My most challenging conversation this week was with a business owner whose business is about to launch a new product onto the market.
Our conversation focused on whether to sell the product through wholesalers or directly to the users in the target market.
It quickly became clear there was no one simple answer to the question as to which strategy is the best option for the business.
If the business were looking to maximise the revenue derived from the sale of the product, the best option would be to sell the product direct to the end user. However, this was also an expensive option both in terms of time & resources to identify, target and sell to the end user.
On the other hand, a less expensive option would be to sell to a limited number of wholesalers, who would sell the product to the end user. However, the business would have to take a hit to revenue as the wholesale price would be lower to allow the wholesaler to mark the price up to achieve a profit for them.
In the end the final decision would be based on the needs of the business, which was to generate cashflow to cover the finance cost of bringing the product to the market.
On this basis the wholesale pathway to market was the preferred option. Under this option the business would receive a lower per unit price for the product with the volume of sales specified in supply contracts.
The business owner is going out to negotiate supply contracts with the largest three wholesalers in their products space.