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 doing well online who want money to move into 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 Ps” of business (product, promotion, price and placement). For growing revenue and market share, it’s a key element of your overall strategy, and one that can make or break you. The most common channels in use today include e-commerce, direct to customer, wholesale to dealers, 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 in setting their channel strategy:
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Focus on only one channel to begin. Every startup has limited resources and people, so rolling out your solution in multiple channels will likely mean a weak implementation in all, and customer confusion. Do your homework on industry norms for your product, competitor placements, and margins achievable. Set marketing plans accordingly.
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Resist the channel sales pitch for exclusivity. For your new and innovative offering, you won’t know how customers 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.
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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 can help alleviate your cash flow issues. In international territories, they have localization expertise that you need badly.
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Optimize existing channels before adding 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.
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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.
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Avoid direct sales forces and wholly owned channels initially. These are not recommended for startups, who have neither the money nor customer access of outside channels. Use them only when no other alternatives exist, or business success has given you the means to take full control, and make your channel a competitive advantage.
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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 come through them for filtering and control. For any business, especially new ones, this is a mistake. You need to stay in the dialog with customers.
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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 of developing 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 need to 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.
