Both Sides of the Retail Table

By Vanessa Ting

Use a “no” as an opportunity to get more information to improve your pitch.

Never receive a “no” without following up to ask “what would you like to see done differently?”  Remember, a “yes” means that you have satisfied the buyer’s requirements in three areas:

1)      Product, pricing and packaging are all in order

2)      Your supply chain, inventory management and customer support operations are all in order

3)      You have a marketing plan for how you will build awareness and drive sales to shelf

So if you hear “no” then find out which of the three areas above need improvement.  Being mindful of the buyer’s limited time and with diplomacy, press on for more details on where your product and pitch fell short.

Be open-minded when receiving the feedback.  Don’t use it as an opportunity to argue or be defensive.  Just take it all in and take good notes.  At the end of the conversation, ask kindly if you can contact them again after you have investigated the feedback and have improvements to share.

Timing also matters.  There have been times I said “no” for 6 straight months and then one day, a spot on my shelf opened up or consumer trends shifted – and all of sudden that “no” became a “yes”.   Because timing is a driving force, it is important to stay on top of business changes occurring with that retailer and the industry.  Do this by reading industry news daily, talking with your peers and following experts on Twitter.  As the tide shifts, opportunity for your product may emerge.  It’s your job to recognize it, jump on it and use it to your advantage.  Romy is successful because she is good at finding relevant news-bites and business updates to create dialogue with buyers.  This keeps her brand top-of-mind with buyers so next time a spot opens up, they think of her first.

For more on this topic, you can stream an audio clip of an interview I gave on this topic.  Move the marker to 23:08 to skip straight to the juicy stuff, “What to do when the retailer says no”.

I am a firm believer that when a buyer says “no”, it really means “not now”. I have been politely and professionally persistent over the last several years building the Psi Bands brand. I have received my share of “no’s” and I have not let that stop me from later landing major national accounts that previously said no.

So, what is the secret? Timing + persistence = success

TIMING:  There are numerous reasons why a buyer might have a need to fill a spot on their store shelf that they were not anticipating, including an under-performing product, a recalled product, or maybe it’s because your product just appeared on the Ellen DeGeneres show and now they are willing to take a chance on your product where they previously were not. Other timing factors that could work to your benefit include: a new buyer coming on board (maybe the old one didn’t “get” your product, but the new one does), you have greater sales distribution so you can provide the buyer with key data points that are based on actual performance at other retailers, and/or you are now carrying a product line whereas before you only had one product (this is where the buyer is evaluating sku and vendor rationalization criteria). There are numerous reasons that a buyer could change his/her mind about adding your product to their assortment. As such, you need to keep at it and be persistent in your pursuit of landing the account.

PERSISTENCE: At Psi Bands, we compile a monthly report that includes all press/marketing for the past month and what we anticipate coming up in the coming months. I then, via email, present this to potential new retailers approx. 1x/quarter with the goal being that I remind them that I am here to stay and that I welcome their business. 1x/quarter is often enough yet not bothersome.

Go land those accounts!

By Vanessa Ting

As long as brands use social media as one prong of a larger integrated marketing campaign and tie it to a clear marketing objective (e.g., brand building, drive trial or repeat, etc.), then yes it matters.  But if a brand is doing social media without clear objectives, it matters less to a buyer that you are active on Twitter, Facebook or Pinterest.

The basic principle to remember is that buyers want to see a marketing plan (or, marketing strategy) to help them understand what you will be doing to drive shoppers to their shelves time and again.  If your social media tactics help support that – along with your overall marketing plan – then you’ve completed an important prerequisite to pitching your brand to large retailers.

Remember, social media alone is not a marketing strategy, but a tactic used to carry out a marketing strategy.

Community vote:  Would you be interested in having your marketing plan evaluated by brand managers and advertising executives to make sure the strategy is on point and your messages and marketing material are effective?  Let us know in the comments.

You bet. Social media is a great way to engage with your existing customers and drive new sales. As small businesses, we do not have the big budgets to do national in-store demos on a regular basis, participate in expensive focus groups, or run national ad campaigns. We do, however, have the ability to build relationships. Social media is a great, cost-effective alternative to collect data and drive repeat and new sales based on relationship marketing.

Social media provides first-hand feedback from our customers, which is priceless. When we connect with our customers, they can become more loyal, thus becoming repeat customers. Our customers tell us what is working or not working for them about our product. This data can be golden, especially if they are telling us something new or different we were “blind” to. We can then make modifications to our packaging, pricing, product, and/or marketing, if we feel that what our consumers are saying justifies a change.

Social media also, of course, allows us to drive new sales, connecting with consumers we may not have otherwise reached –or reached on the same level. With consumers or prospective consumers spending hours per day tweeting, pining, facebooking, etc., we would be remiss not to engage in some form of social media.

I just purchased Mari Smith’s new book, The New Relationship Marketing: How To Build A Large, Loyal, Profitable Network Using The Social Web, and am awaiting a copy in the mail. I can’t wait to gain some more insight on how to be more effective with social marketing. If you have some success stories to share, I — and our other readers — would welcome hearing them.

When we engage, we drive sales. A win/win/win for our consumers, retailers, and our brands.

P.S. Speaking of social media, you can connect with me on Facebook here: facebook.com/psibands

By Vanessa Ting

It’s not just PR exposure that retailers care about, but your overall ability to build brand awareness and create demand for your product.  And PR is just one lever to use to create demand for your brand.

Romy offers great tips on how entrepreneurs can generate PR for themselves.  I will add to that by suggesting what you can propose to retailers to supplement your PR efforts, especially if you’re on a limited budget.

If you’re unable to drive customers to those retailers through PR, pull other levers at your disposal such as:

• Use that customer list you have built over time.  Offer to drop a direct-mail postcard or email announcing the launch of your product to your customers in your retailer’s geographic area.
• Leverage social media. Tell retailers you will create programs that direct people following you on Twitter or Facebook to their stores. Combine it with a promotional offer (as mentioned above) to sweeten the deal and get people running to those stores.
• Strike strategic partnership deals with complementary manufacturers who have the PR muscle for co-branding or cross-purchasing (e.g., coupons) initiatives.
• Focus on driving impulse purchases among shoppers already in the store. You can do this by making sure your packaging gives you a noticeable presence and clearly communicates what you’re selling. Work with the retailer on giving you prominent merchandising space (may be hard if you can’t sweeten the deal with additional funds). Or use your limited budget to create distinct POP displays or shelf signage. Or create a promotional offer (that you fund, not the retailer) such as “Buy 3 and Save” or “Buy One Get One Free”.
• Show your sales history. If you can show these potential retailers that you have been achieving strong sales in your current stores, this may encourage them to give your product a try. Nothing speaks louder than a proven sales record.
• Get creative with solutions. If these retailers are reluctant to take a gamble on you, offer solutions that mitigate some of their risk and shows your confidence in your product. For example, you can offer consignment deals or a limited time store test.

Absolutely. They want to know what you have done in the past and what you have coming up – with the bottom line being that you will drive sales to their stores.

The past: past press shows the retailer that the media feels your story is a worthwhile one to tell and that you are committed to generating consumer awareness. Both build credibility.

The present/future: Keep creating opportunities to tell your story. “‘What have you done for me lately” applies (i.e. what do you have in the PR pipeline that will drive sales to their stores?). Communicate with your existing retail buyer (approximately one time per month) or potential new retail buyer (approximately one time per quarter) what you have accomplished since you last communicated. It’s a great “excuse” to communicate with your buyer with some meaningful information and to keep an open dialogue with them (if you temporarily fell off their radar, it will remind them of your existence and then they can bring up any issues – good or both — that you want to know about. Information is key.

