Everybody likes to get a deal now and then. In fact, our love affair with free stuff, trial offers and discounts provides fertile ground for companies looking for a way to enter a new market, introduce a new product or rev up lackluster sales.
The question is, Where do we draw the line? We offer discounts and promotions to demonstrate value and entice buyers. But some might say that continuously offering products and services at below market price diminishes the perceived value of those products in the customers' minds. Perception then becomes reality.
What do we do when a promotional offer goes bad—when customers return time and again, expecting to continue receiving discounts or free goods? When our business depends on returning prices to a level of profitability, how do we retain resistant customers? This issue's dilemma asks: How do we align our pricing with the value of our products and still keep our current customers?
Think the price-to-value perception is overrated? Let us know what keeps you up at night. What dilemma do you take with you when you leave the office? Your peers would love to help. Write to us and ask our SWOT Team about your dilemma. Tap into the collective strength, wisdom and experience of this group. It works, and you could win a free copy of our book, A Marketer's Guide to e-Newsletter Publishing.
Revisit our previous dilemma—read below for your peers' best advice on choosing the right distribution channels for a new product launch.
Unite and make a difference!
• Give advice about this issue's dilemma.
• Read your peers' responses to the previous dilemma (below).
• Submit your own dilemma.
This Issue's Dilemma
SWOT Category: Internal Weakness
Can our prices be raised to reflect the real value of our products after an extended period of discounts?
I have recently joined a company as the sales and marketing co-coordinator. Part of my job is to develop pricing strategies and improve loyalty. I am faced with a legacy of deep discounts as standard practice. These discounts have diminished the perceived value of our product and are now expected by customers all the time.
—Anonymous, Sales and Marketing Coordinator
SWOT Category: External Opportunity
We're launching a new product, with many distribution options. How do we decide which channels to use?
We are about to launch a new product that spans several retail categories and types of retailers that would carry the product. It's geared toward kids—mostly girls from 6-12; it's educational in that it teaches basic cooking skills and history; it's fun because it involves role playing, challenges the imagination and can be done with parents, siblings and friends. The challenge is: we're a small company and there are so many retail and marketing options. We have some funding, but need to be judicious in how we apply what we do have to the launch. The product can retail through food, gift, department store, catalog, online “Amazon” and educational institutions.
When it comes to building the best launch strategy for this type of product, which channels and what key marketing options are best to pursue? Can your readers help?
—Pete M., President
Summary of Advice Received
Pete, best of luck with the new product launch. What a wild ride it can be. You're guaranteed to learn a lot from your experiences no matter which path you choose. Your peers were willing and able to help you weigh the sets of options.
It's ironic that the more choices we have, the more difficult the decision can be. While mass retailer distribution can be attractive in terms of revenue and distribution management, it also poses the biggest hurdle and often requires the greatest amount of time to get established. On the other hand, niche distribution, retail and specialty stores will likely result in smaller orders and require more administration and handholding, but they may also provide a more direct route to your desired audience/purchasers.
Let's dive right into the launch and see what your fellow SWOT Team members had to say. In summary, their advice looked like this:
- Examine the bigger picture first.
- Structure your decision-making around the customer.
- Stick with what you know.
- Seek to maximize your exposure.
1. Examine the bigger picture first
Selecting distribution partners is just one factor in your decision-making. Your manufacturing capacity will play a key role in which channel you choose, as will the dynamics of your product line.
Jason Jordan, Principal of Go To Market Partners, points us in the direction of the factors that will have a direct influence on your choices and your success:
There isn't enough information here to determine the “best” launch strategy for this product. A few questions that come to mind are:
- What is the manufacturing capacity for this product? Will you be able to keep mass retailers in supply?
- Is this your company's sole product?
- Does your company have an existing client base?
- Have you done research on the market potential for this particular (or a similar) product?
