The 30 Day MBA (22 page)

The following are the factors to take into account in this area.

Channels of distribution

If your customers don't come to you, then you have the following options in getting your product or service to them:

• Retail stores: This general name covers the great range of outlets from the corner shop to Harrods. Some offer speciality goods such as hi-fi equipment, where the customer expects professional help from the staff. Others, such as Marks & Spencer and Tesco, are mostly self-service, with customers making up their own mind on choice of product.
  
• Wholesalers and distributors: The pattern of wholesale distribution has changed out of all recognition over the past two decades. It is still an extremely important channel where physical distribution, stock holding, finance and breaking bulk are still profitable functions.
  
• Cash and carry: This slightly confusing route has replaced the traditional wholesaler as a source of supply for smaller retailers. In return for your paying cash and picking up the goods yourself, the ‘wholesaler' shares part of his or her profit margin with you. The attraction for the wholesaler is improved cash flow and for the retailer a bigger margin and a wide product range. Hypermarkets and discount stores also fit somewhere between the manufacturer and the marketplace.
  
• Mail order: This specialized technique provides a direct channel to the customer, and is an increasingly popular route for new small businesses.
  
• Internet: Revenue generation via the internet is big business and getting bigger. For some sectors, such as advertising, books, music and video, it has become the dominant route to market. There is no longer any serious argument about whether ‘bricks' or ‘clicks' is the way forward, or if service businesses work better on the web than physical products. Almost every sector has a major part to play and it is increasingly unlikely that any serious ‘bricks' business will not either have or being building an internet trading platform too. Tesco has built a £ billion-plus home delivery business on the back of its store structure. Amazon, the sector's pioneer, now has in effect the first online department store, with a neat sideline in selling on second-hand items once the customer has finished with the product.
  
• Door-to-door selling: Traditionally used by vacuum cleaner distributors and encyclopaedia companies, this is now used by insurance companies, cavity-wall insulation firms, double-glazing firms and others. Many use hard-sell techniques, giving door-to-door selling a bad name. However, companies such as Avon Cosmetics have managed to sell successfully door-to-door without attracting the stigma of unethical selling practices.
  
• Party-plan selling: This is a variation on door-to-door selling that is on the increase, with new party-plan ideas arriving from the United States. Agents enrolled by the company invite their friends to a get-together where the products are demonstrated and orders are invited. The agent gets a commission. Party plan has worked very well for Avon and other firms that sell this way.
  

Selecting distribution channels

These are the factors you should consider when choosing channels of distribution for your particular business:

1. Does it meet your customers' needs? You have to find out how your customers expect their product or service to be delivered to them and why they need that particular route.
   
2. Will the product itself survive? Fresh vegetables, for example, need to be moved quickly from where they are grown to where they are consumed.
   
3. Is it compatible with your image? If you are selling a luxury product, then door-to-door selling may spoil the impression you are trying to create in the rest of your marketing effort.
   
4. How do your competitors distribute? If they have been around for a while and are obviously successful, it is well worth looking at how your competitors distribute and using that knowledge to your advantage.
   
5. Will the channel be cost-effective? A small manufacturer may not find it cost-effective to sell to retailers over a certain distance because the direct ‘drop' size – that is, the load per order – is too small to be worthwhile.
   
6. Will the mark-up be enough? If your product cannot bear at least a 100 per cent mark-up, then it is unlikely that you will be able to sell it through department stores. Your distribution channel has to be able to make a profit from selling your product too.
   
7. Push–pull: Moving a product through a distribution channel calls for two sorts of selling activity. ‘Push' is the name given to selling your product in, for example, a shop. ‘Pull' is the effort that you carry out on the shop's behalf to help it to sell your product out of that shop. That pull may be caused by your national advertising, a merchandising activity or the uniqueness of your product. You need
   to know how much push and pull are needed for the channel you are considering. If you are not geared up to help retailers to sell your product, and they need that help, then this could be a poor channel.
   
8. Physical distribution: The way in which you have to move your product to your end customer is also an important factor to weigh up when choosing a channel. As well as such factors as the cost of carriage, you will also have to decide about packaging materials, warehousing and storage. As a rough rule of thumb, the more stages in the distribution channel, the more robust and expensive your packaging will have to be.
   
9. Cash flow. Not all channels of distribution settle their bills promptly. Mail-order customers, for example, will pay in advance, but retailers can take up to 90 days or more. You need to take account of this settlement period in your cash-flow forecast.
   

Logistics
The goal of a marketing logistics system is to manage the whole process of getting products to customers in an efficient and cost-effective manner to meet marketing goals; and to get faulty or unwanted products back. This interfaces with a host of related areas of business, including physical transportation, warehousing, relationships with suppliers, and inventory and stock management. Some important considerations in logistics include:

• Just in time (JIT) aims to reduce the need for warehousing through accurate sales forecasting. All parties in the distribution channel carry minimum stock and share information on demand levels.
  
• Vendor managed inventory (VMI) and continuous inventory replenishment systems (CIRS) require customers to share real-time data on sales demand and inventory levels with suppliers.
  

Both supplier and customers, while benefiting from cooperation, have mutually conflicting goals in that they want to shift costs onto the other party. Their capacity for doing so depends on their relative strengths. For example, giant retailers such as Tesco and Marks & Spencer have been very successful in getting their suppliers to carry a major part of the cost of stockholding.

