Some retailers choose?
In recent years, the consumer electronics market in the USA has changed very much. A lot of big players go bankrupt (e.g., RadioShack), a small local network struggled to survive. Major consolidating their efforts and are looking for new formats. For example, Target has tried to make a separate shop for gadgets Open House, but massively he is not yet gone. A lot of networking killed the Amazon, which has become an important point in the Customer Journey both on the stage of searching review, and at the stage of purchase. When this happens, more and more niche e-commerce and D2C projects that become a target for acquisition by large retailers.
There are also new formats. For example, b8ta, where in the atmosphere the Apple Store will tell you about every gadget will show you how to use it, and buy it you can anywhere online. The network makes money by leasing space on the shelf.
Shop b8ta in Austin. Photo: b8ta
Or Enjoy from startup legends brick-and-mortar, Apple Store Creator Ron Johnson. Enjoy originally sold gadgets on its website with free delivery on the same day, the courier will learn how to use gadget, talk about features and take back if the gadget did not like. Enjoy now made a pivot and no longer sell products on the website, and have such brands as Sonos, services for the delivery of orders from the site.
The last service is fundamentally important. New clients are not always able to understand about your product, and without hesitation return. Amazon has taught consumers that a refund no questions asked and refund almost on the same day is the norm. And if you have 3% or more returns, then there can be problems in some networks. This is partly solved through the review on YouTube, onboarding in the application (if any), and so on. But services like Cosmo or Puls should seriously help the market.
What to look for when choosing retailers?
So, how to choose the right retailers to run their product? We divide all retailers into three broad categories:
Tier-1 is top on everyone’s lips: Amazon, Walmart, Home Depot, Best Buy and other major retailers.
Tier-2 is a modern large the marketplace. These include, for example, Fancy or Indiegogo Marketplace (who have not just a crowdfunding platform, but also a marketplace).
Tier 3 — niche marketplace focused on a particular audience. Is a company engaged in sighting goods for moms or goods for fishermen — in short, for a specific category of buyers.
To draw up a retail strategy, you need to perform all of these formats and choose the ones that suit your product. This will allow you to understand how, when and where you will go out with the sales. What to look for when choosing retailers? There are a few important factors:
If the network conditions of purchase (enough margin)
A big part of your margin will go to the channel anyway. The distributor will take from 20-30% still the same and will pick up the network. Plus you have to add Commission sales representatives (intermediaries who brought you in) — they charge between 3% to 6%. Also do not forget that America is the land of sales. Each quarter will have several important campaigns when you need to give discounts from 15% to 20%. Therefore it is better to think in advance whether it will turn out you with your margin to go into that any other channel. There is a Golden rule in hardware is to have a x4 margin, even if you plan to make money not on hardware, but on the subscription. Read more about what I will write in the next article.
Is it possible to work directly or through a partner
After learning about the fact that the distributor takes 30% it is reasonable to decide that we should go directly. But, unfortunately, not so simple. Large chains such as BestBuy, even if you go to them directly and arrange themselves about the start of sales, will be asked to work through a distributor, which has already established all business processes. They are so easy, and for you to adjust, no one will. The same thing happens in the b2b market, for example, if you want to work with developers.
Is there a possibility to start immediately to promote the listing using the internal marketing tools (mailing, ppc, and so on)
Even on sites with high traffic need to be visible. For this we need to bring traffic to your pages. This can be done in two ways.
The first is SEO, work on bringing the product to the first page for keywords. But this works only if you have improved an existing category (for example, as June did the smart oven). If you have a new product, it is unlikely that it will search for keywords other than your brand.
Also necessary to work with feedback — pumping to 4-4.5 stars minimum and hold at this level. The conversion with this rating is two times higher than 3 stars, so it is critical to keep a high rating.
Shop b8ta in Seattle. Photo: b8ta
Additionally, you can promote the product via email newsletters, PPC advertising on site and abroad through retargeting (for example, using Criteo). It is also important to build a good relationship with Bayer by category, which will offer you to participate in various sales events and other marketing campaigns. Perhaps, the relationship with Bayer is a key success factor.
Some retailers offer special programs for startups, such as Amazon, Launchpad, Launch Brookstone or Target Open House. In varying degrees, they help to show and tell about the product, additionally promote it.
If the retailer’s image
There are two aspects. First, we need to decide whether your product is hi-end device, or you make the device for the mass market. If you mass market, you can stand up without problems in any network and not to worry. If you are trying to build high-end brand, the first step is to carefully select networks. Whether you like it or not, the brand affects the brand of the product. If you’re standing in the Apple Store, you are perceived as high-tech and fashion brand.