I suggest selling to existing buyers, if any, and expand from there. If this is a new company with only one product, I would suggest starting slow, targeting niche groups by catalogs to see how the product does before investing too much money. Doing this will also show potential retailers and/or distributors that the product sells well. Large retailers are very tough to sell to if you have a small product line. Creating market awareness through the media is also advisable. With a limited budget, I would suggest finding independent sales reps with existing buyers. They will work on commission—helping to keep your overhead low. This option is very attractive if you're a small company with a small product line. Sell anyway you can, i.e., retail, wholesale, mail order. Just get your product out, and then adjust accordingly.
2. Structure your decision-making around the customer
By looking at your customers' behavior with existing or similar products in the marketplace, you may be able to identify the best distribution choice for your product introduction.
Jimmy Vo of Nouvative International notes three fundamental areas to consider:
There are three fundamental ways that I would advise you to structure your thinking around this issue. In order of importance:
- Who is the customer? As with school textbooks and prescription drugs, the consumer is not always the purchaser. Clearly identifying your target customer is the most fundamental step. In this case, it's likely the parents rather than the children or friends.
- How do customers purchase such products? If there are existing products in the marketplace that provide similar value to your target customers (not necessarily the same product, but other fun, interactive, educational experiences), where are they currently purchased? If buying behavior has already been established, it could take a very large marketing expenditure to alter those consumption patterns.
- What type of selling/buying experience do you want to provide? As with any channel selection effort, you will need to decide which channels are capable of creating the right customer experience to demonstrate the value of your product. If the product is very hands-on, then perhaps in-store demonstrations or other interactive environments are best. Catalog and online channels provide excellent market coverage, but make it difficult to engage a customer who is not actively searching for the product you provide.
Good customer research would be the best hedge against a costly marketing misfire. If your budget does not allow for this, then you and your management team should spend a good amount of time exploring and discussing these issues.
3. Stick with what you know
If you already have distribution in place for an existing product line, it can be difficult to launch a new product requiring a separate distribution channel. If the opportunity exists, try to integrate your new product line into your existing distributor relationships.
The President of Ricca Chemical Company, Peter Ricca, makes this important point about channel conflicts and distribution backlash from his company's experience:
Stick with what you know. If you have an existing channel now—start there. While going after the big box stores or going direct is attractive, changing from what you know causes channel conflict and internal confusion. We sell laboratory supplies and have sold through conventional laboratory distribution for 20 years. We purchased a company that sold a slightly different product line direct. We assumed that the manufacturing was similar enough to allow us to manufacture the products more profitably (which we could). However, our efforts (training CSR and sales staff, adjusting dealer policies for new brands and products) weren't enough.
Managing a different channel proved to be as costly on the back office side as the savings we created on the manufacturing side. Our sales team had established relationships within the existing channel, and was reluctant to jeopardize existing relationships by supporting other channels. If your idea is properly protected (patents, etc.), and your existing channel turns out to be the wrong choice, you can then move into a different channel with:
- Lessons learned (why the product didn't move in the existing channel)
- Specific reasons to try a new channel
4. Seek to maximize your exposure
Build relationships with the media—trade and general, to help gain the attention of your audience and generate demand for your products. Distributors will be more willing to consider a new product that is generating great buzz in the press and with potential buyers.
Managing Director of H. J. Cooper Limited, Ivan Ramsey, suggests taking the “celebrity” route to maximize your exposure:
Clearly you need maximum exposure. With this type of product, I would suggest the food and supermarket industry might be a good start. Have you thought of some form of endorsement from a chef or cook? (Someone not necessarily famous, but maybe from local restaurants in local cities.) It sounds like your product is highly marketable—tapping into traditional skills, back to family fundamentals, a sense of the way we were and interactive education.
Pete, whatever your decision, remember to factor in the dynamics of your distributor relationships. Even with a limited budget, making the right connection with company/people who care about your success, understand your market and really believe in your product can help lift it from obscurity into the mainstream.
Way to distribute your advice, SWOT Team—thanks again!
We did our best to provide a thorough overview of your responses to this timely topic. All of the advice we received was insightful. Thanks for your participation. We appreciate it!