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Choosing the right distribution channels

If you want to enter a new market, in general you have three options how to set up your local sales:

• Local departments: This means hiring staff and facilities and initiating all marketing yourself. It is often the most expensive way of entry, but gives you complete control on distribution. It may work best for bigger markets, where the cultural differences with your home country are limited.

• Working with channel partners: Distributors with experience in shipping and importing have the fastest and easiest procedures when it comes to selling products in the foreign markets. For selling services or customised products agents or resellers can perform a similar role. This way you can expand to more markets with less costs.

• Online: If your product is standardised and can be easily shipped, then online sales is certainly an option. Platforms like Amazon, Alibaba or eWorldTrade facilitate marketing, deal-making and payment, but you can also invest in your own website. Local distribution partners may play a role in the import process and shipping your goods to the buyer. Online  sales may seem easy to set up, but often the investment needed in advertising and promotion is substantial.

Bild von Marcin Jozwiak aus Unsplash

We see that working with a channel partner like an agent or distributor is often the preferred way of exploring a new market.

Company profiling

If your product were the ultimate solution to a pressing need in a market, then any distributor or agent would have found and approached you through the internet already. This means that you have to convince your potential channel partners why investing their time and shelf space for your product is a good idea. In order to have a compelling story, you need knowledge of their current portfolio and answers to the following questions:
• Where would your product be positioned in their portfolio? What new customers would it attract?
• What pricing do you suggest? And how much margin can they get?
• What current part of their offering competes most with your product? Should they abandon this? Make an estimate of how much margin that product brings them now.
• What is your estimate of the market potential? How quickly will this be realized and what investment are necessary?
• What comparable data do you have from other markets?
• How are you going to support them in introducing your products? Have you already marketing materials or channels (like social media) lined up for this?

Alliance experts know the market and can help you formulate or check your answers. For example, we look at your brand value with the Brand Asset Valuator Model of Young & Rubicam, that takes differentiation and knowledge as important aspects. Especially if you only have a few potential channels, then your pitch should be spot-on, and you should have the right cultural awareness in your approach.
Channel partner search
Typically, there should be a fit with your channels partners on three levels:
• Technical: they should be in the right segment of the market, have the right knowledge, network, and capacity to handle your products or sell your services.
• Strategic: it should also be essential to them to work with you as a partner. It should fit in their strategy and add value to them.
• Cultural: preferably, the companies should have a similar background, way of doing business and view on how to deliver value.

Of course, you can start to work with channel partners who do not tick on all aspects. But eventually, if you want to grow together, all three points are equally important.
Alliance experts have a decade of experience in finding the right channel partners for you, and can do this in over 30 countries.

Negotiations & contracting

Although the first conversations with potential channel partners are mostly pleasant, the true test is entering into negotiations. Here it helps if you know what to expect in the market: research in competition, alternative channels, pricing etc. will pay off. Also, some cultural knowledge is supportive. Everybody knows that negotiating in Germany is different from in Japan. But what exactly are these differences, and what are the tricks?

Alliance experts know how to distinguish a polite yes from a real yes. This way, you can move faster towards closing a deal. For this you may need a local lawyer, because even if your strategy is to impose the law of your country on a distribution or agency agreement, local law may make this impossible. Therefore, please check the legal requirements for your contract, and especially in the case of agents, the way they are protected.