Many entrepreneurs do not have a PR budget. So, you may need to implement a DIY (do it yourself) PR program. To be clear, PR requires strategy, creative thinking, research, patience, and relationship building. It’s an art and a science, and if it’s not your area of expertise, then this may be an area you wish to invest in. The goal clearly being that your sales will outpace the PR investment. This usually does not happen overnight. It’s a process.

Some DIY PR tips:

1. As a general rule of thumb, pitch local, then regionally, and then nationally. Build momentum. It’s like sales. You start off smaller in local stores or online and then you grow regionally and nationally.
2. Not all products are for everyone. So, pick targeted mediums. Who is my target audience and how can I best reach them (what magazines do they read, what online sites do they visit, what TV shows do they watch)? Hone in. Your targeted feature will likely exceed sales than a feature with a larger circulation/reach but that is not as targeted.
3. Do your research. Once you dial in on which mediums you are targeting, do your research. Who do you need to pitch so that your story has the best chance of being selected? In what time frame do you need to pitch (are they a magazine working off a 3-6 month lead time, or is it a local newsletter where 2 weeks might be sufficient?). Did you send product samples in a creative way that will make it stand out amongst the hundreds of other packages they have in their office?  What stories are they currently running and how does yours fit in? Does this media source have their calendar posted online so you know what their focus will be?

By Vanessa Ting

Selling to major retailers is a strain on cash flow.  There are many fees and charges you will be exposed to within the first 6 months of getting a “Yes” from stores like Target, Walmart, Costco and other national retailers.  These costs will be covered in more detail in a future post, but for now, here are the cash flow considerations you should investigate further.  Since Romy covered the risks to positive cash flow, I’ve taken the approach of suggesting cash investments you should make now versus later to increase your appeal to retail buyers (and improve your cash flow down the road).

NOW:

Invest in funding the “right” Suggested Retail Price

Avoid artificially high retail prices.  Many first time product entrepreneurs are unable to get favorable costing because of their small production orders.  As a result, they price their products (both retail and wholesale) artificially higher to offset the high production cost per unit.  Make sure you price your product strategically (e.g., good, better, best) and based on what the market will bear.  Obviously it is important to price for your own profitability too, but at the beginning, you may need to “invest” in your business by taking a smaller per unit profit.  This obviously reduces incoming cash flow, but if you are realistic about your breakeven point and manage your financials methodically, it will pay off.  You want to avoid having fluctuating retail prices in the market or artificially high retails that can hurt your sales volume, thereby making you less attractive to retailers.  And unless you have built a strong brand, often times your product cannot justify the artificially high retail price.

Invest in formal or informal product usability testing

Shop your prototypes around for feedback to as many consumers and retailers as possible before you commit to production.  Nothing is worse than bringing to market a product that has not received “buy in” by these two important stakeholders.  Getting as much input now will save you from the buyer rejection, the cost of consumer returns or complaints and the expense of unsold inventory.  Avoid relying on friends and family feedback – it will always be biased.  Leverage entrepreneur networking groups, stop shoppers as they walk out of your targeted stores, invest in focus groups, contact retail buyers for a “preview” (which will NOT hurt your future chances or ruin the “wow” factor – big misnomers!).  Get creative; there are many cost-effective ways of getting this input.  Major consumer goods companies spend a disproportionate amount of their budgets on product research and usability testing prior to launch.  Obviously you don’t have their big budgets, but you should take their cue and spend a little money up front to save you money later – and prevent blowing your first and only chance in market with retailers and consumers.

NOW (AND LATER):  

Invest in branding early and often 

To be attractive to buyers, you need to have built a brand that distinctly targets a consumer segment.  This is more than designing the colors and logo (visual brand identity), but having a brand strategy.  Building a brand effectively occurs over the span of time and cannot be rushed, so start now.

Building a brand requires a financial investment, both in defining your brand now  (research, strategy development, identifying key messages) and in executing the marketing tactics later (advertising, sampling, event marketing, packaging, social media, retail promotions).  Without an attractive brand that can drive store traffic and sales, buyers will find your product less valuable to them (and at worst to you, buyers will turn to a current vendor with similar manufacturing capabilities to knock off your idea at a cheaper cost.  Strong branding can prevent this!).  Branding is a large up-front expense, as well as an ongoing cash flow requirement throughout the life of your product(s).