If you’re a frequenter of sites sales, it will be difficult to convince clients of your uniqueness.
Secondly, you need to start from your niche. Gadget always falls into the category of consumer electronics, but also he can be interconnected depending on the target audience: home, for sports, for Pets and so on. Even if the network is not specializiruetsya selling electronics, but in its niche it is the clear leader and benchmark for consumers, it is necessary to put the network in priority. For example, if you make items for the home, for the interior, you should pay attention on Houzz.
Do you have the money to pull this channel
In the US, no one will ask for hidden payment for access “the body”, but you need to understand exactly do you have opportunities to work in a particular network. First, it is necessary to evaluate the stage of conclusion of the contract with the network. In very rare cases, if your product is unique, you’ll make yourself and you can even offer exclusive for a certain period. But in 9/10 cases it is not, so we need to estimate the following parameters: how long is the contract and the institution of the goods in the assortment of pull do you requirements for insurance and other operating conditions of the network, can pull the payments to affiliates (sales reps, distributors). Therefore, we first focus on the networks that will sell the fastest.
Secondly, we need to assess if you have enough financial resources to work with the network. Whether you have a cash shortage due to delay of payments (in large networks can be 60 or 90 days), will you be able to give the desired speed of production and shipping, you get to invest in the marketing channel to your product showed an initial growth. The latter is critically important about this is that I will tell in another article.
How to go to the retailer?
The question “how?” perhaps the most important. Come to retail in several ways. Each of them has its advantages and disadvantages. But first, let’s talk about what you need to prepare before you decide to pitcheth one or the other partner.
Any new start-up, especially category creating product is first and foremost about making people believe in your idea. Therefore, the pitch of the retailers too will differ from pitch to investors. You need to prepare some materials: high quality product videos, photos in the interior and a photo of how the device to use different infographics on the device, a description of the key features. But most importantly — a one-page Sales Sheet and product presentation.
Shop b8ta in Santa Monica. Photo: b8ta
The last should include a description of the problem you solve and the size of the market, information on the team and the investors (if known), the current traction of the product (crowd funding, sales from website, etc.), description of product, photo of product in packaging, price and the option SCU, be sure to quotes from reviews and links to articles. You have to convince your partners that they should spend their time and lay their reputation on the line for your startup. Key points of this presentation go to the Sales Sheet — one page-reminder about your product.
So, you’re ready to go. How to log into the network?
To find a solution in the Bayer himself
The first method is for those who are accustomed to doing yourself. You are looking for a buyer at events on LinkedIn and so on. Literally knock all report that made your product, and it is good. That is up the pitch and performing it in front of all who are willing to read/listen. If your product is like, buyers write to you “OK, send sample”. After a sample like that you continue to engage in dialogue and, perhaps, you are added to the range.
In USA everything is very open, no need to carry a rollback, there is no “marketing fees” and such nonsense. If people see that you have a good product, and so they all enjoy it without kickbacks.
But alas, most buyers simply overloaded, therefore, most likely, will not answer. Not because of waiting for money, but simply because so a lot of work.
Therefore, to make yourself a very difficult task. Yes, you can do everything yourself, but it is long and hard. Do you have enough time? If you raised $3 million in crowdfunding and TechCrunch writes about you, you can try. If you are a regular project, it is likely that this is an impossible task.
To go through sales representatives (sales reps)
The second method is salesrep. Is people working either for a percentage or fixed amount. Here is an example standard of practice: “Pay us $6K per month, and we’ll have you at such and such retailers”. In this case nobody gives you any guarantees, you simply provide representation. As you close the deal, it depends on you. And can and to take the percentage from 3% to 6%.
A huge advantage of this method is that you, the beginner who is not familiar with the market, everywhere literally lead by the hand. Big minus — a support is expensive. Especially given the absence of any guarantees. Domestic projects which have started the first round of funding, it goes into the penny. When you see a figure of $6K, my first thought was “Damn, in Russia you have over $1K which is everywhere for you to run and all to seek”. This thought and all others in the spirit “in Russia I’ll find it cheaper” should be sprinkled with Holy water, and banish out of my head forever.
Shop b8ta in Seattle. Photo: b8ta
Returning to cost, cycle time in the conventional Staples or BestBuy — from 6 to 10 months. This means that you will need to lay $60K nowhere. No one can guarantee the result, you can’t say “And let me pay you, if you’ll take me there and then” or “And let you give me a salary, if you’re in the end will lead nowhere”. Salesrep wagged his finger at his temple and leave.
