Monday, April 9, 2012

Direct or Dealers ???

You've developed a terrific product with excellent margins.
Great!
What next? These are the questions you may be pondering:Who am I going to sell it to? Or through whom will I sell it? And how much must I give away.

Here are some thoughts:
1. Selling direct is tough but possible. A strong ad program to generate leads will be critical.  Reps cold calling wastes your time and theirs.  For a new company with a new product this may be the only alternative.  Dealers may worry about taking on a new product and new company. Selling direct also means providing direct parts sales, and providing direct after sales service. This last item is more important than parts sales if the parts are standard among other manufacturers.

2. Selling through dealers/distributors.  A dealer network already exists for your product. Yes, it truly does. The only question really is the discount from retail.  Dealers have substantial investment made in developing their client list, their physical location, their tech staff, parts departments. In addition they have a reputation in the trade area they service.  All these are available to the new product but for a price.

3. Some manufacturers become obsessed with how much the dealer makes for "essentially doing nothing." This is crazy and nuts and a sure sign of both ignorance and arrogance.  New companies frequently want to establish complex discount programs for parts, products, so that the dealer really has to work for the commission. Established dealers are suspicious of such programs, especially from new companies. New companies must earn the right to dictate terms because in the early stages of business the balance of negotiating power is with established dealers, not new companies.

4. The best way to gain a solid reputation with dealers is to be generous with the discount, relaxed on inventory requirements, yet still maintaining a disciplined 2% net 30 payment term.

5. Some new companies resort to rental.  Allowing dealers to sub-rent brings them on as well.

6. The key point with dealers is not to worry about how much money they are making on your product, but rather to help them find ways to build their business using your product.  [Also: don't include outrageous interest rates in figuring your rental rates. If the banks are lending at 10% don't expect your customers to accept it.


Finally obsession with patents products will usually absorb the needed energy for aggressive marketing.  The software industry learned this early.

No comments: