It is common for startup entrepreneurs to conclude that if they just cut out some of the middlemen that they will be able to offer the product to the consumer at a lower price and still make more money – after all, Wal-Mart does it! It can be done of course, especially on a small scale, but you will soon find out that these intermediaries provide valuable functions that the business will have to cover. In marketing there is an old adage that says “you can bypass a channel member, but you cannot bypass what that channel member does”. If you cut out any of the channel members then you must be willing to take over the service that the channel member was providing. Even if you have experience or a working relationship with the end consumer, you will most often find that the intermediaries are valuable assets in the marketing function.
Many business startups concentrate their efforts on creating quality good or services and the marketing message that accompanies it. Seldom to have they taken the time to really understand the distribution channels involved. It’s complicated trying to understand exactly what everyone in the value chain need, want, and try to control. It is a shortcoming of your business plan if you are not clear about how you will deal with the channel members at every stage of the process.
If you are uncertain about how the channel members work in your industry you are at a distinct disadvantage. They are not going to help you much except to take advantage of your limited experience. The reader of your business plan will be very concerned with your prospects for success unless you clearly articulate your knowledge of the channels of distribution within your industry. This isn’t just reading a marketing book and crafting a strategy – you need hands-on working knowledge and experience in dealing with the wholesalers, distributors, manufacturer’s reps, sales people and retailers. Often experience is a “trial by fire”. These channel members know what they are doing and are always being pressured to maintain margins and profitability in the face of increased competition. They are unlikely to give the new kid on the block a break. If you are uncertain about how to work with your channel members it’s best to seek assistance from someone who can navigate this shark invested water.