Insights into Brand Distribution Channels.
Launching a brand entails considerations beyond product design, cost, and creativity. As a retailer, one must carefully evaluate distribution channels. In our experience with baby products, we initially opted to sell through Amazon due to the onset of the pandemic. Amazon had recently launched in Mexico, offering attractive economic terms for vendors. After some years, we expanded to sell through Mercado Libre, a popular marketplace in LATAM. Post-pandemic, we diversified into brick-and-mortar stores through concession agreements, and this year, our products have entered department stores in addition to our website.
Each distribution channel offers benefits but also carries economic implications. Amazon, for instance, charges a percentage of sales and distribution fees, necessitating vendor investment in marketing. Thus, it's crucial to factor these costs into the gross margin. While our website offers better gross margins, the high marketing investment could impact initial margins, potentially leading to a high Customer Acquisition Cost (CAC).
Entering brick-and-mortar stores on a concession basis exposes the product to customers but relies on store traffic and marketing efforts. Department stores charge marketing fees and may demand a share of sales and request discounts, significantly affecting profitability. Hence, meticulous price-setting and discounting decisions are essential across all channels
In conclusion, navigating a brand's distribution channels requires careful consideration of economic implications alongside each channel's benefits. Whether leveraging online marketplaces like Amazon and Mercado Libre, establishing a presence in brick-and-mortar stores through concession agreements, or entering department stores, each avenue presents its own challenges and opportunities.
Assessing sales percentages, distribution fees, marketing investments, and potential impacts on gross margins and Customer Acquisition Costs (CAC) is imperative. By strategically managing pricing, discounts, and overall distribution strategy across all channels, brands can optimize their presence and profitability in the market.
