The Road Less Traveled: Alternative Ways of Reaching Customers

Whether you sell a service or a product, expansion often requires decisions about how you plan to connect with new customers and get what you sell into their hands.

Let’s start with an unusual example: a law firm. Consider the situation facing a firm with expertise in the legal and regulatory requirements governing export and import activity. A business such as this may represent and advise clients on issues such as trade and economic sanctions, export control laws, and anti-terrorism controls.

If the partners in this firm intend to attract clients for this niche service, there is a limit to how fast it can scale up through promotion, referrals, and networking. What alternative methods might be used to generate revenue? One option is to work as a contractor with other law firms that lack this narrow expertise. Essentially, working through a different law firm is a new method of distribution.

The law firm is no different than an industrial company preparing to sell outside its home market. Both have options for working collaboratively with other companies to distribute products and services.

Strategy requires trade-offs

At the heart of the question of how to expand your market is whether to sell directly to the end user or through another company. Selling through an intermediary requires trade-offs. You will have to give something up to get the benefits you seek.

Let’s use an equipment manufacturer as an example. The company can sell directly to customers and it will take on 100% of both the risk and the reward. It also takes full responsibility for all functions of the business, such as financing the expansion, sales and marketing strategy, and production. A lower level of involvement could involve selecting a local company to resell products. This company would be a local dealer. In that scenario, the equipment manufacturer is taking on far less of the frontline responsibility to run a profitable business in that new market. Essentially, the equipment manufacturer is giving up some profit to work with a competent partner that brings different strengths to the table.

In some industries, there is another intermediary layer between the manufacturer and the customer. In this scenario, manufacturers sell to distributors that can store product and distribute to local dealers. In many industries, the terms “dealer” and “distributor” are used interchangeably, but the point is that your business must determine what specific value it is best suited to provide as a product or service moves through the chain of companies that lead to the end user. Your strategy, built around this insight, must embrace trade-offs, such as giving up some margin for a specific required benefit.

To evaluate trade-offs, it is crucial to properly understand the benefits of a potential arrangement. Selling through an intermediary puts you in touch with customers quickly. Usually, most of these new customers would never have the opportunity to buy from you directly. Intermediaries can also provide crucial knowledge related to what motivates customers and the process they follow when buying your product. Convenience is another valuable benefit. For example, as an alternative to hiring an experienced sales rep with an existing network, a local dealer can provide an immediate established presence in a local community with sales and service infrastructure.

Selling through an intermediary also has several drawbacks. It almost always provides lower margin because of the need to allow for a reasonable markup on the product or service. But other, more subtle disadvantages also emerge, such as losing direct contact with the end user. This loss could be a real problem for a manufacturer that has traditionally closely tied product development to customer feedback. Lack of customer contact may also result in commodity-style price competition with other suppliers.

Know your strengths

The arrangement between your company and an intermediary can be structured in several ways but should be appropriate for both companies’ strengths.

Some highly technical companies, such as those in the life sciences, choose not to market a technology or product themselves. In some cases, the cost of building a manufacturing facility and marketing the product may be prohibitive. One option is to license the technology to a strategic partner with existing production and marketing infrastructure. In this arrangement, partners pay a fee to use a technology in the manufacturing of their own products.

As well, some technical companies lack certain expertise, such as local market knowledge. I see this fairly often when a company begins expansion outside its home market. This may be an appropriate situation in which to sell through a dealer network of local companies with an established sales and service market presence. Alternatively, it may be wise to sell through sales agents, which are essentially local independent salespeople willing to work on contract.

Focus on your strengths and shore up your weaknesses. Ideally, your company would develop the skills it needs to expand independently. But it may be less expensive, quicker, and more effective to work collaboratively with a different company.

You're getting married

Distribution partnerships require close relationships. Many entrepreneurs describe the relationship as being similar to a marriage. There is a courting stage, during which you learn about the partner. And it can be difficult and painful to get out of the contractual relationship. But when a distribution relationship is working well, you wouldn’t trade it for anything.

As with marriage, seeking a partner to help you access a new market is difficult. It is most often a long process involving personal contact with many people. Spend time in the local market to understand who the good performers are. Depending on the industry, this may involve meeting directly with end users or walking through potential dealerships. Personally, I find it tremendously helpful to speak with customers and ask which local dealers they prefer to buy from.

A distribution partnership with another company is appropriate if you are open minded about growing the pie rather than focused on capturing all possible value in the market for yourself. For a partnership to work, your company will have to trade some of the margin for something of value that you do not possess. The result can be highly profitable, but the key to success is often the effort put into making the relationship work. 

A Problem That Can’t Be Solved

Customers often have a problem that can’t be solved by current suppliers. These situations can provide your company with a valuable business opportunity.

