Distribution Channels

Distribution Plan: How Your Product Will Reach Its Customer

Your market research instructs you about your end customer, what they buy and where they buy it.  To successfully reach that customer, you also need to determine how your product gets to this customer.  Who is involved in delivering your product from your workshop to your end customer?  This is called an export distribution channel or chain.  Defining this channel and the role you play in it are important components of your marketing plan.

By analyzing export distribution channels and comparing them to your organizations's resources, you will be able to determine which option is best for your organization:

-   producer selling to an exporter;

-   producer/exporter selling to a wholesaler:

-   producer/exporter selling to a retailer.

The marketing materials and venues used to sell to these different customers vary considerable.  Identifying who your immediate customer is will insure you design appropriate marketing materials and select practical marketing venues.

Export Distribution Channels & How They Are Changing

Traditionally, between five and seven entities are involved in delivering a product from an artisan's workshop overseas to the end consumer in the export market   A traditional export channel looks like:

The responsibilities of each entity in this channel vary slightly from company to company and transaction to transaction but it generally follows these guidelines:

• Artisan or Producer - responsible for production and maintaining quality, also a key player in developing new skills and materials for product development.
• Exporter - responsible for finding new buyers, buyer communication, negotiating orders, export logistics (paperwork, packing, shipping), and collecting payments from buyers.
• Export Agent (optional) - a commission-based service for generating new export sales or helping international buyers source products in a given country or region.
• Wholesaler - responsible for importing (customs clearance, duties) into the target market, maintaining inventory in warehouse, marketing to retail stores via trade shows, showrooms, catalogues and sales staff, and developing new products.
• Sales Representative (optional) - a commission-based sales partner for generating wholesale orders from retail stores in a particular region or market.
• Retailer - responsible for maintaining a brick-and-mortar store, online store, or mail-order catalogue, attracting customers and providing customer service.
• End or Final Customer - responsible for enjoying the product!

Distribution channels are changing in the global market place and a variety of new channels are being employed.  The new channels are shorter or flatter than the traditional channel.  Rather than five to seven entities at work there are only three or four.  A new distribution channel looks like this:

The responsibilities of each entity in this flatter distribution channel are different than the traditional channel outlined above.  The most notable difference is the reallocation of the wholesaler's responsibilities.  The product development, inventory, and sales responsibilities fall primarily on the producer/exporter while the direct-import retailer assumes the responsibilities of import logistics and some inventory stock.   The result:  A producer/exporter selling to a direct-importer retailer has more responsibilities, and therefore more operating costs, than an exporter selling to a wholesaler.

The responsibilities of each entity in this flatter distribution channel will look something like this:

• Producer/Exporter - responsible for production and maintaining quality, developing new products, all export logistics, communication with buyers, stocking inventory, marketing to retail buyers via trade shows, showrooms, catalogues, and providing customer service.
• Export or Sales Agent (optional) - paid either by the exporter or the retail buyer, this commission-based sales agent assists in linking buyers to suppliers, negotiating orders, and tracking production and quality control.
• Direct-Import Retailer - responsible for importing logistics and costs, maintaining a brick-and-mortar store, online store, or mail-order catalogue, attracting customers and providing customer service.
• End or Final Customer - responsible for enjoying the product!

This flattening was caused initially by the growth of large, mass-market retailers such as Wal-Mart, Target and TJ Maxx, who bypassed wholesalers in search of low prices and bought directly from manufacturers.  This was possible due to the enormous resources of these large companies.  Now, with improved communication, diverse shipping options, increased international travel, more regional trade shows, and growing sophistication of overseas producers, even the small and medium sized retail stores in the mainstream and high-end markets are importing directly from overseas.

Selecting the Best Distribution Strategy for your Company

Producers and exporters have the advantage of choice in today's market.  You may decide to focus exclusively on production and leave export logistics to an exporter.  A producer may decide to develop exporting services and become a producer/exporter; or an exporter may decide to invest in their own production and also become a producer/exporter.  An exporter may sell to a wholesaler or to a direct-import retailer.  All of these are options.  The important factor is to BE INTENTIONAL!  BE STRATEGIC!

Selling to multiple types of customers is possible when managed carefully.  For example, if you are selling ceramic vases to a wholesaler for $10 the wholesaler will sell the vase to a retail store for $20.  If you sell the same vase to a retail store for $10 then the retail store will stop buying from the wholesaler and only buy from you.  Your wholesale customer will eventually find out you are selling to his customer and will stop buying from you.  You lose one of your customers.

There are two ways to avoid this situation:  1.  Sell the vase at different prices to the wholesaler than the retailer; or 2. Sell different products to each customer, for example sell ceramic vases to the wholesaler and sell ceramic tabletop items to the retailer.  Be intentional, be strategic.

Selecting the distribution channel for your product and identifying your target customer requires analyzing several components of your business and products including products, prices, shipping, marketing, communications and sales terms.  Use the attached table to determine what distribution channel your product will take and what type of customer (wholesaler or retailer) you company wants to target.

Note:  There is increasing interest and excitement for producer/exporters to sell directly to the final customer.  Payment terms, shipping costs, customer service, order returns and marketing make this too risky for most producer/exporters.  If this is the strategy that your organization wishes to take, it is highly recommended that you work with an existing sales platform such as eBay.