How bad would it be having to wind-back on growth, just because your choice of channel to market doesn’t have the capacity? TOM McKASKILL
By Tom McKaskill
How bad would it be having to wind-back on growth, just because your choice of channel to market doesn’t have the capacity?
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One of the biggest challenges for the high growth firm is to capture sufficient capacity in the way they get their products or services to customers (their channels to market) to enable them to keep pace with demand.
It is not sufficient to have a great product, to solve an urgent problem and to have the funds to support growth plans – you also need to have a way of getting the product in front of your potential customers.
What we often forget is that most high volume product companies use independent channels to market, and they have to negotiate access and capacity within those channels.
It is a well known fact that in most western countries, large regional or national supermarket corporations control access to a significant percentage of the market. The same degree of concentration can be seen across a number of consumer product categories.
The one-stop-shop vertical retail chains in toys, DIY, shoes and electronics are good examples of controlled market access. Thus the challenge for the high growth firm is to gain sufficient access and capacity in these restricted channels to satisfy their growth objectives. Failure to do so will constrain their growth rates.
Access is not automatic. The late entrant into a commodities market is always going to have trouble unseating an incumbent supplier. The single product supplier will have problems replacing a supplier with a wide portfolio of complementary products. Large companies prefer to buy a broad category of products from a few large suppliers rather than deal with a large number of specialists.
So how does the high growth specialist smaller business get past this barrier to growth?
One obvious answer is to have the best product in a class. Thus the product which has consumer pull because it is the best fit for solving a specific problem can be a stand-alone item in a mass channel, especially if it can establish a premium price and offer higher margins to the retailer or distributor.
The smaller firm can also find a wholesale channel that can bring together a wider portfolio of products from multiple suppliers in order to package up a broad range of complementary products for sale into the higher volume channels. Of course, the firm can always sell direct, either through a direct sale force, internet sales or through a network of agents or distributors.
Each type of channel has its own challenges, and the choice will depend on the price of the product, the potential margins available to provide incentives to channel partners, the degree to which highly targeted marketing can be used, and the ability of the supplier to properly support marketing, sales and pre and post sales support activities.
Some products better suit specific channels, although by changing the focus of the solution, the target customer and the price level, the product or service can be switched into a different channel.
Too often entrepreneurs bring products to market without fully considering the channel access they need and end up being frustrated in their attempts to grow. By carefully planning the product/market mix around the choice of market channel, such problems can be identified well in advance and changes made in the strategy of the business to ensure that channel capacity does not become a barrier to growth.
Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia.