This post was written as a result of requests from numerous smaller companies that  said advice like this would have saved them money and time; if they had only been given this information prior to the appointments and presentations with me and/or other buyers.  

It is also motivated because I really want to make sure that our smaller, family run, local businesses can prosper and thrive in a retail world of large brands.  We need little guys, lots of little guys, to keep the big guys honest and innovative since most of the cool stuff comes from the small time entrepreneurs.

This is not a short blog post – sorry.  However, I know its worth the read. It may help you more than you might think.

You won’t get other buyers in other companies helping like this. Seriously. The culture of my employer makes this a reality.  We have a very cool and eclectic approach to product selection and toward our cool and eclectic vendors and consumers.  We love to give our opinions ( some more than others – ). We are more interested in winning and helping others win if we can, if it makes sense for both parties, and if time permits.  We would rather win than worry about being “right”. We are ok allowing a vendor, and ultimately, our customer, to win. It’s how we roll .

I want to make it very clear that this is “not” an open invitation to sit and discuss all of  your product/idea with me, nor does it mean you will get an appointment because you are small, local, or because you fueled an ego and actually read this.  Some stuff just does not “fit” within ours, or others strategies.  This is a guide to help you.  

This was written for the time when you might get an appointment with me, or others, and you actually want the appointment to count. You will make a good impression, even if the product or idea did not fit with the buyers needs at this time, and you don’t get a listing. You will look and sound prepared and professional.

A great product or product idea does not mean you, or your product will be successful in retail.  Sounds kinda funny or counter intuitive, doesn’t it ?

How could a great idea or great product not be successful?

I will sound like an old guy when I say this, but if I had a dollar for every cool idea or product I have seen cross my desk in the last 14 years…

Success in retail is dependent on so many moving parts, and the challenge for most start ups, is they need spend the time, the money and quite frankly the effort to really learn the market and understand how they were going to fit in.

*** A good idea and a good product does not necessarily equate to success. ***

I consistently tell folks, this is not rocket science, this is retail. There are some very basic and elementary steps that you need to take to give your product just a fighting chance of making the extremely fickle, and competitive world of today’s North American retail.

You need some basic understanding of today’s retail, and you need a plan. Period!

I know this took a while to get this far, just keep reading…

I never thought I would use my marketing degree, and the most basic of marketing principles, as much as I do in the job I do.

First year marketing talked about the 4 P’s – Product, Price, Placement and Promotion.  Its amazing at how a good understanding of this basic concept is in ensuring even a fighting chance in today’s hyper competitive retail market. Spend a great deal of your time in “all” of the 4 P’s and you gotta chance. Maybe…

Know your product and who it is that you are hoping to sell to.  What are the competitive products in the market, and to what to degree do they really compete with you? Figure out a value of the product and where it needs to be sold and what communication tools you will use to sell your product.

You really need to think about this before you begin.  

The idea or product may sound, cool, and useful, but upon further investigation you may have noticed the reason your idea or product does not exist is that it is passé, or there are other already cool things in the marketplace that already do what you think we all need done. Maybe there is just no need another player. Maybe the market is just too small. Maybe the consumer that would have used this has moved on ( figuratively and maybe literally ). Maybe you are battling a giant and the costs to enter are just too far above and beyond you. Maybe walking away before you get too involved and invested is best.

Who knows what the challenges you may face are?

Point being, before you spend a dime, or spend another dime, you better sit down and figure that part out first and fast! You had better know!

Do some research. Is this a nice idea that can really work? Get detached. Is this a great idea – but only to you?  Ask friends and family. If you can get to a person in retail, ask them. Many good looking ideas are just that; good looking ideas. However, they may have no practical application or market for them. Walk away…

You may be surprised how many people do not even do this. They don’t do enough to understand if the product makes any sense. It just kills me how little time is spent on just that point.

If you still think there is play in your idea or product, then you keep going down the list provided.  

After figuring out if the product makes sense, go on to pricing.

Know your costs – your true costs. What is the true COGS (Cost of Goods) of your product?  Understand what margins you need to make things work. Did you add in freight, a distributor, a broker, or are you just going direct. Did you allow for marketing – your marketing and the marketing with each retailer – coop. What about terms and what if the retailer wants a free fill or will pay only on consignment? What other hidden costs are going to buried in this?

Honestly, this is probably the most significant area where new guys fail miserably (right after making something that no one wants – remember pre- step one above).

Let me illustrate. This is a classic example of what happens everyday. These are not trade secrets and are not exclusive to just this type of retail or distribution model. This is standard in most industries. The percentages may change due to a myriad of reasons, but the idea and structure is what it is. Whether you are selling bars or cars, there are costs and cost structures like this in all businesses. Your job is to figure it out before hand, and adjust your world accordingly.

