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Quarterly Newsletter

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A Business Growth Consultancy

 

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In this issue we offer advice on mass market retail sales channels. Most products from young companies are not ready for mass market retail. Much expense and pain can be avoided by choosing the right sales channels at the early stages of the business and the product marketing process.

Mass Market Retail Sales Channels - Darn they're expensive!

It's tough being the guy who has to tell an entrepreneur that his business isn't sustainable (or at least not as profitable as they thought it would be.)  I mean, if you can make a product that retails for $20, you should be sitting pretty if you can manufacture it for 10 bucks, right?

Wrong. Way wrong.

Getting a product into retail is tough. Nothing puts a self-assured executive in his place faster than a 20 minute meeting with a major retailer's merchandising manager. In those 20 minutes you'll learn that:

 - your product has to be shipped to their distribution center (shipping and import duty included) at a per unit price of less than $7 (or perhaps $8) if it's going to be put on the shelf for $20.
 -  you carry the risk of returns, they'll deduct the cost of returns (and shipping) from future payments without asking you about it. Or you can choose to have them destroy the returned merchandise, in which case you will pay the destruction / condemnation fee!
 - they will provide 2%-10 payment terms (meaning they'll cut the check with the 2% discount in 10 days, and mail it to you 45 days later.)
 -  you have to PAY THEM for online placement and co-op advertising in their store circulars.
 - You'll have to provide end-cap displays at a cost to you of about $50-100 per store.
- order management - be prepared to invest in IT technology / people. Most leading mass merchants have automated their order-entry process. 
 - The retailer will start you off in a trial at a select group of stores. This means that the initial order (which may be the only order) will probably not be big enough to cover the cost of your airfare to the meeting.

(Of course, all of this comes about only after having secured a meeting with the buyer in the first place. To get a merchandiser from a major retailer interested in your new product is a topic for another newsletter!)

After the potential vendor digests all of this, he comes to the conclusion that he needs to have a manufactured goods cost of at most $5 per unit to be able to make a profitable business from the product. If you can't get there, even with some reasonable volumes, you don't have a retail product.

So what do you do with your nifty product now?  There are several solutions, provided you have the time and money to follow through on one or more of them.

Sell it direct online. This sounds like a great idea, you can sell HUNDREDS of units of your product this way. Nice if you want to build a hobby, not so nice if you want to build a large business quickly. Do this if you have the time and patience and are willing to establish a supply chain infrastructure. We do help clients with direct selling including establishing the back-end; beware that selling direct can create channel conflict problems later if you try to expand your business.

Reduce the cost. It can be done; it takes a serious "Design for Manufacturing" approach, and typically requires a good deal of investment and gnashing of teeth. MPE offers interim execs who lead re-design efforts for manufactured products on an efficient "as-needed" basis. A well-managed DFM effort can reduce the variable cost per unit by 30-40%.

Find specialty distributors who can sell it at a higher price. We've done this with products that are too expensive for retail and fit well in a less cost-sensitive "high-end" environment. This takes a good deal of time and specialty knowledge and experience.

Make it a licensed product. (Think NASCAR or other popular Sports leagues.) This works. Licensing takes some time and money as well. It involves details ranging from negotiating the agreements to the type of insurance carried to meeting "Social compliance" audits. Licensed products sell at much higher prices through niche sales channels. This may be the solution to making a worthwhile profit on a product that can't be cost reduced enough for generic mass retail channels.

MPE Consultants help companies work through the best sales channels for their products. Often we have to uncover a lot of disappointing information before we can design a successful sales channel strategy. Our consultants are mature and experienced enough to guide an existing management team through a solution process that brings profitability to the bleakest of scenarios. Give us a call if we can help your business.

Why do Companies Choose MPE?

Once you work with our consultants it becomes pretty obvious. We provide trustworthy top-level executive support from experienced CEOs and GMs, hard-work, and hard-earned advice. Our clients will tell you that we are the most responsive and responsible consultants they have ever worked with. We provide all of this without disrupting your org chart or complicating the delicate balance that exists even in small organizations.

Steve Richeson, PE
Managing Partner
Market Plan Engineering, LLC


email: newsletter@mkteng.com
www.MarketPlanEngineering.com
 

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