3. Pricing Before Product— Plan Distribution First

3. Pricing Before Product— Plan Distribution First Is your pricing scalable? Many companies will sell direct-to-consumer by necessity in early stages, only to realize that their margins can’t accommodate resellers and distributors when they come knocking. If you have a 40% profit margin and a distributor needs a 70% discount to sell into wholesale accounts, you're forever limited to direct-to-consumer ... unless you increase your pricing and margins. It’s best to do this beforehand if possible—otherwise, you’ll need to launch new or “premium” products—so plan distribution before setting pricing. Test assumptions and find hidden costs by interviewing those who have done it: Will you need to pay for co-op advertising, offer rebates for bulk purchases, or pay for shelf space or featured placement? I know one former CEO of a national brand who had to sell his company to one of the world’s largest soft drink manufacturers before he could access front-of-store shelving in top retailers. Test your assumptions and do your homework before setting pricing. 4. Less Is More— Limiting Distribution to Increase Profit Is more distribution automatically better’? No. Uncontrolled distribution leads to all manner of headache and profit-bleeding, most often related to rogue discounters. Reseller A lowers pricing to compete with online discounter B, and the price cutting continues until neither is making sufficient profit on the product and both stop reordering. This requires you to launch a new product, as price erosion is almost always irreversible. Avoid this scenario and consider partnering with one or two key distributors instead, using that exclusivity to negotiate better terms: less discounting, prepayment, preferred placement and marketing support, etc. From iPods to Rolex and Estée Lauder, sustainable high-profit brands usually begin with controlled distribution. Remember, more customers isn’t the goal; more profit is. 5. Net-Zero—Create Demand vs. Offering Terms Focus on creating end-user demand so you can dictate terms. Often one trade publication advertisment, bought at discount remnant rates, will be enough to provide this leverage. Outside of science and law, most “rules” are just common practice. Just because everyone in your industry offers terms doesn’t mean you have to, and offering terms is the most consistent ingredient in start-up failure. Cite start-up economics and the ever-so-useful “company policy” as reasons for prepayment and apologize, but don’t make exceptions. Net-30 becomes net-60, which becomes net-120. Time is the most expensive asset a start-up has, and chasing delinquent accounts will prevent you from generating more sales. If customers are asking for your product, resellers and distributors will need to buy it. It’s that simple. Put funds and time into strategic marketing and PR to tip the scales in your favor. 6. Repetition Is Usually Redundant—Good Advertising Works the First Time Use direct response advertising (call-to-action to a phone number or website) that is uniquely trackable —fully accountable advertising—instead of image advertising, unless others are pre-purchasing to offset the cost (e.g., “If you prepurchase 288 units, we’ll feature your store/URL/phone exclusively in a full- page ad in...”). Don’t listen to advertising salespeople who tell you that 3,7, or 27 exposures are needed before someone will act on an advertisement. Well-designed and well-targeted advertising works the first time. If something works partially well (e.g., high response with low percentage conversion to sales, low response with high conversion, etc.), indicating that a strong ROI might be possible with small changes, tweak one controlled variable and microtest once more. Cancel anything that cannot be justified with a trackable ROI. 7. Limit Downside to Ensure Upside—Sacrifice Margin for Safety HOUSE_OVERSIGHT_014004