This is wordy and a bit long. If you read nothing more of this post, I strongly recommend you read this part. Could save you from a catastrophic decision.

Product costs you $1.00 to make (say its an energy bar – whatever). I see many guys doing this exact example at small local shows or farmers markets. You then go out and charge the consumer, at these events, $1.50 per bar.

Not bad, 50 cents a bar profit, or a 33% margin {retail minus cost, over retail — so ($1.50-$1.00)/$1.50 = .33 or 33%}

Not bad! You cant do that it the bank! 33% is pretty nice!

So you now you have set market retail. It’s 1.50 per bar. Great! Consumers love it and sales are great and it is now time to get into the big gunners of retail. Get into those chains that can, and will move a tonne of your product, for you!  

So you come to large retail with your story and retail price point and they like it! Always looking for a good bar at the $1.50 retail price point. That’s what they want to make as a retail sale and also and they are also good with the modest 33% you were making. They would have preferred a 40 point margin at maybe a $1.69 retail, but all is good at the “retail you have already established” – $1.50 and 33% margin.

You are kind of stunned as you thought that maybe $1.10/$1.15 cost to the retailer would work.  Oh well.  Guess you were wrong and you now just negotiated a starting point of $1.00 cost to the retailer – your cost?!  

Were you planning to make this venture a for profit or a not for profit venture?

Thing is, the retailer will also want 2% payment terms, and they want a 10% discount because they are going to buy volume and they are going to save you admin and handling costs due to that single large purchase order to one location. They are also going to need 10% for advertising in flyers or whatever else they have to produce (gonna cost them probably 20% a unit to do this), to showcase your products to their consumers; and since you guys are all pals and friends now, and thats what it costs, you should also be willing to do this; you know, share the costs.

Since this is your first dance together and they don’t really know what kind of partnership you are going to have,  a first time/one time introductory order is in the cards: of lets say at least another 10%. The risk is theirs now.  If this stuff does not sell, they don’t want to send back, but they may have to blow out, and so they need to limit their risk for the first dance.

Plus they want this shipped to them and they will let you can cover that, probably only another 2 or 3 %. Now if the product does not sell and goes short dated, and they have to toss out (you both know this will never happen, but they don’t want all the risk of that either, so they say, let’s share the 5% that we might anticipate and call it 2.5% each for write offs.

So they will pay you the $1.00 less the 2%, the 10% direct to them savings (that’s 10% of the dollar), the other 10% advertising (that is your 1/2 of  their 20% cost – that’s again off the $1.00), the other 10% for the first time order (you can have that one off their new cost of 90 cents), then the defective of 2.5% (they’ll let you have that off the 90 cents as well) and then you should add shipping – go 2.5% and if I were you, i would calculate off the original $1.00. That means they pay for the first order (they’ll just take everything right of invoice for you so that everyone makes this less admin for each other) 63.5 cents per bar.  Since they are unsure and the math could be wonky, let’s just make it 60 cents for their first order and then 69 cents for the ongoing orders.

Ok? Happy? Or are you ready to cry now…

You just lost 40 cents a unit because you set a brutal retail based on not thinking about all of the other costs involved when you had to move into retail!  You never thought about all of the costs and potential costs that could be incurred because you did no homework. What’s worse, is that this above model only works if you go direct to an account that can warehouse and distribute themselves! If you need a distributor, they can’t sell to other retailers much higher than what that guy can buy at, so they may need another 15% off those low costs so they they can do all of the above plus warehouse and support your product. So at 20% margin for them, they sell to other retail at about 74 cents. Now if they want to run to the 69 cents, like your direct accounts on their own, they may want a 20% reduction off those low costs to get them the 20% margin.

You killed yourself at the get go! Your cost was really a $1.00, but you should have never based your retail on that cost! You should have been working on a cost of at least $1.75 with a retail of $2.75!  This way after the discounts and reductions (all legit by the way and pretty standard as we all have huge infrastructures to cover) of about 30% (almost 40% on first order!) – you still would have netted $1.20 per bar or a profit to you of 20 cents or 16.5%. I’m not too sure if that is even enough considering all the risks you are taking. You may have had to go out at a cost of $1.90 initially and maybe have sold your bars at $2.99 each.  This way you would have been making very good money when you have no middle men involved, but you would have set a cost that was workable when you finally got to retail.

The only other way to sell at $1.50 retail, was to get your cogs closer to 50 cents (if that was even possible). That way, at $1.00 cost to retail (which was what you were trying to do), you still would have made 10 cents on that fist order and made around 20 cents on all subsequent orders; once all discounts we taken. Now you can make a go at this – in large box retail at the established $1.50 retail.  

