision Making

I hear this statement all the time “I have a new idea for a product,” “a service,” or increasingly, “an app.”

When someone says, they have a new business idea, they are almost always referring to a new product idea.

But, those who actually run businesses spend a huge amount of time worrying about things that go beyond the product.

They worry about…distribution.

This was my reality when trying to actualize the www.etafel.ng idea. Here we are with a very good product but we are missing a key part of the whole strategy.

Your guess? We don’t know how to roll out our product at both ends of the value chain spectrum – we were not making progress in bringing suppliers on board and we seem to be clueless on how to get paying clients on board. It was the cliché “Start-up Baby Steps Nightmare.”

I’ll argue that most new companies severely underestimate the importance of distribution. But I guess you know this already.

For the purpose of clarity, let’s define distribution as the method by which you will be able to reach your target customer, communicate with them, and ultimately sell to them.

In my experience as an entrepreneur I know that most times, once you build and introduce a new product to the world, something terrible happens…

NOTHING

Products do not sell themselves. Target customers do not magically learn about your product.

It is much easier to create a product than it is to build a distribution channel to reach a market segment.

There are two kinds of distribution channels:

Direct vs. Indirect

A “direct” channel refers to the situation where your company has a direct relationship with your customers.

You know their names. You have their credit cards on file. You have their mailing addresses, phone numbers, or email addresses.

Other forms of direct distribution channels include having your own retail stores, an outbound telemarketing center, eCommerce websites, direct mail catalogs, and television infomercials.

An “indirect” distribution channel is one where you sell your products or services through an intermediary.

For example, an author uses Amazon.com as an indirect distribution channel for her books.

When you buy her book from Amazon, Amazon has your contact information. They have your credit card on file. They know your shipping address.

The author will not receive any of that information as a result of that purchase transaction.

Other examples of indirect channels include: Selling your product through resellers (such as Coca-Cola selling Coke at Walmart); Selling your product with a value-added channel partner (such as Oracle selling software through Accenture IT consultants that offer a systems integration consulting engagement which includes Oracle software); Selling your product embedded in somebody else’s (such as IT developers selling apps through Android and Apple app stores).

Choosing which category of distribution channel to use and which specific channel within each category is a profoundly strategic decision.

These decisions have major trade-offs.

Indirect channels usually give you access to large groups of customers you have no means to reach directly.

For example, Amazon reaches far more potential buyers of books than I will through my website. This is a huge advantage.

However, indirect channels have a major trade-off. While you benefit from market access, you trade off a direct relationship with the buyers.

This makes you highly dependent on the indirect channel and vulnerable if your indirect channel ever wants to bypass you.

For example, Amazon has identified its most popular selling products (manufactured by others that use Amazon as an indirect channel) and has created their own in-house brand of products known as “Amazon Basics.”

As a consumer, I’ve purchased the Amazon Basics brand for phone cables, laptop consumables, and batteries.

I must say there is no right or wrong answer as to what distribution channel to use. Every choice you make around channels involves trade-offs.

The only de-facto decision that’s always wrong is to have no distribution channel what-so-ever.

If you spend 100% of your time creating a great product, you’ve spent 0% of your time choosing or building a distribution channel.

The next time you hear someone (or yourself) talk about a great product idea, ask them what distribution channel they plan to use to get their product to market.

If the only response you get back is silence, that’s a serious problem.

Dear friend, go and break new ground but please remember DISTRIBUTION, it’ll either kill your business or open doors for growth.

Go ahead – Succeed and Learn!

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