Partnering with a distributor should be a mutually beneficial agreement. It’s your job as the
manufacturer to decide which distributors can best meet your needs, and it’s equally important to make sure you’re presenting your products in the most attractive way.
At the end of the food chain, retailers drool at the thought of having a consistent supply of top-quality products their consumers will love. Since it’s the distributor’s job to satisfy the retailer’s request, it’s easy to see why they are equally eager to stay stocked with the latest and greatest product lines.
Taking on a product from a brand-new business introduces a high level of risk – one that’s shared
between the distributor and the retailer. Questions about quality, production, and the customer’s
response can trigger a few undeniable warnings. Since I know new products can easily become the next highly anticipated product to fly off the shelves, let’s discuss a few things that top the distributor’s checklist, so you can give your product the best chance.
Does this product fit in with our current inventory?
Even if you’re pitching a revolutionary new product line, the distributor is thinking about cost. If it’s going to take a lot of money to develop the territory, train staff on how to sell it, how to transport it, the distributor may decide to pass up on the offer. Answering all the “what if” questions during your initial presentation while focusing on how they can make the most money is often the best focus.
Is the product attractive?
Judging by the distributor’s experience with your market, and the feedback the distributor has received from your current retailers, the distribution company will be weighing your product against the consumer’s demand and expectations. Before they even start to consider doing a test, they will envision your product lined on shelves against comparable selections from well-known brands and try to anticipate the public’s reaction.
New products need to have all the makings of an irresistible best-seller. Will it be easy for the target to recognize the value of your product? Is the packaging attractive and inviting? Can it appeal to a wide-scale audience? Is its price point realistic when compared to its current list of retail partners? Do this lineup yourself first, know the competition and if your packaging will stand out against theirs.
Is the startup prepared to go through the marketing process?
Marketing can be expensive, especially if you’re launching a product from a new brand. The
distributor won’t want to invest a lot into developing a product that won’t withstand the costs of marketing and advertising as it takes time to put up floor shippers, in-store signage and other marketing materials.
The distributor will search for evidence that proves your product is a popular option. They’ll
likely use the results from independent retailers that are already carrying the product. If your product is not currently carried nationally by independent retailers or through independent distributors, that may be the best initial path to market for a new product or brand.
Does the company have a plan?
No matter how much businesses debate the validity of the business plan, it’s a detailed necessity that you can’t get around. The business plan does more than keep you and your internal operation on the same page, it gives prospective partners a snapshot into the direction of your company.
Distributors will question the strength of your business plan and your ability to sustain it over time. They’ll question your credibility and experience, to make sure you have a clear
understanding of what it takes to run a successful business.
Does the business plan show a strong marketing strategy? Has the business addressed the need for quality production? Can the business prove their finances are strong enough to withstand the ebb and flow of the business inventory and the ability to fill large purchase orders?
Can the business provide references to support its claims?
Reports, statistics, and surveys are great to have, but there’s nothing like having a solid
reference. Distributors may request a list of people or businesses that stand behind you, your company, and your product. The distributor is placing a lot at risk to launch a new deal, having direct references can help put the company’s mind at ease.
Sales are the ultimate reference. If you are able to show that your product is selling 7 units per week in Seattle, 10 per week in Dallas and 15 per week in New York City, the amount of risk to the distributor is greatly reduced. Focusing on de-risking the distributors investment of both time and manpower is your greatest goal when presenting a new product opportunity.
How attractive is the offer?
If the distributor is still interested after evaluating all the above, the next thing to consider is the deal that’s been placed on the table. Essentially, your offer will cover all the services you expect the distributor to provide – and what they’ll be compensated, in exchange for their expertise.
Wholesalers, or those who mainly focus on delivering the product to retailers, usually expect a smaller percentage than direct store delivery distributors. When you add merchandising and marketing to the equation, you’ll pay a bit more for things like setting up store displays and signage.
While evaluating the deal, the distributor may consider the system you’re operating currently. The goal is to find a company that’s easy to do business with. Do you have a distinct portal designed for communicating with the distributor? Does this include a round-the-clock interface that can assist with orders, shipping status, invoicing, and delivery? Can you provide sales support tools like product information, benefits, and brochures to counter common objections?
Make it easy for the distributor to take on your product and quickly start building up the
momentum and they’ll be much more likely to jump at the opportunity to do business with you.
How will retailers respond to the price markup?
As the manufacturer, you’ll need to consider how everyone will profit from the sale of your
product. This requires a three-tier price plan:
A. Cost for distributor
B. Cost for retailer
C. Cost for customer
That’s just the basics. The distributor is also considering costs like placing advertisements in
trade publications or marketing the product in mailers and catalogs.
Typically, the distributor’s markup costs will begin somewhere around 20%. As you add on
additional service, that rate will increase. Retailers can begin their markup around 40%, landing at the price displayed to the public.
For example, you may sell your product to the distributor at $50, then he’ll sell to the retailer at $60 or more. The retailer will take the same product and sell it to the public at $99+.
How much do I want to work with this company?
Above all else, the distributor will evaluate you on a personal level. Doing business with a
company is a major decision; that partnership needs to be founded on mutual understanding and respect. If you have a likable personality, and prove to be an ambitious, easy-going individual, the coaching and structuring process won’t scare the distributor away.
No one wants to do business with someone who’s pushy, mean, or too demanding. Before
entering the agreement, think about whether or not you would be interested in doing business with yourself.
It’s never too late to work on building those personal relationships before pitching your next big idea!
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About the Author: Joel Goldstein
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As President of Mr. Checkout Distributors, Joel is the “go-to” person when trying to place a new product into retail. He is the author of Amazon’s best selling book Start From Success, and host of RetailSummit.live . Focused on the retail sector, he is able to advise you where your product will be best received.
He has contributed to Entrepreneur, Forbes, Inc. and regularly is used as a retail industry expert on Fox News. Joel has the experience needed to develop a actionable go-to-market strategy, placing product on retail shelves nationwide in independent stores and with major retailers.
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