3 Distribution models – Don’t do all 3 at once!

Hey everyone, welcome to today's episode of Conscious Design. I'm Ian Peterman, and today as part of our launch of products series, I'm gonna talk about 3 distribution models and why you shouldn't do all 3 at the same time if you're a startup. So first, I'm going to talk about what the distribution models are, a little bit differences on what, what each one can do, why you would pick one over the other, talk about what's best for you, and third, when to do more than one, which you definitely will want to do more than one ideally. It's of course new ways of revenue, but we'll talk about that at the end based on kind of what options might be best for you. So first, what are the distribution models we're going to talk about? Uh, D2C, direct-to-consumer, resale, and white label. And as you might know, B2B, business-to-business, resale, and white label fall under that. But I separate those out because those are 2 separate distribution models that, in my opinion, require a little bit of different thinking, a little bit of different work, and especially the marketing side is very different in terms of working those angles. So first here, direct-to-consumer. So this is what a lot of people are moving towards. People will tell you all about how to use Shopify and direct-to-consumer. Do it, always do direct, avoid the middlemen. There's a lot of marketing around new companies that are becoming pretty big pretty quickly, all focused on a direct-to-consumer, meaning They manufacture it and they ship it straight either from their manufacturer to you or from their manufacturer that goes to their own warehouse and it goes straight to you. It means it doesn't go to Amazon, it doesn't go to Walmart, you can't pick it up in a store somewhere else. It means you likely go to an e-commerce website, select it, purchase it, and it gets shipped to you. So this is the direct-to-consumer model has basically only been able to come into existence because of the internet. There were, of course, you know, little mom-and-pop stores, but they're pretty limited. You know, those are more customized, smaller, didn't really grow. And now with the internet, which is old at this point, but we're able to do this direct-to-consumer model. And it's, of course, very popular because there's a lot less cost in it and more profit. So you can sell something for less with a higher profit margin, but you also have to do all your own marketing and all your own sales. So that's direct, direct-to-consumer. Next, resale. So resale is kind of what the typical market looked like pre-internet, and it's still used by everyone that's ever been sold inside of a store or on Amazon. And Yes, there are parts of Amazon you can be what might be considered a direct-to-consumer, uh, in order— if you were fulfilling it yourself. But anything that is fulfilled by Amazon is a resale. Amazon is a platform. Amazon gets the money. Amazon has the product in its warehouses and it sends it to you. So e-commerce can apply to both direct-to-consumer as well as reselling. Just like when you go online, if you go online and purchase from Walmart, you are purchasing from a reseller. They're not selling— nobody's selling directly to you through a website like that. So basically reselling is, if you're going to resale model, you're going wholesale model, you are selling wholesale to someone and they are then reselling it at a higher markup price. To the actual end consumer. Oftentimes there is very little to no connection between you and the customer. The reseller owns that customer relationship. People shop at Walmart because they trust it or they have pricing, right? But they're Walmart's customer or they're Amazon's customer. I buy stuff through Amazon. Am I going to reach out to the product— the person who actually made the product? Sometimes, you know, there's, there's also a portion where definitely people will purchase products, see that's really good, and then go straight to the company who makes it. But oftentimes the resale model, you're not really looking to be the direct person to talk to the customer. You're just looking to sell to a business that then deals with the end customer themselves. You'll handle returns sometimes depending on if it's a manufacturing defect, you'll have to deal with it. But as far as like managing the actual customer relationship, you don't do all the shipping, receiving, and things like that. You send a pallet of product to someone and you get a check and then you're done. The last version here that I want to talk about in terms of distribution model is a white label. Now this is a little bit different because it takes an extra amount of manufacturing customization. So this is where you produce a product And you rebrand that product for every single customer that you have. So instead of just a straight resell where, you know, say your, your product is in a Kroger store and it has your branding, it has your labeling, people— it has your website on, on the packaging, people can find you and they can buy through. If you have a direct-to-consumer website, people can find you and buy from you. And directly, they know who you are. They can, they can build brand loyalty to your products. White labeling means nobody knows who you are and never will. You're the man behind the curtain actually producing something, but the end customer only sees it as a product of whoever you're selling it to. So that's where, you know, the store brands, the quote unquote off-brand products typically come from. That's where Walmart's line of products or Kroger's line of products or Amazon's line of products in a lot of cases are what might be considered a white label. So they're— could be the same product, they're just engraved with a different label, they're engraved with a different name, they have different packaging around it. Oftentimes it's mechanically the same packaging, it's just printed with a different label, a different name on it. It's rebranded. So this kind of falls under the rebranding I've talked about on other videos of just rebranding a product and then selling it. That's what this white label version is. And there's a lot of white label manufacturers that happily pump out millions of units, and it's sold to thousands of different people under many different labels. So these are 3 different models that you can go about in terms of distributing your product and getting it out there, ranging from you managing a client customer yourself to no one ever knowing who you are. Now, the second thing here that I want to talk about is what's best for you. So when you're deciding between these models, really want to determine what are your goals for your business. Each model has those benefits and drawbacks. You know, direct-to-consumer, you own the customer relationship. They know you, you know them, you can market to them, you