Selling

Marketing is the thinking process behind selling; in other words, finding the right people to buy your product or service and making them aware that you are able to meet their needs at a competitive price. But just because customers know you are in the market is not in itself sufficient to make them buy from you. Even if you have a superior product at a competitive price they can escape your net.

Getting customers to sign on the dotted line almost invariably involves selling. This is a process that business people have to use in many situations
other than in persuading customers to buy. MBAs have to ‘sell' bank managers the idea that lending their business money is worthwhile, that shareholders should invest, that employees by working for them are making a good career move or that their boss should back one of their proposals.

Though essential, selling on its own is an inefficient method of getting potential customers to the point of buying. Understanding the ‘ascending ladder of influence', as marketers call it, puts the salesperson's role in perspective. This is a method to rank the ‘warm bodies' a customer will encounter in the selling process in the order in which it is most likely to influence your customers favourably. At the top of the scale is the personal recommendation of someone whose opinion is trusted and who is known to be unbiased. An example here is the endorsement of an industry expert who is not on the payroll, such as an existing user of the goods or services who is in the same line of business as the prospective customer. While highly effective, this method is hard to achieve and can be expensive and time consuming. Further down the scale is an approach by you in your role as a salesperson. While you may be seen to be knowledgeable, you clearly stand to gain if a sale is made. So you can hardly be unbiased. Sales calls, however they are made, are an expensive way to reach customers, especially if their orders are likely to be small and infrequent.

CASE STUDY

When Sumir Karayi started up in business in the spare room of his flat in West Ealing, London, he wanted his business to be distinctive. He was a technical expert at Microsoft and with two colleagues he set up 1E (
www.1e.com
) as a commune aiming to be the top technical experts in their field. The business name comes from the message that appears on your screen when your computer has crashed. Within a year of starting up the team had learnt two important lessons. Businesses need leaders, not communes, if they are to grow fast and prosper; and they need someone to sell.

On the recommendation of an adviser Karayi went on a selling course and within months had won the first of what became a string of blue chip clients. The company is now one of the 10 fastest-growing companies in the Thames Valley, with annual turnover approaching £15 ($23.5/€16.85) million, profits of 30 per cent and partners and reseller partners worldwide.

How selling works

There is an erroneous view that salespeople, like artists and musicians, are born, not made. Selling can be learnt, improved and enhanced just
like any other business activity. First, you need to understand selling's three elements:

• Selling is a process moving through certain stages if the best results are to be achieved. First, you need to listen to the customers to learn what they want to achieve from buying your product or service; then you should demonstrate how you can meet their needs. The next stage is handling questions or objections; a good sign as it shows that the customer is sufficiently interested to engage. Finally comes ‘closing the sale'. This is little more than asking for the order with a degree of subtlety.
  
• Selling requires planning in that you need to keep records and information on customers and potential customers so you know when they might be ready to buy or reorder.
  
• Selling is a skill that can be learnt and enhanced by training and practice, as shown in the case study above. The Sales Training Directory (
  www.approvedindex.co.uk/salestraining/directory
  ) lists sales course providers in the UK.
  

Negotiating

Like selling, negotiating, of which it usually forms a part, is as much a science as an art. There are a few immutable rules, easily understood but invariably difficult to execute:

• Aim high at the outset. Unless you can find the point of resistance, you can't find the outer limits of your negotiating range.
  
• You must be prepared to walk away from a deal and make that evident, if you are to have any negotiating leverage. To achieve this you must have prepared plans B and C ready to execute if the terms you want can't be achieved. For example, when negotiating to buy out a competitor, have other businesses in the frame too; or have plans to enter that market without them.
  
• Search out a range of variables to negotiate other than price. Delivery date, payment terms, quantities, currencies, shared future profits, know-how swaps are just a handful of areas rich in negotiating possibilities.
  
• Never give a concession away. Anything given for nothing is seen as being worth nothing. Instead, trade concessions and always put the highest value possible on the concession. ‘We will pay 30 per cent upfront rather than the 20 per cent you're asking for (a gain for the seller) if you bring the price down to $/£/€1.2m rather than the $/£/€1.3m you're asking' (a gain for the buyer) is the place to start if you hope to hit a $/£/€1.25m final price.
  
• Talk as little as possible. The less you say the less you can give away.
  
• Once you have put a proposition on the table, shut up. The first to blink is the loser.
  

Market research

The purpose of market research is to ensure you have sufficient information on customers, competitors and markets so that you can be reasonably confident that enough people want to buy what you want to sell at a price that will give you a viable business proposition.

You do not have to launch a product or enter a market to prove there are no customers for your goods or services; frequently, even some modest market research beforehand can give clear guidance as to whether your venture will succeed or not.

While big businesses may employ market research agencies to design and execute their research, an MBA should both understand the process and be able to carry out elementary research themselves quickly and on a low budget.

The fundamental goals of market research

The purpose of market research from an MBA's perspective is twofold:

1. To build credibility for a business proposition. The MBA must demonstrate, first to his or her own satisfaction, and later to colleagues, superiors and eventually to financiers, a thorough understanding of the marketplace for the new product, service or strategy. This will be vital if resources are to be attracted to execute the proposal.
   
2. To develop a realistic market entry strategy for the proposed course of action, based on a clear understanding of genuine customer needs and ensuring that product quality, price, promotional methods and the distribution chain are mutually supportive and clearly focused on target customers.