Select a Distribution Strategy that Works (Part II)
Last week, Marka and the FEI tribe discussed how direct sales is a highly effective distribution strategy for some FEI products. This week, they discuss the advantages of the retail and wholesale distribution methods. Remember, fire = print.
Numo, Marka, Org and Lucy finally convinced Zoot to throw off his sandwich board and stroll with them toward FEI headquarters. On their way, they passed Olympus Mart, which was just opening for the day.
Flintstone and Pyro products were stacked in pyramids near the store windows. This made Org observe out loud, “Why doesn’t FEI sell through retail channels?”
“We should,” Lucy agreed. “Selling through retail has one huge advantage over direct sales—reach! By distributing goods through retailers, especially retail chains, we can reach consumers and small businesses that would be impossible to cost-effectively reach through direct sales.”
“Wouldn’t retailers take a large portion of the revenue from each FEI product they sell?” asked Zoot.
“Of course,” Numo jumped in.
“Then wouldn’t our margins decrease?” Org asked.
“It depends,” Numo replied. “A direct sales force is very expensive. So is giving up 50 percent or more to retailers and wholesalers. We need to judge costs on a case-by-case basis.”
“Retail represents a different market for our products,” Lucy added. “That’s why it’s so attractive.”
“That’s right,” Numo agreed. “I’m for a retail selling approach. The result can be higher revenues and, if we execute properly, higher total profits.”
“Let’s address the reality of fragmentation among Olympian retailers,” Marka said. “Zeus & Athena’s Shoppe is no longer the only store in town—dozens of retail stores now cater to the Olympian public’s fire-buying needs.”
“That’s why distributing through a wholesaler network should also be part of our strategy,” Lucy asserted. “Wholesalers sell products directly to retail stores. Selling through wholesalers will help us efficiently reach those smaller stores.”
“The ones that wouldn’t be cost-effective to target directly,” Numo clarified.
“Yes,” Lucy said. “We’ll give away a little more profit than we would if we were selling directly to retailers, but, in exchange for paying another middleman, our products will be available in more stores than we could handle on our own.”
“Perhaps a combination of distributing products through wholesalers and retailers is part of our sales growth solution,” Org said. “We target the big retail outlets like Olympus Mart directly and use wholesaler networks to reach the smaller but important shops as well.”
“Bullseye,” Lucy replied.
“I feel like we’re missing something,” Zoot protested. “I don’t know about you guys, but I make many of my purchases—custom-embroidered togas, gold-embossed sandals, even wine refills from Dionysus’ Winery—through these company’s O-sites.”
“There’s no question that more and more Olympian consumers are turning to the expedience and convenience of the O-line shopping experience,” Lucy agreed. “We’ll talk more about O-line distribution strategy next week.”
“Sounds good,” Zoot said, just as a bedazzled turquoise toga in Olympus Mart’s window caught his eye. “Speaking of retail selling, how much is that toga in the window?”
Today’s FIRE! Point
Selling through retailers and wholesalers improves a company’s market reach. By supplying goods directly to retailers, especially retail chains, businesses can reach smaller customers that would be too costly to sell directly. Distributing through a wholesaler network is another distribution strategy to consider. Wholesalers can help you efficiently reach smaller stores that wouldn’t be cost-effective to target directly.
FIRE! In Action
Finale Desserts Finds Profits by Shifting to Wholesale
After struggling to find a retail niche, owner Paul Conforti decided to push his product to wholesalers. A year after switching channels, the pastry business had 60 distributors and had generated more than $1 million in sales.
Next week: The FEI tribe discusses the advantages of online selling.