We are often asked by aspiring, start-up, and growth-phase entrepreneurs, “If distribution is so important to success, how do I build a distribution network for my product?” Distribution management is the most over-looked building block in building any consumer branded product. Many producers feel that they don’t have to worry about distribution. “I’ll just sell it over the internet,” or, “I’m going to sell my product to a wholesaler, and they’ll sell it from there.” Both of these notions are fraught with fallacy.
Nobody’s going to pay $5 to have a $7 product delivered to their door if they can get a similar product at a local store. So internet sales are limited by the cost of home delivery versus the price of the product. Pre-buy physical inspection and notion buying are nearly impossible on the internet, both of which favor your new, higher-value product.
The idea that when you sell to a wholesale distributor, they will sell it to retailers is also problematic. You will get lost in their book of offerings. When you are new with no track record, you may make an initial sale to a distributor, but in order for them to give you re-orders, they must move your product out. Their sales managers, sales persons, sale person’s retailers, and retailer’s clerks are unfamiliar with your new product and generally won’t reorder it unless you get into the trenches personally and make the sales for them. This is what we had to do when building the Barefoot Wine brand for the first several years.
So how do you get initial distribution for your new product, keep it on the shelf and grow your brand in the marketplace? One step at a time!
Step One: Small Territory. Most successful national brands started out as strong community brands, then grow into strong regional brands, then strong state brands and then strong national brands. You will make mistakes, lots of them! So make them in a small place where you can run around and apologize to everyone. Don’t get spread so thin that you can’t make things right overnight. Get your act together before you take your show on the road. This means test marketing your product in a few local retailers. Watch what happens, visit them often and take notes for the future.
Step Two: Strategic Alliances. Identify the retail buyers and small distributers who will benefit from your product. Consider offering them an exclusive for a limited period in return for promotion. A small distributer may be a perfect match for a start-up because they need to have an edge, a new offering that the Big Boys don’t have. Also look for worthy causes in the communities where you want to get started and support them with your products and services. This is an inexpensive method to get the word out and give their members a social reason to buy your products.
Step Three: Sales Reps. Once you realize that building a distribution network is more important than production, you may want to outsource production so you can afford more sales reps. As you learn about distribution you will find you have to do much of the sales and merchandizing yourself. You will have to provide constant vigilance to prevent out-of-stocks, the primary killer of new brands and products.
Step Four: Sales Reputation. It’s better to be a hot-mover in a small market than to be a mediocre or slow-mover in a larger market. In fact, don’t expand until you have at least a local reputation as a hot-mover. Your reputation, whatever it is, will precede you as you try to expand. Get a cost accountant to tell you how fast you can expand so you can protect that reputation in every new market with your own sales representative.
These are four of the basic steps to building a new distribution network. Proceed with caution!
Who Are We.
Having built and sold a bestselling national brand, we appreciate the value of brands and everything it takes to make them successful. Companies are valued by their brand equity. Achieving and maximizing brand equity requires tremendous respect for all your customers, from your wholesaler to your end user.
Starting in our laundry room with no money and no knowledge of the industry, we built the famous Barefoot Wine brand. We learned a lot they don’t teach in school and much of it the hard way. Although our success was in consumer products, our real world experience will be helpful to anyone looking for information and advice about brands.
We have written the New York Times Bestselling Business Book, The Barefoot Spirit: How Hardship, Hustle and Heart Built America’s #1 Wine Brand, which chronicles the history of the famous brand from its inception through its acquisition. Our book is now required reading in schools of entrepreneurship across the country. We hope this book will provide inspiration and encouragement for all those contemplating starting a brand or wanting to improve their existing brand.
Michael Houlihan and Bonnie Harvey
-Barefoot Wine Founders