Like many other startup founders, I didn’t know a single thing about business back in 1991 when I launched by first fashion brand, yet I knew I wanted my products in every store and to ship as much product as humanly possible. At the end of the season, I thought I would judge my success by my sales volume.
As it turned out, there was a major problem with my line of thinking as it related to simply looking at my sales numbers to judge my success. These days I don’t attach nearly as much value to revenue as I do to profit. Revenue can be very misleading, especially short-term revenue. The biggest problem I have is that it forces you to take your eyes off of the other key components of building and structuring your brand for long-term growth.
The truth is, there was not a store that my brand was not in and I thought that was great. Looking back, it was only great when it came to trying to impress myself or others. I supplied every store on every block in every state in the United States, and it very nearly destroyed my brand. So I learned the hard way to completely re-structure my distribution strategy.
Decreasing your client list and/or customer base can have a dramatically positive impact on your long-term success. Here are four of the huge benefits to take into consideration:
When I supplied every store on the block, I had no allegiance to any one account in particular and the feeling was mutual the other way around. When there is no loyalty there is no relationship and in business, relationships are everything.
Conversely, when I decreased my customer base and only supplied one account in a given area, the store owners knew I was protecting their accounts and there was tremendous loyalty on both sides. I switched from being focused on revenue to being focused on relationships.
The Result? Though I decreased my account base nearly 40%, I increased my revenue dramatically in the long term as I could always count on those accounts to order from me because I was loyal to them and they were loyal to me.
Oversaturation kills product longevity. In fashion, like many other markets, you work very hard to make your product as new and fresh as possible. By simply dumping my product in every store that wrote an order, that fresh product started looking really old, really quick.
By decreasing distribution and being more selective, I was able to look fresh in the eyes of my customer and increase my product longevity.
Scarcity and exclusivity creates product intrigue and increases brand integrity and brand value.
When people have to travel longer to get somewhere to buy a product or service, what do you think happens? If you remember the movie, National Lampoon’s Vacation with Chevy Chase, it was centered on a road trip to the famous (fictional) amusement park, Wally World. At the end, when Clark W. Griswald finds the park is closed for renovation, he forces the security guard (John Candy) to enter the theme park against his will and will not leave until his family goes on every ride.
Much like Wally World, when my product was available at exclusive locations, not only was the sale nearly guaranteed, but the customer also bought more items because they had made a special trip. Scarcity and exclusivity increases brand value.
With an oversaturated distribution strategy there are major problems with margins. When the same product is available at nearby locations, invariably the competing stores start lowering their prices to bring the customers to their store to make the sale. When the other stores catch on, they bring the price down even lower and, before you know it, the product is sold for a huge discount. That discount then gets passed down to you when it’s time to pay the bill. I remember one season I gave so many discounts that I actually lost money as the discounts ate up my entire margin.
Bottom line, selective distribution secures your margins. Oversaturated distribution destroys it.
I advise you to learn from my mistakes and take these four components when planning your distribution strategy. If you do, I think you will be surprised with the long-term results.
MJ Gottlieb is a serial entrepreneur and co-owner of The N2ITIV Group, Inc., a strategic consulting firm specializing in the implementation of creative business strategies to help aspiring entrepreneurs and small businesses. He writes regularly on his blog, www.n2itivsolutions.com.
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