Question

Topic: Strategy

Distribution Vs Direct - Unique Niche Product

Posted by Laffer on 9/26/2017 at 10:42 AM ET 500 Points
Opinions needed... Very niche b2b product in the commercial construction industry (non residential). Product saves considerable time per applicable job and is perfectly suitable for online sales direct to end users. Patented, no competition and currently selling profitably in limited markets via distribution channels and directly online (same price as in-store retail). Margin is considerably better selling direct. However, with a smaller operation, reaching end users consistently and effectively has proved challenging, hence the distribution channel through industry suppliers - sometimes successful, sometimes not so much. In considering next steps for scaling up, can:

A) focus more resources into direct selling, increasing margin but risking higher marketing expense and less exposure (at least for a while)

B) focus more resources into distribution channels and hope to leverage supplier resources to increase exposure, and subsequently volume, to make up for margin left on the table

C) attempt bolstering both, but that risks watering down available resources for each.

All three methods have pro's and cons. I'd love to hear opinions.

Thank you!
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RESPONSES

  • Posted by mgoodman on 9/26/2017 at 11:30 AM Moderator
    Without going through all the numbers and trying to figure out the profitability of each option, my suggestion would be to ask yourself what YOU want to do with the business.

    Each option will require significant time and effort on your part and will require somewhat different skills. Where are your strengths and interests? That's how I would approach this.

    What does your gut say? Where do you want to take this business? How big do you need/want it to be? What's your long-term objective? What is your time horizon?

    I have consulted with several small- and medium-size family-owned businesses with similar kinds of questions/options. Even when you have all the numbers and have considered all the pros and cons, it always seems to boil down to defining your (personal) goals, interests, skills and temperament.
  • Posted by Peter (henna gaijin) on 9/26/2017 at 1:45 PM Accepted
    Any one of the 3 could work, depending on your circumstances.

    Saying that your margins are higher with direct selling is kind of a red herring for the reason you mention - your costs would be higher. Distributors provide a service, and that is what their margin goes for. If you don't use distributors, you have to provide that service. Going direct without providing resources to effectively market and sell the product is a waste of time.

    What you should do is look at each of the options and figure out which would be best for you. Loo at costs and also expected benefits (added sales) and see if you can see if one options looks more promising than the others.

    Option 3 often ends up being what is done, as different territories have different costs and benefits. For example, you may find excellent distributors for one region, but no good ones for others. So you use the good and sell direct for others. Or you may feel that you can do well selling direct in one area, so forgo finding distributors for that area.
  • Posted by Jay Hamilton-Roth on 9/26/2017 at 3:12 PM Accepted
    You also could hire product reps to test out the waters for you in various regions.

    As for your 3 choices, where are your skills? Do you have the background to market yourself? Do you have the contacts in the field to reach media outlets? Is there a complementary product that is being sold now that you could partner with?
  • Posted by Laffer on 9/26/2017 at 5:26 PM Author
    Thanks for your input so far! Jay, yes, I do have some background to do the work, and have developed contacts with which to work. In our perfect scenario end users would simpy by this product online and forgo distribution. But there is a convenience factor to being able to get the product locally. Plus there are some advantages to leveraging distributor resources that we simply don't have. Have to do some more thinking... I suspect that a combo approach will continue to be the way, due mostly to what Peter suggests - different regions and different distributors work out differently. Because of such a niche product, the extra marketing costs are a little more contained - capped may be a better word. But I may need to do a little more digging into profit margins for each channel given the added marketing we expect to do. I leave the question open a bit longer - maybe a few more ideas will roll in. Thank you!
  • Posted by cookmarketing@gmail. on 9/28/2017 at 9:26 AM Member
    It ain't about you. You want a successful company, ask/survey your customers. What they want is what I suggest one follow.
  • Posted by Laffer on 10/4/2017 at 5:43 AM Author
    Thanks everyone for your comments. Food for thought. We'll likely stick with some combination of the two methods, with a focus on one or the other depending on timing and/or location. Appreciated.
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