Method number three is to go through distributors. There are a number of big players like Petra or Ingram Micro, there are many small. The second most often appear when buyers from large firms, having worked 7-8 years, go with an established clientele and create his own company.
What good is this option? Distributor will buy from you inventory and will not take money for his representation of retailers. The main minus — the goods you sell to them, the distributors.
Distributor is a narrow neck: he bought you some amount of inventory, but the question is whether he will be able you to digest and then take another? If you pull it the conditions for the deferred payment?
The major retailers definitely can take you. If you are a fashion start up and you had a cool crowdfunding company, most likely they will vyapat you first. And if the conditional Ingram Micro is saying “We now take and put you” — hurray, it means that you will be everywhere because they really are everywhere. But, believe me, you will find a bunch of pitfalls that are easy to bury your ambitions.
The first problem is major distributor — in managers. The average Manager of a large distributor — carrier of two unpleasant properties:
A quick cooling. First, communicate with you, then you slowly start to forget. A month or two you will be trying to work (“send such pictures, write such texts), then is guaranteed to cool down as sold, and sold. Most likely, you are LG and can’t drive through a distributor a few thousand units per month. Small startups sell for 500-600, max, a thousand pieces in a month — and it’s not the tens of thousands, are accustomed to the distributor. Of course, no one will be interested to work with you aiming to promote you from day to day. And they, too, can be understood: they already have their bread — large companies in which they are engaged. Bayer has a clear KPI and it is beneficial to sell a clear product of hundreds of thousands, and not try to raise you from 300 pieces up to 1500.
Being slow. A big distributor is a large — scale structure, and it is natural that it works very slowly. Comes to the ridiculous. Here’s an example from personal experience. We rolled out some features that you wrote a month. And we just had to update the content on the pages where we sold (Amazon, etc.). We did three (THREE) months. Places was to blame for someone’s vacation, sometimes there is some “not quite” picture. It is important to understand that for startup speed is the key. And three months is an eternity. Since the beginning of the first round of funding, you have 12-18 months to show what you’re done. And three months is 15-25% of that time period. Wasting such resources is irrational.
Shop b8ta in Santa Monica. Photo: b8ta
There is another important point, major distributors do not know how to work with e-commerce. Most of them used either offline to ship or ship to major online brands that literally sell themselves. The same conditional Nest invests big money in advertising — and hurray, it’s all good, it is sold. But if you are a small startup, you need to do your presentation for each retailer — one for Amazon and one for Walmart. You need to look for their moves to content and promotion. It is clear that buyers are not accustomed to bother — and so not going to get used to.
In conclusion, I want to mention another important risk. Major distributors can give access to your product “small distributors” and “local electronics shops”, which are in fact SP resell goods on Amazon. Such SP like to fight for the Buy Button dropping the price. And if the Amazon price goes down, and the Amazon tries even more to lower itself, and other retailers like Walmart automatically follow them. It destroys your entire MAP and you will get lots of problems from other networks who do not understand why someone is selling cheaper than them.
In short, apart from size, a major distributor has no merit. It will be a big mess soon after you will have relations with you. To engage your sales he will not, you will have to do it yourself. The only advantage is that you will be able to start working with large networks, which to a certain rpm prefers to work through intermediaries.
Paradoxical idea, but, although I encourage startups to work quickly, do not rush to pour large sums into a new distribution channel. Running the relationship with the retailer, start with small sales, test content, and create enough review pages. And only after that start to invest in additional inventory and marketing.
Not be afraid to be persistent. In American business culture it is normal to write the pitches of the cold and remind myself 10-15 times. That you no surprise, and call rejection. For example — leave the email on the website for any b2b, SaaS solutions, and you will see how persistent local sellers.
I hope I was able to talk in some detail about the way in retail. One of the most important factors that will determine the success of sales channels is the profitability of your business. How to determine the price of your product and what will be your Costa in retail, I will tell in the following article. But in the meantime you can write me direct here.
Materials on the subject:
As a regional startup to an investor: the case of the project Manager
Foreign data centers: what are the advantages for Russian business
The railway journey of a startup in the Valley of Death. Part 1 Journey of a startup iron on Death Valley. Part 2: statement on the passage
“In Russia we 4 potential customer in the Valley — 400”
Cover photo: shop b8ta in Austin
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