If you never want to go into retail and want to sell direct to the consumer for ever, then your original model was probably ok – think about that, I said “probably ok”.  I would recheck my numbers if I were you and I would have still tried for at least a $1.99 retail. Always easier to come down in retail, than go up. Remember, this game is set up for you to make money so you can feed your family and hopefully employ a few folks to feed theirs.  

You gotta understand, there are many costs that you must account for and allot for. There are many layers of costs that you have to think about. Retailers have to make money as well and the costs of running retail stores is high; you have to build this into your costs.

Get it??  I know it can seem a bit confusing, but the general rule of thumb in the above example would have been to take your cogs and multiply it by “at least” 3 to establish what a true and final retail would be. This works with most consumer packaged goods, that are in highly competitive industries with good volumes, such as the example above. So for a $1.50 retail, the true cogs should be around 50 cents and for a $3.00 retail, the cogs would need to be around $1.00. More or less. If there is huge volume in the area your are competing in, all levels can make less and it still works; that is just a general rule to make sure that you make money, the retailer makes money and the consumer can purchase your product for a long time as it will be profitable for all to make and sell. Everyone has to make money or the game will not play out and the consumer is the ultimate loser as they never get a chance to try your stuff.

Next, where are you trying to get this product listed or placed?

Know the retailer your are talking to and how this may impact your go to market strategy and how it may impact other retailers attitudes towards your product.

Walmart has a very different approach to getting products to consumers than Costco and they are both different than LD which is different than Safeway etc…  Know all of the retailers your are in or trying to get into, and know how that impacts your strategy to sell within the retailer community you are trying to get into. All are different, and you being in any one may exclude you from being in another or all.  If you are also online and how does that impact the retailer you are sitting with?

Each retailer and each channel poses different issues and concerns for all involved. Each will impact not only your pricing strategy, it could impact your marketing strategy.

You have understand the marketplace and you have to understand all of the quirks of picking one retailer over another. Again, you may have to have a different product, pricing, and promotion strategy based on your placement strategy. It can get “interesting”.

Know your buyer.

You better know who you are talking to and what will work and what won’t. Most of us have been around a long time. Ask around. Figure out your game plan and your strategies and tactics.  You play me very differently that you might a SDM or OFG buyer. I have different issues and concerns than a Costco and/or a Walmart or Loblaws buyer.  We all have different personalities and very different internal and external challenges. We go to market different and we think different. We are all “different”!

There is still a lot of personality in buying and selling. You need to understand this. You gotta manage the personalities and all of the lovely nuances of your buyers. Have fun

One of the key ways that you will market and promote your product and/or ideal is in the packaging of it.  Spend time, a lot of time on your packaging and your go to market strategy. Again, spend lots of time on your package! Consumers purchase with their eyes first. Crappy package and poor marketing will kill a great product. I can’t try what I don’t want to buy.

This is an excerpt from a blog post I did a short time ago;

What I find the Natural Health guys miss on most of the  time (more times than not) is the packaging. Most get the ingredients, and they have a huge passion for what they are trying to achieve, and then they lose sight of the real goal which is to sell their awesome product.  And selling takes more than just a good product inside. In fact the product inside is critical for long term play, and the packaging is the only messaging you have at store level to give the consumer a reason to consume for the first time.

Too often I see great products with just god awful packaging. I so want to list it’ll because it tastes great and is great for you, and the owners and me will be the only ones who will know this because their easiest marketing tool – the package – was missed, and because of that, I am not going to list it in our stores. All because the packaging component was a miss. Too bad…

So my suggestion with the folks in Natural Food who spend all their time with the insides of the package; start to spend more on the outside, no matter what you think, I wont buy something that looks unappealable and nor will the general public.

And if you don’t believe that packaging and the marketing around it is critical, think tobacco, soft drinks, junk food…

Finally, when you start to consider the promoting your product. Don’t come to me with the classic idea that you will start a marketing strategy or marketing plan after you get orders and distribution because you don’t have money right now.  Not my problem. Figure it out. My job is to “lease or rent” space to the most favorable tenant for me so that I can sell and make money for my shareholders and the 7500 employees that we have, and their families.

As you can see from the list, it’s all about being ready and being informed. Know your game! Don’t think that you know it, make sure you know it. Practice your pitch on people you know, don’t practice on me. An idea is not enough. You need to think things through.

I know that was a really long post and that many never got thru it the first time, but I can’t stress how important it is to think things thru! You get one chance to make that first impression – make it count!

Good Luck!

Ciao for now @kootenayborn

Kenny Vannucci

Blog: http://kenskool.com
Twitter: http://www.twitter.com/kootenayborn
LinkedIn: http://ca.linkedin.com/in/kenvannucci