The Press, July 2010
“Sing-a-ma-jigs” are the latest must-have toy for American kids. According to maker Mattel they are “free-spirited, offbeat plush characters that set off unexpected laughter and excitement with each squeeze of their tummies.” Fox TV says they “may surpass Elmo Live! as the most-annoying toy to parents, guaranteeing their huge success with kids.”
What would be the best way to distribute these toys to the US market? Set up a street corner stall and sell them directly to the public, or get them on the shelves of Walmart’s 4200 US stores? According to the results of a recent study, if a typical Kiwi tech company was in charge they would opt for the street stall.
In the 2010 Market Measures survey, conducted by Concentrate and PricewaterhouseCoopers, only 25% of Kiwi technology companies are selling indirectly in export markets. Over 60% were slogging it out direct selling, sitting on the street corner hawking their Sing-a-ma-jigs.
The main method of indirect selling is through resellers who typically handle the physical distribution, sale and implementation of a product. Licensing is another indirect option, where a company can use your product, or a part of it, as their own branded product. This is an increasingly common approach for a number of successful technology exporters. And there are many variations on these themes.
Getting the best channel to market is one of the keys to export success, particularly for technology-based companies. And while technology products are a lot different from singing dolls, some of our technology exporters misunderstand the role and value of distribution channels.
A dangerous mentality is assuming that a partner will enable you to no longer worry about sales and marketing, and can simply get back to your product development. Whatever time, money, resource, promotion, travel and people you think you will need for your own direct selling – you will need the same for a channel strategy.
The effort in setting up some sort of reseller partner is not less than selling directly, it’s just the return can be better. An effective channel provides more scale, reach, networks and helps with the sale – what you hopefully achieve is more sales with the same resource. And that is the kind of reach us Kiwi companies need.
Another mistake is that technology companies sometimes focus too much on the rational elements, and see distribution as a simple equation. ‘A partner’s role is to sell; they sold zero copies of my software since last year so we will dump them. We shouldn’t have to give them too much support as we are giving them 30-40% of every sale.’
Less tangible and less appreciated is the distributor’s brand, i.e. its reputation in the market you are trying to penetrate. It lowers perceived risk, opens doors and generally makes people feel safe to buy. Another is all relationships with key people in target customers that a distributor brings.
A distributor’s reputation and connections can be crucial.
A typical scenario is the smart Kiwi company going to the UK with a great product, generating some interest at a tradeshow and ending up presenting to some huge companies. They get a business unit manager and the technical team excited by software that can deliver twice the benefit at a fraction of the cost. Everyone at these giant companies who see’s the software is impressed and says they want it.
The Kiwi company has worked incredibly hard – demo presentations, proposals, flights back and forth. In their minds the deal is done except for the paper work, albeit at a huge cost of sale. Then the paperwork goes to the board and they say “who?”, “from where”. They decide to stick with the incumbent vendor, at a greater cost and with less functionality, but much lower perceived risk.
A strong distributors brand plays a crucial role in this situation.
A local software company is a good example. They managed to partner with a global consulting company to help them penetrate the Australian market. Initial excitement at the signing turned to frustration as the name partner didn’t deliver, and the software company’s thinking turned to ceasing the relationship.
After some soul-searching they decided the brand was too valuable to lose, so they recruited one of the consulting company’s sales people to work directly for them. The software company is actually doing a lot more for the same margin, but it is starting to work, with the giant consulting company helping them get into the right boardrooms and across the line with big sales.
In return the big partner gets access to a bunch of smart people with a clever niche product that helps them penetrate new accounts. It is a complimentary approach, and one that could work for a lot more local technology companies with export ambitions.
Mattel knows how to use distribution to get the most of products like ‘Sing a ma jigs’ into young children’s hands. Our tech exporters could do well to sing the same tune with their distribution channels.