LATER:

Hire Vendor or Manufacturing Reps

They are usually required by many major retailers.  And it is usually to your advantage to use them to help you make contact with buyers, sell in your products, navigate the new vendor set-up process, provide customer service, and buyer relationship management.  Often times, these reps take anywhere from 5% to 10% of net proceeds after you receive payment, which reduces your incoming cash flow.

Final thoughts: In general, all cash flow considerations “now” should strategic, forward-thinking, and prioritized by the potential payoff (the investment horizon will be longer).  Invest up front to avoid last minute changes or redesigns that can be costly.  Cash flow considerations “later” are more operational in nature with more immediate ROI.

The old adage of “cash is king” certainly applies to running a business. Without it, you can’t invest in anything. So, it’s important that you consider where – and when – you spend your hard earned dollars.

Manufacturing….

Let’s consider the manufacturing cycle. You receive a PO, most likely AFTER you have started to manufacture product. You are moving forward with manufacturing based on a buyer’s word that they are going to be placing an order. Because if you wait until you have the actual PO, you will likely NOT have enough time to manufacture your product and get it delivered on time. (This is often the case with the larger retailers. You will not get the PO until close to when you have to ship the product to their warehouse.) Of course, however, if you don’t move forward with manufacturing, you may lose out on the opportunity to move forward with a particular retailer. So, you take the plunge.

You manufacture product in, let’s say, early January. It takes you 2-3 months to manufacture and ship from your overseas manufacturer so you receive product in mid March. You have to ship your product to your retailer’s warehouse(s) for arrival early/mid April. If you are lucky, your terms are net 30 so you receive your first check in May (net 30 from the date you ship). So, you are floating cash for 5 months (Jan-May).

Let’s not forget, too, that you have to manufacture for future POs before you even get the first round of POs delivered to the retailer’s warehouses. You are in a constant state of manufacturing and/or shipping mode. More cash.  So, you must consider how quickly you grow (the larger the retailer, the more stores they have, the more inventory that is required).  Can you keep up with existing customers and add on this new retailer?

Now, if you are not so lucky, your terms might be net 60, net 75, or worse: pay on scan or you might have a “hold” on a certain % of dollars returned to you. In order to minimize their risk, some retailers might ask or require that you work off pay on scan or implement the hold.

Pay on scan is when you get paid for product as it scans through the register. Your terms could be net 30, pay on scan. So, if your product is not on shelf until May (using the above time schedule), you are looking at getting your first check in June – and that is only for product actually sold.

If the retailer does a hold back (a certain % of your dollars are on hold), try your hardest to get the buyer to commit to a certain date by which the hold will be released and/or reduced and what the decision-making criteria are for both. You may not be able to get such a date. Know, however, that if you move forward with such terms that this hold may be permanent and/or virtually impossible to get released and/or reduced – and that you will be constantly floating money. In order to do business with this retailer you may choose to move forward anyway; however, just have your eyes open as to how this will impact your cash situation.

Marketing…

In addition to getting your product on the shelf, you have to keep it there. You will need to support and drive sales. So, you must allocate cash for this, too. We will cover marketing in a different blog.

OVERHEAD…

Find your breakeven point so you know how many units you must sell in order to become profitable. While many of your costs will increase as your distribution increases, you can achieve economies of scale in many areas such as marketing, fulfillment, salaries, EDI, product liability insurance, legal, etc.

Float as much money as you can for as long as you can – in all areas of your business. Negotiate the best possible terms with your manufacturer and suppliers that will allow you to delay payment for as long as possible. Negotiate with your retailers for soonest possible payment terms. Do not be shy to ask for what you want/need. While you may not get exactly (or nearly) what you want, ASK. Get a credit card that will allow you to delay payment – and pay it off in full. The American Express Plum card is one good way to float cash, if you qualify.

