When the producers of any product first go into business, they tend to think they are in the production business. In fact, if they are to succeed, they are in the Distribution Management business. Distribution Management trumps production because without it, your product may never make it to the shelf – no matter how good your product is.
With a good understanding and implementation of distribution management, you will likely get your product to the retail store, but your job is not over yet. Here are some further considerations all producers should examine even before they go into full scale production:
11. Consider a test market of your product and your management of the distribution channel. This will show you not only if it will sell or not, but more importantly, what is required to get it to the retail shelf and keep it there. Choose a small, nearby geographic area, which is easier for you to manage. That way, adjustments to your product, pricing, and merchandising can happen quickly and with less cost. Understand everything you have to do before you go national (or even statewide).
12. Go Backwards. Even though you think you know what it costs to produce your product, do the math again. Start from the retail shelf and go backwards. Discover what price the consumer will pay for like items so you’ll be in the ballpark. Continue to work backward. What does the retailer have to make? What does the wholesaler have to make? What do you have to charge for your product to achieve the retail price your customer will pay? Remember to include all taxes, freight, sales commissions, and other cost-to-sell expenses. Now factor in all the “push” discounts that make displays possible and encourage retailers to promote and advertise your product. Now you can calculate how your product must be priced to be competitive on the shelf.
13. Get local customers. The ultimate form of customer service is to create “pull” by actually bringing customers to your retailer to buy your product. Especially when your brand is new and unknown, it is critical to go out and get customers for your product. Consider promotions in the immediate draw area of the retail store that carries your product. This can be done by advertising or worthy-cause marketing. Retailers are quick to discontinue products that don’t move in the first 30 to 60 days.
Your products’ pricing, “push” discounting, and local “pull” demand are major factors in the distribution channel. Know how the realities of the distribution system affect your product’s design, pricing, and budget before you send it out into the marketplace. Understand these critical issues before you fill a warehouse with great products that don’t have a chance to get to the shelf, or worse, wind up getting sold at clearance prices.