All distributors come across this question while deciding upon their distribution strategy – should they stick to conventional retail or should they choose to go big and consider exploring the immense potential of e-commerce giants or big box stores.
Though majority of the wholesalers have witnessed exponential growth by simply selling to street retailers, there is no ounce of doubt Amazon is considered the epitome of success when it comes to any distribution business’ growth potential. It is a tried and tested method to fire any random brand into to stardom in the world of business. On the flip side of the coin, some businessmen consider it as a way to lowered profits with these e-commerce giants acting as supporters for price cutting.
Distributors who decide to cover both channels are faced with immense challenges. In this feature we are going to look at both strategies and what are the pros and cons of each.
Delivering To E-Commerce Giants
There is no denying that delivering to E-commerce giants does seem quite attractive for distributors. With the exponential growth of Amazon, it is considered as essential as air for any business to thrive. And the notion is correct to certain extent. Supplying to big box stores has certain benefits, which are mentioned below.
The Positives
Leads To Market Concentration & Improved Brand Awareness
The greatest advantage distributors can derive from getting their products delivered to big retailers is that their brand gets immense recognition, which supplying for street retailers doesn’t bring the same results. Increased brand awareness aids in exploring the potential of new markets.
Increased Sales
Digital technology has connected different aspects of our life seamlessly and the age that we live in is conquered by big box stores. In order to get your business growing all you have to do is to make an entry into the big box stores realm and then it’s all a numbers story. Whether you supply just enough to meet your clients’ needs or distribute in bulk, the success factor just depends upon the numbers.
The Negatives
Fragile Supplier-Retailer Bond
When distributors deliver to private retailers, the relationship is often up, close and personal. Sales reps are often in direct contact with the retailers and discuss everything upfront during their store visits. This makes the connection between retailers and suppliers strengthen overtime. These buyers are more flexible and are ready to try new offerings from the distributors with whom they have been engaged in business for some time.
Dealing with big box stores is quite the contrary of what it is dealing like with street retailers. Though your profit margin and prices are sure to dwindle, your buyer will be least interested in promoting or investing in your brand. And this quite understandable owing to the big size and humongous operations taking place with the speed of lightning. At such platforms the decisions are either black or white without anything in between.
Tainted Brand Image
When distributors sell their products through small-scale retailers, they get the benefit of getting their brand image improved, as these retailers sell the products with added value to the end consumer by adding in a unique experience. Since the staff at these stores is familiarized with your product, they can help customers make informed choices by highlighting the pros of your product. This service level is not found in big store chains and it makes your brand lose its individuality among hordes of other similar brands. This can be very damaging for a brand that is perceived high-end by the consumers. Big e-tailers have very limited options for branding, if any. They place the products in a standard format and the customers ultimately look at Amazon as their retailer, not the supplier.
Resentment From Street Retailers
Retailers thrive by stocking up individualized products that are not readily available elsewhere. Distributing your products e-commerce giants will make your products available at lower prices, which will cause many problems for retailers. Since their niche will be badly hurt, they would consider discarding your line altogether, choosing to move in your competitors.
Can Your Distribution Business Get Big Without E-Commerce Giants?
The million dollar question lies that whether it is possible to achieve the growth curve for distributors without having to take into consideration E-commerce giants? The question has been there since the spurt of massive e-tailers, and is pondered upon by businesses from all industries that plan for growing their brands to national or global level.
With contrasting views on the above thought, there is one company that has proven that staying focused and small can actually help in growth. Set up in 1926, Stihl Inc. is the biggest producer of outdoor power equipment such as lawnmowers. The company is the top selling brand of gasoline-powered outdoor equipment, which is quite remarkable for $8 billion dollar industry.
Contrasting to what many distributors think, Stihl only chooses to focus on independent retailers only. And this is the exact model that seems to make them grow big every passing day.
Keeping in view the enormous success Stihl is met with, it seems that achieving success in today’s marketplace can very well be possible without big box stores. However, deriving success from this strategy may not be as simple as it seems.
Fishing Out Your Distribution Strategy
While deciding the best course of action for your distribution business, there are many factors that you need to take into account.
If you thinking about the going big approach, you should consider:
- Are you open to reduced profit margins?
- Will partnering with e-commerce giants affect your relationship with independent retailers?
- How will it impact your brand positioning?
- Are you ready to trade-off customer experience with increased sales?
Distributors who wish to use independent retailers as the only means to grow big, should consider:
- Are you distributing to ample independent retailers so that your growth is guaranteed?
- What will be your focus points in your marketing and sales strategy that will stand out from big box stores?
- Are you open to work on building more specific relationships with the independent retailers?
Opting to follow one league while ignoring the other camp may not be the best policy. Different strategies can work for different businesses, owning to the nature of the product that you are selling. Therefore, it is best that you carefully examine what suits your business the most and then stick religiously to that strategy. Some distributors can tap into their best potential by only supplying for big box stores while others can only rely on independent retailers for aggressively promoting their product. And then there are some distributors who have multiple product lines – some for independent retailers and some for e-commerce giants.
Developing your distribution strategy is not going to be a simple task. And there is not a single answer to what your distribution strategy should be. The best course of action is to take out time and decide what works best for your business taking into the positives and negatives of going big.
