Even the best products and solutions won’t go anywhere unless you sell them through the right channels. For example, if you watch the TV show “Shark Tank,” you will remember several entrepreneurs with specialty products that they want to transition from online to big box retail. They usually get chastised and declined for ignoring the realities of the retail channel.
The right channel for marketing and distribution is one of the basic “four P’s” of business (product, promotion, price and placement). To increase revenue and market share, the channel a key element of your overall strategy that can ultimately make or break your business. The most common channels today include e-commerce, direct-to-customer, wholesale-to-dealer, and value-added resellers.
In many product areas, especially retail, the channel is the market. In other words, you may have a great new product, but no distributor penetration means no shelf space and no customers. Here are some practical steps that I advise every entrepreneur to follow to set their channel strategy:
- Focus on only one channel at the start. Every startup has limited resources and people, so rolling out your solution in multiple channels will likely mean a weak implementation in all, along with customer confusion. Do your homework on product industry norms, competitor placement, and achievable margins. Set marketing plans accordingly.
- Resist the channel sales pitch for exclusivity. For your new and innovative offering, you won’t know how customers will react or how a channel will perform until you can see and measure results. If necessary, you may have to negotiate limited time frames and limited territory arrangements. Recognize that terminating an exclusive arrangement is costly.
- Treat distribution partners as part of your team. The goal must always be a win-win relationship, rather than a contentious win-lose one. Distributors know their customers, usually do their own marketing, and help alleviate cash flow issues. Also, in international territories, they have the localization expertise that you need.
- Optimize existing channels before you add new ones. Just like it’s cheaper to sell more to existing customers than acquire new ones, it’s important to saturate existing channels before adding new ones. As your business expands into new regions, or adds new product lines, the opportunity for new channels should be evaluated.
- Expect some channel conflict as a cost of doing business. With multiple channels, there will always be inequities and disagreements. These must be dealt with openly, and in a proactive manner if at all possible. For example, if a new partner wants to offer new terms or prices, disclose and negotiate with existing partners before it becomes a crisis.
- Avoid direct sales forces and wholly owned channels initially. These are not recommended for startups that neither have the money nor the customer access of outside channels. Use them only when no other alternatives exist, or business success has allowed you to take full control, and give your channel a competitive advantage.
- Always use analytics and listen directly to customer feedback. Sometimes external channel partners will attempt to buffer you from your real customers, insisting that all input and measurements go through them for filtering and control. For any business—especially a new one—this is a mistake. You must stay in the dialogue with consumers.
- Don’t treat globalization as just another territory expansion. Every international market is unique in channel expectations, purchasing behavior, and pricing. Before you expand into this arena, make sure you have the resources and expertise on the ground, and have done your homework on cost versus return. These expansions can be lucrative, but may require more complex strategic partner arrangements or even acquisitions.
For every startup, these steps and the evaluation behind them should be a key part to develop your go-to market strategy. But, like everything else in a startup, your go-to market and channel strategy are not one-time things—they should be revisited and optimized several times each year. Don’t let an innovative solution and a great business model get lost in the wrong channel.
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