To be clear, we need to look deeper than customer service problems. For example, when shopping for a computer you may become frustrated if the retail store clerk is uninformed, rude, and disinterested in helping. If poor service is limited to that employee, it can be addressed through training and coaching.

But if poor service is systemic in the company or industry, this indicates structural problems that are likely ingrained in the business model. They are so severe that customers may assume their problem is not solvable and may not search for other options. To the customer, this frustrating situation is just something they have to live with.

This inherent frustration is exactly the situation that faced the personal computer industry when mainstream consumers were first adopting computers. People found it intimidating, confusing, expensive and inconvenient to purchase from a retail store. In the 1980s and 1990s, Dell Computer identified this problem and was successful with a revolutionary direct-to-consumer model. Dell was able to charge competitive prices, but also provide the impression of a ‘customized’ product delivered directly to your door.

You have options

Owner-managed companies capitalize on similar opportunities every day. Imagine a situation where a small business has designed a software product that allows parents to coach their young adult children on managing their personal finances.

Assume one customer finds it difficult to teach the principles of finance and often contacts the help desk for suggestions. Friendly employees coach the customer, but she remains frustrated and believes this is a problem that can’t be solved by the software program.

If this customer’s experience is typical of a portion of the broader user base, there is a business opportunity to increase perceived value of the software. For example, the help desk could develop videos that explain how to teach finance in a fun and interesting way.  

Another potential change to strategy may point to a product solution, where the software compliments a parent’s effort by coaching the child using interactive games. These changes have potential to be expensive and difficult to implement. But either of them may provide a meaningful competitive advantage in the marketplace.

As a business owner, you have options for how you address the situation. The first step is acknowledging the problem from the customer’s point of view. This is the seed of opportunity.  

Know your customer

Where do we start in our effort to identify customer problems? It’s not always easy. Customer problems are frequent in all industries, but not all relate to broader strategy decisions. The types of situations we’re looking for take true insight. What is structurally wrong with how suppliers are managing customer needs?

It all starts with the customer. Just knowing your customer’s name is not enough. You have to know what makes them tick. You have to know what motivates them and the series of steps they follow when making a purchase. Interview them. Ask them why they made the decisions they have, what they find frustrating, what they would like changed in how suppliers work with them.

I can’t overstate the value of this research. When I develop a marketing and sales plan for a client, the first step is usually for me to interview my client’s customers. The insight gained will provide a foundation for strategic decisions.

Designing your strategy

At some point, you will know enough about your customers to begin making strategic decisions. At first you may or may not have the epiphany you need to create structural change. Eventually you’ll see what needs to be done, and be excited about how to build your business around this opportunity.

Once you see the customer’s problem, think about new ways of approaching the situation. What can you do differently? Is it a pricing solution? A distribution solution? Maybe you need a new product design. Your strategy will fall into place as you consider how to provide value to the customer.

Making it happen

Most established entrepreneurs have a solid, well-run business, and they have become used to maintaining the same course. But this type of change may require a dramatic shift in direction with a different level of risk than historical day-to-day business. When implementing your strategy, keep the following tips in mind.

Understand what your company is capable of accomplishing and the risk of failure. If you see a market opportunity that your company has not been capitalizing on, chances are you won’t have all the skills in house that you need to do the job right. For example, if your company does not have expertise to design new customer-focused systems in your help center then consider who to hire that has that expertise. Usually, the gaps can easily be filled once you are aware of them.

Be patient. Major, structural change often happens over a long period of time by taking small, incremental steps. Instead of shutting down your help centre one morning and rolling out an entire new system, test these changes on a small group of customers. Learn what works and what does not work. Make adjustments. You will de-risk your strategy by building off your knowledge gained from each test experience and creating a way forward that you know has a high likelihood of success.

Your company’s growth opportunities stem from your customer’s situation. Design your strategy around the customer, and build off your existing competencies as you roll out these changes.

Managing Implementation

Success requires both a practical strategy and effective implementation.  Once you develop your strategy, take steps to manage risk as you manage the various activities in your business that will drive a period of growth. 

Allocate appropriate time and budget to support an initiative. For example, most advertising campaigns need a certain level of consistency to build adequate exposure. Cutting a budget in half may eliminate all benefits from an otherwise appropriate campaign.  

Involve staff in developing the company strategy. Employees can provide wonderful information and insight in the earlier stages of the process before the final strategic decisions are made. You’ll get a better strategy out of the process, and people are more likely to buy in to the final plan.

Acknowledge progress toward completion of tasks. This is important if your company’s culture does not value accountability. For example, if managers are always late to meetings and work is never completed by the assigned deadline, the chances that your growth strategy will be implemented as planned are next to none. Post the to-do list, the deadlines, and the person’s name that is responsible for each task. Reward people for following through on promises. 

These suggestions are common sense, but few companies actually follow these principles. Take these to heart and your strategies will grow your bottom line.