can You typically get their email and be able to remarket to them and build an actual better connection with them faster than any other model. But you have to spend all your own money on marketing, and you— all that cost in terms of getting it out to the customer, the shipping, all this stuff, distribution system, is you. It's on you. There's nobody else there to do it for you. But you do have higher profit margins because there's no middleman to go through, which means you have that cash flow there once the sales are rolling in order to afford that resale model. You know, that's pretty good in terms of, yes, you're going to sell it for a lower, a lower cost, selling it wholesale, but they do a lot of the marketing. Now, with that said, there is definitely an industries. So I worked in, say, cosmetics, for example, where they expect you to absolutely market for them. And there's this— there's a lot of places. So if you were to get into Sephora, for example, get your product there, and you wanted to have it on the shelf, well, you're going to have to not only give them a great deal, typically they take 60% off of retail, you get to sell it for 40% of your MSRP. And on top of that, you're going to still spend money advertising that it's going— that it's at Sephora. So sometimes resale, you actually end up having to spend some of the marketing as well. However, because of the size, when you're working with companies that big that have that many stores, if you get in and it works, you end up selling such a high volume that you're going to be fine. Your profit margins can be thinner because you're going to be making so much so much more in terms of volume that it makes up for the difference between a higher percentage of profit and a lower percentage of profit. So that can be a lot useful. There's also a lot of smaller retailers that will take on and they won't make you do a whole bunch of marketing. They'll, they'll work through— there's a lot of, you know, smaller, smaller chain stores and mom-and-pop stores that you can get your product into. And they do the selling for you. And there's a lot of benefits to it. You still get to have your name out there. People will still start to recognize your brand. So it's kind of the in-between here, and between that and white labeling. White labeling, you know, the goal with white labeling is if you just don't want to manage any customer, uh, relationship at all, you don't want to have a customer service, you don't want to have that additional cost, white label, typically you have to sell it at a at a wholesale price in order to make it so that they can make profit on it. And they're still— 'cause it's basically reselling, but without your name on it, which means you get to charge more. You get to charge setup fees and design fees and things like that in order to make their product specific for them, well, your product specific for them. So really, when you're thinking about this, what is your goal and which one of these is going to align best with your goals? And honestly, Most of the companies that I work with, especially in consumer products, direct-to-consumer seems to be the, the one that's picked the most, but it's not always the best one to start out with, though it is typically the one that you start off with to see and prove that there's a market, and that can also help you get into retailers and into the resale market Because you can prove that there's an actual market, which means you'll get a better deal when you work with a bigger company to get your product onto their shelves. So lastly, when do you want to do more than one type of distribution model? Because each one of these takes its own setup, its own process, its own amount of work, and its own very specific marketing. You can't market to all 3 types of distribution options in one go. Each one's gonna take its own marketing campaign, its own approach, especially because if you're going between consumer and business, those are 2 completely separate ways of marketing a product. So the point that you typically wanna do this is once you've gotten one down and it's working well, because as soon as one is working really well, then you can take that and go, all right, so we have— this is working really well. We're, we're doing direct consumer, uh, we have this sales. You can show that to someone that, that maybe approaches you, and you can actually use one to grow enough to the point where you can easily do a second one. And that's typically when people transfer over. If they're doing reselling first, they're getting into retailers. Once that business is going really well and they go, okay, well, this is, this is doing well, we have cash flow and time to Set up our drone direct-to-consumer. We know that this is doing really well. They move over, or, you know, hey, the volume is great, but we want to offer direct line for certain customers that may want to purchase from us ourselves. So typically it's once you get one kind of solid and down and The order in which you can do that really varies. I've seen people go from resale to direct-to-consumer. A lot of people do direct-to-consumer first and then they get into reselling. And once you're into reselling, especially if you're a B2B-focused product, adding white labeling is actually pretty easy because it's still the same market, it's still B2B. So the transfer between resale and white label is, is probably the easiest change that you can do. Or adding one on because you're still going after businesses. And you can oftentimes, you could even sell to the same company. So you might sell your product on the shelves of Kroger and Kroger really likes your product. It sells really, really well and they want their own version of it. So they may come back to come to you and say, hey, would you make us a white label version of this product? That we can sell our label on it? And you say, yes, here's, here's what it would take to do that. So those sometimes— and you end up being the person that provides both, uh, the— your product and a white label product to the same customer. So that's a pretty easy one to go between, and I've, I've seen that done by different companies. So hopefully this gives you an idea about distribution models and What— why it's going to take a lot of effort in order to do each one, and some of the differences between the models and help you decide which one's going to be best for your company. Hey, thanks for watching. We really appreciate our viewers, and if you haven't subscribed yet, please do subscribe to our channel so you can get more great videos like this in your feed. And like the video. If you want to learn more about the Peterman Design Firm, please check us out on our website, petermanfirm.com. You'll find link and information in the description. And of course, we're on all social media as well, so check us out there. All right, thank you.