HOW TO CONVINCE A POTENTIAL DISTRIBUTOR, WEB SHOP OR RETAILER TO WORK WITH YOU?

Getting a new distributor depends on two things: finding him and convincing him to work with you.

There are many ways to identify potential distributors: online, through trade shows or even throught customs databases. But you can only convince a distributor to work with you, if you have the right pitch.

This article explains how a distributor calculates and what you can do to have a better chance convincing him that your product will more profitable than what he sells now.

KEY QUESTION OF ANY DISTRIBUTOR: WILL YOU HELP ME MAKE MORE MONEY?

Distributors are risk averse, they know the portfolio they have and tend to be happy with it. They can’t just add a product or service to their range, since it will cannibalize on others:

A retailer has to take another product from the shelf to make space.
A web shop only can push about 20 products on the home screen, the rest is in the ‘long tail’.
A B2B company with representatives will only offer a client a limited choice to increase the chances on a sales transaction. If they push your product, they need to stop pushing another one.

They know how much money they are making at this moment on their current product range, which is:

CONTRIBUTION MARGIN = ROTATION x MARGIN PER PRODUCT - DIRECT COSTS

Rotation here means: how many of these products do you sell in a certain period, e.g. a month.

So in order to convince them, you need to give them the data they need, and if the contribution margin is higher than for the current product, they will give it a try.

Rotation

Rotation data is the most difficult to get, but actually the most important aspect to consider. And you need to help your potential distributor to make a fair estimate of the rotation of your product, because also for him it is a question mark.

If you are already selling in his country, or in a comparable country in terms of culture and product needs, you have a great advantage. This proves that there is a actual need for your product and you can distinguish yourself from the competition.

Our best strategy to advise any manufacturer is to dive into your sales data and enhance it further. Try to answer question like:

What is the best-selling product? Can you make a very limited portfolio with only best-sellers?
For each client, plot your sales against the number of monthly visitors they have, either on their website, or in the shops where your product is available. Analyze the differences, why is one web shop selling € 500 of your product per 1000 visitors, and another € 900 per 1000. Are they doing better in general or promoting your product more? In case of B2B sales, plot against the number of representatives, sales visits or sales calls.
Can you do a trial in one or a few shops? For cheap products, just give them 50 in a nice display and see how quickly it sells out. For more expensive products, offer them in consignment and take back what is not being sold after 2 weeks.

Now your potential distributor can compare his situation to these reference cases and make an estimate how quickly your product would rotate.

Margin per product

The margin per product often is the easiest one. If you have done your market research and thought about the positioning of your product, you know the suggested retail price or sales price that your distributor can use. You also know the price for which you can sell your product to him. The difference is the margin.

We see many manufacturers or brand owners that are stressing the high margins they can give to their distributors. This is not always a strong point. If you can make it so cheap, what is the quality of the product? Or if you offer it so cheap, how desperate are you?

Direct costs of listing a product

Even if the product of margin and rotation is favorable, distributors may not take your offering into their assortment. That is because they also take into account the costs. So what are these cost components and what can you do about this?

Administrative costs: making you a formal supplier, closing agreements, adding your product in their warehouse and logistics system, informing sales people and service staff, it all needs to be done first before any penny is made on your product. Supermarkets or drugstore chains may charge listing fees to you for all of this: a fixed amount to get your product on the shelf.
Promotion costs: kicking off with a marketing campaign, sampling of your products or an introduction discount all costs money. As it will increase your brand awareness in the market, you may be asked to contribute to these costs. And in your communication with potential distributors, you may stress the promotion you already do and how you can reduce their efforts and costs.
Service costs and returns: especially web shops have high return rates of products, and this costs them money. So show them your reviews on Amazon, the return rates that you experience and help them to answer service questions, for example with a manual, Q&A and website in their language.
Shipping costs and excess stocks: especially in the beginning, when volumes may be lower, shipping costs can be relatively high. In your pricing structure you may compensate your distributor for this. A guarantee to take excess stock back, at least at a lower price, may stimulate you to work together in promoting the product.

Provide the answer before the question is being asked

Most brand owners first tell distributors about the end-user benefits of your product, why it is so healthy, funny, tasteful or awesome. But distributors get many of these pitches (and we know since we’re doing this for many companies) so they are just interested in one thing: how much will I earn on it?

So what is more interesting to hear for a purchasing or category manager?

My marmalade has 30% less sugar in it and is made of oranges from Greece

This marmalade range needs only 18 cm of shelf width and in an average supermarket, one out of 150 visitors buys the product, at a margin of 50 cents per product.

Typically, the second answer gives a five time higher chance of getting into the right conversation, even if your data are preliminary or based on a small target group.

In our approach, we already start asking your for this kind of data in the Scan phase, and use it in the Test phase when we draft and test your pitch.

How to draft your distributor presentation?

Just as with pitching for an investor, there is a structure for presenting your product to a potential distributor or retailer. Below you can see a table of contents, plus an example of a distributor presentation. We will provide you with a template for your own situation. For example, if you want a distributor who sells your product with account managers or sales representatives, then you don’t use rotation per outlet but turnover per salesperson.

A title slide, that you can use to show your product
What is your brand and how do you distinguish yourself?
Why do your want to penetrate this market?
Show that you have done your (competitor) research
Define how you want to position yourself
For this specific distributor/retailer, what product do you want to replace?
Provide sales or rotation data from other countries
Show the margin potential for the distributor/retailer
Talk about distribution, returns and complaint handling where applicable
How do you want to support marketing communications?
Summarise the margin potential for the distributor/retailer
Make a suggestion for a first next step

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Frequently asked questions

How to convince a retailer to take your product on the shelf?

You can only convince a purchasing manager of a retailer in case you can show that your product will sell fast and bring him a good margin. You don’t do this by highlighting the benefits of your product. You do this by showing him the sales data from other stores or other countries for this product.

How much will a distributor invest in promoting my product?

Don’t count on anything. You are the brand owner and any promotion will in the long run only benefit you, so your distributor is not going to do that for you. He may offer you options for in-store tastings, for advertising in his magazine or for other promotional events, but in most cases you have to put in the most of the investments.