Page 101 - Business Plans that Work A Guide for Small Business

92 • Business Plans that Work

Distribution Strategy

This section identifies how you will reach the customer. Many new ven-
tures assume the availability and capacity of channels of distribution for
a new “improved” product. That’s almost always a mistake. One of the
authors had a friend who developed chili in a jar. The entrepreneur had
extensive experience in packaged foods, previously having worked for a
large national food conglomerate and more recently with a successful bev-
erage start-up. Although the product was of high quality (as good as mak-
ing it from scratch and much better than chili in a can), the entrepreneur
found it impossible to break into the grocery store distribution channel in
a significant way. The large food processors control all the shelf space. So
even though the product was new and improved, it did not survive.
It is also important to understand the cost of reaching the customer,
even if you can access the distribution channels. The e-commerce boom
of the late 1990s assumed that the growth in Internet usage and purchases
would create new demand for pure Internet companies. Yet the distribu-
tion strategy for many of these firms did not make sense. Pets.com and
other online pet supply firms had a strategy where the pet owner would
log on, order the product from the site, and then receive delivery via UPS
or the U.S. Postal Service. In theory this works, except that the price the
market would bear for this product didn’t cover the exorbitant shipping
costs of a 40-pound bag of dog food.
It is wise to examine how the customer currently acquires the product.
If your customer buys dog food at Petco, then you might use independent
retail outlets to sell a new brand of dog food and migrate to a big box
player as you gain brand recognition. This is not to say that entrepreneurs
might not develop a multichannel distribution strategy, but if they want to
achieve maximum growth, at some point they will have to use common
distribution techniques or reeducate the customer about where and how
to buy their product (which can be very expensive). If you determine that
Petco is the best distribution channel, the next question is, can you access
it? As a new start-up in dog food, it may be difficult to get shelf space at
Petco. That may suggest an entry strategy of boutique pet stores to build
brand recognition. The key here is to identify appropriate channels and
then assess how costly it is to access them.
Lazybones has two distribution strategies. First, it can reach out to stu-
dents directly. Its advertising strategy would support this distribution by plac-
ing flyers around campus, putting ads in university publications, and so on.