If you take just one thing away from this blog (and, hopefully, you are taking more than one thing away), it should be to grow organically so you can manage your cash.

By Vanessa Ting

I covered this in an earlier post so I won’t belabor the point much more except to say this:   It’s important to only ship as many units as the retailer can sell.  Always aim for a 95% sell-through.

Retailers, both small and large, expect you to help them manage their inventory levels.  They expect you to speak up if you think they have placed too large of an order.  They expect you to challenge back if they have placed too small of an order.  But how do you know what the right inventory level is?  Read about it this old post.

Making Inventory Management Mistakes are Expensive
It is common practice for large retailers to ask for a concession when you miss your volume projections.  If your product underperformed, major retailers will chargeback the cost of the unsold inventory or worse yet, additionally charge you the margin dollars they lost when your product didn’t sell.  If your product oversold, and you couldn’t replenish inventory fast enough, the retailer may chargeback the loss sales based on a daily sales rate.

Not only is it important to get the right amount of inventory to buyers’ stores as mentioned above, it’s also important to get it there on time.  If your product arrives too early, your inventory will incur unexpected storage and handling costs.  In this case, a larger retailer may chargeback that additional expense.  If your product arrives late and the shelf sits empty, a larger retailer will charge you for those days of loss sales.

Smaller retailers are not in the practice of charging back for making inventory mistakes.  Mostly because it requires too much work on their end to enforce chargebacks.  Instead, they will cut your products out of their assortment altogether and not work with you again if your mistakes are costly.

Inventory Control When Manufacturing Overseas
If you are shipping product from overseas, managing inventory becomes even more unpredictable.  With ocean freight lead times, cargo capacity and shipping priorities, and/or customs clearance – sometimes your shipment will not arrive on the date your factory or expediter quoted.  This impacts the date product will arrive at retailers’ stores.  For this reason, it is advisable not to sell to retailers until you have product in-hand and in your DCs.  This is often times not ideal for small businesses, but it will help your vendor performance and help you achieve a high rating on your vendor scorecard.

Vendor Performance Scorecard
Yes, in addition to sales performance, vendors are measured on inventory management and shipping performance.  Some inventory and supply chain measures include:

% on time delivery

% fill rate

% receipt efficiency

% shipping compliance

Here is a sample scorecard that covers the full throttle of vendor performance metrics:

By now, you realize that selling to retailers is not just about having a good product, strong marketing and sales support, and a strong financial rationale.  It’s also about delivering the product in the most efficient way.  The larger the retailer you sell to is, the more you are expected to be sophisticated with inventory control and supply chain management.  While you do not need to have an in-depth understanding of this when selling to independent boutiques and small chains, it will behoove you to start thinking ahead for when you do finally scale up.

You do not want to have too much or too little inventory. Either one can cost you. Why?

Too little:

If you do not have the inventory necessary to fill a retailer’s PO, then they are sitting without product and that means lost sales. A buyer is judged on how she/he meets his/her financial goals. If there is an empty spot on the shelf because you couldn’t ship product, that is lost revenue to this retailer. Imagine their dissatisfaction. And yours, because you are losing, too, not only from lost sales, but you don’t want to put yourself in a position of being in the “hot seat” with this retailer and lose their confidence – and thus their business.

Too much:

If you have too much inventory with this retailer, that means your product doesn’t have the sales pull through that the retailer was expecting. It is your job to help manage the amount of inventory they order and to make sure you are marketing your product (through in house programs and outside – social media, PR, advertising). When you feel your buyer is placing too big or small of an order, it’s time to speak up, have a conversation with the buyer as to why they are ordering what they are, and explain your rationale (which is based on your hard sales data). You can work towards a win/win number. A super large PO is not necessarily a good thing. Manage the process, expectations, and your finances. (See my next blog on cash flow considerations as to why a large PO is not necessarily a good thing.)