The business development of a company inevitably involves the identification and development of appropriate sales channels. This choice increases in complexity if the goal is commercial expansion on foreign markets.
Going into more detail, the strategic definition of the ideal sales channels depends on the following factors:
- End market;
- Type of product;
- Product life cycle on a specific market;
- Purchasing habits of the target market;
- Popularity and brand recognition;
- Type and size of the investment that the company wants to make in this market.
In this article, we shall explore the concepts related to the choice of sales channels in terms of business development, both abroad and on the national market.
Direct and indirect sales channels
Before starting, it is important to understand the difference between direct and indirect sales channels.
Direct sales channels
Direct sales channels are those that allow companies, whether large or small, to sell their product directly to the target customer, without the intermediation of third parties and consequently these companies do not have to pay intermediaries. Direct sales channels are, for example, e-commerce and company-owned shops.
Having direct sales channels allows the company to establish relationships directly with the potential buyer of its product/service, and therefore enabling them to have real-time feedback from the customer, so as to be able to quickly solve any problems and improve customer experience.
Furthermore, by independently managing sales, the company can effectively communicate directives and updates to its staff, without having to inform third parties.
However, for the company, owning and managing direct sales channels means having to invest a high initial capital to create the infrastructures and logistics systems necessary for sales management, from the purchase of warehouses to staff training. The absence of intermediaries makes geographic expansion difficult, especially when it comes to physical shops, as they are closely linked to a location.
Indirect sales channels
Indirect sales channels are those sales channels that involve a third party making the sale to the “final customer”. Some examples of indirect sales channels are marketplaces such as Amazon and Ebay, but also the traditional importers, distributors, and retailers who buy from the company and then resell the product.
Based on the presence of other intermediaries in addition to retailers, such as wholesalers and agents, the length of the channel is defined, which can be short in the first case or long in the second.
Not having to manage the part related to the sale of the product or service, with indirect sales channels the company can concentrate its efforts, financial or otherwise, on other essential activities.
Since a company is able to rely on third parties who already have the distribution and logistics network available to guarantee the best possible sales service, an indirect sales channel offers an important advantage in the event that a company has several offices or if it has to manage international sales.
In an indirect channel, the company loses or sees its control over the distribution and sale of its products/services become limited, as well as having to give up part of its margins which will be part of the intermediaries’ remuneration.
Marketing channels vs. distribution channels: from online to offline
Another important distinction to be made concerns the types of sales channels, whether direct or indirect, based on the means of communication, the infrastructure and the business goal of the channel itself. Among these, for example, we distinguish between marketing channels and distribution channels.
Marketing channels can be defined as a series of traditional (offline) and digital (online) commercial strategies that a company can use to get in touch with potential customers.
Companies have different media available to communicate with, from traditional channels such as television or radio to augmented reality experiences or social media.
The difference between effective and unsuccessful communication is often the result of the choice of more or less correct marketing channels that are best suited to the communication needs of the company on the target foreign market. Before deciding on which marketing channel to invest time and resources, therefore, it is necessary to make a careful analysis of the target market to understand the best way to achieve success, as well as to establish company goals in line with the available budget.
The most used digital channels in recent years are social media, email marketing and internet marketing, however, based on the strategy decided, it is important to customise and adapt these channels to achieve the best possible results.
Often the choice of a channel does not exclude the use of others. In this case, we are talking about a cross-channel or multi-channel strategy, that is, when the customer has a series of channels (shop, website, social media etc.) to come into contact with the company.
A different case is that related to the omnichannel strategy, which focuses attention on the user experience and coordinates all channels in such a way as to offer the customer the best possible service, seamlessly integrating offline, online and customer service channels.
The distribution channels that are mainly used for the internationalisation of companies are definitely indirect sales channels. This is because distribution channels such as importers, wholesalers, retailers or marketplaces already have knowledge of the end market and a relationship with the consumer, which are particularly critical elements especially when entering the foreign market for the first time.
The distribution channel par excellence today used by SMEs is undoubtedly an exclusive importer or a distribution network managed directly or through the supervision of an on-site multi-firm agent.
How do you find sales channels abroad?
With the rise and above all thanks to the spread of the web, companies today have much more opportunities to find sales channels for their products or services abroad. A simple search on Google or the reasoned use of Linkedin are very useful in this historical moment for identifying and making the first contact with potential foreign customers. To find sales channels abroad, other digital platforms (Facebook, Instagram etc.), network of contacts, trade fairs, thematic webinars, universities and research centres can also be useful. The skilful use of a mix of these tools allows you to find new resellers abroad.
Integrate sales channels into a business development plan
The business development plan must include, from the outset, the integration of suitable sales channels depending on the target country. Often for SMEs with low budgets facing foreign expansion into a new territory for the first time, we recommend a gradual approach based on Growth Hacking.
Growth Hacking is a business development technique that involves an approach based on the experimentation of various strategies and tools and their validation in a short time. This allows for a foreign business development with low initial budgets.
Let’s take a concrete example: let’s assume that a small company wants to expand in Canada and that it doesn’t have much information on what the right distribution channel might be.
In this situation, we suggest you activate a testing and listening phase of the market that involves trying to expose yourself to more than one channel in order to verify which one performs the most and subsequently invest in it.
In a time characterised by strong and rapid social and technological changes and uncertainties from an economic point of view, it is wise not to set up mega strategies based only on a business development idea. Foreign growth hacking is one of the best performing and safest levers for foreign business development with controlled investment, especially for companies that intend to sell abroad online using either direct or indirect distribution channels, or a mix of the two.
A complete business development plan must also include the development of the commercial network, whether this is a direct or indirect commercial network. Once again, especially in an initial exploratory phase, it is advisable to structure a commercial network based on multi-firm agents paid by commission on the basis of actual sales made.
Develed has provided its consultancy for business internationalisation to a leading company in the Chemical sector for which it has taken care of the growth of brand awareness and turnover on foreign markets, identifying the communication and distribution channels suitable for the target market, business goals and company potential. The choice of distribution channels selected for this company is an excellent example of the development of a commercial network abroad in a highly competitive market.
Interested in knowing how we set up the strategy for this client? Read the full case study.