Strategizing Distribution for Startups

According to Peter Xie of VentureFace, a growth building company that assists hardware startups with international sales development and consultations for the Asia-Pacific market, startups must carefully strategize their selection of distribution channels. Ideally, startups should start making a distribution strategy as early as possible in their business plan. Startup Launchpad sat down with Peter Xie last yearto learn more about what factors startups should consider as they begin planning distribution of their product. Here are some of the main takeaways from our conversation with Peter.

Research Potential Markets 

The states or countries that you choose to sell to first will largely depend on where you determine the bulk of your buyers to be. This will be easier as you start to formulate a sort of profile of what your customers will look like—what type of person will be using your product?

You may get some insight on where potential customers live from your online presence or crowdfunding campaign. For example, perhaps you find that most of your campaign backers are citizens of the United States. However, remember that online buyers make up only a small portion of total retail sales in the US, and the same is true for many other countries. After you make your initial shipments to your crowdfunding backers, you may want to scale your business up; to do so, you must consider off-line distribution to reach a larger share of your potential market.

Start with Your Local Market

Once you have determined that you need the help of distributors to expose your product to a larger market, you want to nail down a price-point that sits at a “happy medium”—one where you can make a profit, but still remain competitive and affordable for customers. For mass market distribution, expect that your retail price will be between 3 to 6 times the cost of producing the item. If your product is priced too low, you will surely have a hard time wooing distributors.

Before you spread your resources too thin, begin your off-line distribution journey within your local market. Meaning, if you live in Hong Kong, start working with distributors in Hong Kong first. Working locally will give you a good idea of what to expect when working with distributors and retailers in a general sense before you have to deal with the added challenges of international payment terms and supporting customers from a greater distance.

Don’t Be Afraid to Go International

At some point, sales may plateau in your domestic market, and the only way that you can truly grow your business will be to expand internationally. Remember that offering your products online is not equivalent to making them available to international customers. For example, some countries still operate largely with the cash (or collect) on delivery method (COD), thus requiring you to work with a distributor on the payment and logistics to get the product to end customers. Don’t forget about returns and warranties; customers paying by COD will also need the help of that third party in these cases as well.

When choosing international distributors, consider their payment terms—will they partially pay you for a bulk order within 30 days, or do you only receive full payment after all units have been sold? Payment terms that are overly favorable for distributors present obvious cash flow problems for startups.

Consider Your International Price Point

For startups looking to sell on the international scale, the Asian Pacific market is a great place to start. Consider the price point of your product when choosing specific Asian countries to retail in. Generally speaking, you want to sell items with a higher price tag in wealthier, more industrialized territories, such as Singapore, South Korea, Japan, and Hong Kong, where many consumers will be able to afford your product. For products that will retail for much less, say less than $50 USD, you want to target countries such as Vietnam or Indonesia, where that price is a more realistic bet for customers. Narrowing down the countries in which you will sell your products will also help you figure out which distributors are available.

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