In this article we look at how you might decide on the right distribution channel for your product or service. Two of the most common distribution channels are direct sales and value added resellers.
Direct sales, as the name suggests, is when you get your product out to market by either you, one of your team or a representative who works for you having a face-to-face sales process aimed at decision-makers and final users. Value added resellers, on the other hand, is when you sell your product or service to a middle man who “adds value” by selling it with complimentary products, or targets an already established client or customer base.
Choosing the right distribution channel will have a huge impact on the sales you make and therefore the success of your business, which means that getting this decision right as early as possible is hugely important. Here are a few things that you need to be asking yourself in order to reach the right conclusion.
Is there a trend in your industry regarding the buying habits of your targeted end users? In certain industries, it’s pretty much impossible to get the opportunity of face time with decision-makers. This might be because they consider themselves too busy or it might just be a cultural or historic fact that they use value added resellers. To make the right choice, it’s essential that you understand how your industry works and don’t necessarily assume you can change it.
Your potential customer’s decision-making process
In order to choose the right distribution channel, it’s essential that you know what makes your potential customer tick. How do they make their buying decisions right now? What makes them choose one solution over another? How do they like to buy? If you don’t know this already, today could be the day to find out.
In tech innovation in particular, service levels often make up a huge part of the overall package that’s on offer and may well be the factor that swings the deal. It’s for this reason that you need to look very closely at which distribution channel offers the best and most cost effective service package. It could be, for example, that a value added reseller already has a highly effective service infrastructure which would be impossible for you as a start-up to replicate. This could be worth a great deal to your business.
People like people
In many start-up situations the goal is that the product provider and their customer will have a close and long-standing relationship. This is certainly something you need to bear in mind when choosing the right distribution channel for your business. You need to establish whether there is value to be added by customers speaking or dealing with your company directly. If there is, you then need to work out whether or not this is a cost effective way of getting your product to market. (It’s essential that you avoid becoming a ‘busy fool’ who makes no profit uf04a) On the other hand, it may well be that, in comparison with a familiar and long-standing local reseller, you don’t stand a chance. This can often be the case, because resellers are able to offer a one-stop-shop experience that looks after multiple needs of the customer in a proactive and familiar way.
If you decide to go down the reseller route, it goes without saying (but I’ll say it anyway) that you will have to do some extremely careful due diligence to ensure you pick the best option for you and your customers. Check out what other products they sell; are they rivals or complimentary? What kind of agreement will they want (exclusive or non-exclusive)? How proactive will they be in selling your products? Are they knowledgeable in your particular area? Will their reputation enhance yours? Will the margin you make enable your business to remain profitable?
Peter Andrew is Head of Innovation at Alba Innovation Centre, a technology business incubation centre that provides advice and support to early stage businesses.
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