If you were writing a business plan to set up a new consumer goods business, which of the following two strategies would make most sense?
Strategy 1: Identify a market which, while mature, has publicly suffered of late, with a series of high-profile failures, and whose future is uncertain. Agree with these high-risk target customers that they can return your goods for full credit up to 18 months after invoice. Agree to a pricing structure with them for your products that will be only a shade more than they’ll cost you to manufacture. Agree to weak terms of payment 90 days after end-of-month of invoice. Get your products designed, specified and pretty much ready for sale 12-18 months ahead of when they’ll actually go on sale. Go to extraordinary lengths to woo customers, begging and scraping for your product to be one of the lucky ones picked for listing, and fail more often than not. Manufacture more than you’ll likely sell, six months beforehand, and pay for storage of the excess stock until you write it off.
Strategy 2: Have your product time to market capped at 12 weeks. Manufacture little and often, maintaining a low stockholding policy, using just-in-time manufacturing principles to keep stock fresh and fast moving and stock storage costs low. Maintain virtual inventory wherever possible. Identify customers who demonstrate their demand for your products early and vocally, allowing you to forecast sales based on real customer demand data. Ensure that you can access those customers directly, through email contact, or at events that you know they’ll attend, so that you can check that they’re happy, hear what their feedback is and talk to them about your next products. Sell to them at a price well above cost and ensure logistical expenses are covered.
Strategy 1 is, you guessed it, trade publishing. Strategy 2 is direct selling of POD or short-run physical books and ebooks. If I were pitching Strategy 1 to an investor, I’d never get it approved.
I write this on what the UK media refer to as Panic Saturday, the last weekend before Christmas, as retailers slash prices to clear their overstocks. UK Black Friday was a washout because the market has shifted online, and brick and mortar retailers no longer enjoy a semi-monopolistic position. Customers have options for where they spend their money—not just bricks and mortar, but online, and direct, too—and they’re exercising them.
Sure, I love bookstores. I love museums and forests, too. But I have a small business to run, authors and staff to pay, kids to feed. I have to take a pragmatic approach to risk management. As a customer group, to me, bookstores are low margin and high effort. Their business model is under threat. The supply chain they favor features high returns and long lead times. It’s not my job to speculate as to whether bricks and mortar retailing has a future (as someone who enjoys shopping in them, I hope they do). But as a business owner, all I see is what’s in front of me this year, now, which is that retailers are no longer as attractive to a customer group as they once were.
Over the last few weeks, my little publishing company has enjoyed a runaway success with a bestselling paperback that happens to be rather novel. It took off because of a Facebook post, which got 500 shares in the first day, then 1,000, then 6,000. The orders have all come through our own website. Why’s that? Because for the first six weeks, it was the only channel to market for this book. This method allows me to know who ordered it, and from which device. I know their email addresses and whether they’re willing to hear more news from us about similar books. I know what they think about the book because I can see their posts about it on Facebook. They paid enough to cover postage and packing, and, since each bought only one or a couple copies, there was no discount on the retail price.
And as well as those who kindly bought the book, I know a lot about those who didn’t. I know who put the book in their basket and what time they abandoned it. I have their email addresses, so I can provide them with incentives or a simple reminder to complete their purchase. For future visitors to our site, I can offer them bundled deals, and I can let people know when the next book by the author and illustrator is out. I can keep them posted on wider news through our newsletter and I can say thank you for being a customer by emailing them discount codes.
Direct sales provide higher margins, and they allow a direct relationship with the reader, which affords amazing insights into what customers actually want. It’s a business model I’d be far happier to bet the farm on than the alternative.