If you have a business idea that you’ve brought up to a colleague or somebody with some marketing knowledge, there’s a decent chance they asked you, “What does your route to market look like?” Well, we wouldn’t blame you if you don’t even know what that means. Or, perhaps you’re an existing business, but you still don’t know what that is. If so, this may be a perfect opportunity to improve your business strategy.
What is Route to Market (RTM)?
Simply put, a route to market is a strategy used by a business to determine which distribution channels to use to deliver its products or services to its target customers. Typically, a business will utilize multiple channels, but it’s also important to keep focus. Remember, “A person who chases two rabbits catches neither.” Clearly, this doesn’t mean that you can only have a single channel of distribution, but your business should follow a cohesive strategy containing only a handful of synergistic channels.
Why is Route to Market Important?
Improve Sales Coverage
A proper RTM strategy develops a sales route, leading the company to make decisions on which markets to expand into when approaching the desired level of market penetration in each region, usually geographically. This allows the business to drive sales growth with cheaper customer acquisition costs, as untapped markets are cheaper to sell in than saturated markets.
Optimize the Selection of Outlets
Having a well-defined route to market strategy gives your business the opportunity to choose the most optimal outlets to reach the customers you’re looking for. Not all outlets are created equal, and it’s important not to invest heavily in one that lacks access to your prioritized customer segments.
Increased Conversion Rates
Clear route to market strategies are shown to result in higher conversion rates because marketing can be catered to just a few customer segments. This goes back to the quote from before but can be expressed by another similar quote, “If you try to appeal to everyone, you will appeal to no one.” Thus, the best way to proceed is to niche down and appeal to only a smaller, more manageable chunk of customers.
Reduced Cost Structure Catalyzes Reinvestment
An optimized selection of outlets can also allow for the prioritization of low-cost channels, while a reduced cost to acquire new customers stems from improved sales coverage. This overall reduction in cost structure leads to an increased ability to reinvest in valuable opportunities to increase product quality and build brand equity.
Route to Market Requirements
Targeting & Segmentation
To successfully reach the target market and sell large volumes of products, it’s essential to be able to niche down. Segmenting the market and targeting a couple of key market segments is necessary to heed the benefits of a route to market strategy.
Your team must also be able to choose the correct channels for your business objectives, as well as monitor, analyze, and improve the performance of each channel and sub-channel. It’s also important to identify interrelations between channels and channel conflict.
Licensing & Partnerships
Depending on the particular structure of your route to market, you’ll probably need to deal with some sort of third party. It’s important that the relationship you forge with these distributors, licensees, etc., is approached and handled with clear, strategic goals in mind. This will ensure the best outcomes for your business as well as your partners.
Approach each customer segment in a way designed to serve them to the best of your company’s ability. This includes services before, during, and after sales to improve customer satisfaction. An example of a post-sales service would be customer surveys with coupons as a reward. This idea delivers value to the customer while also seeking data in return to better serve the next customers from that segment.
Trade & Promotion Management
Ensure the company is able to affect the selling price when working with distributors and vendors. Discounts, markdowns, and promotions can allow you to increase sales volumes and capture consumer demand. It’s also important that these markdowns make economic sense; you don’t want to give your valuable products away!
Field Sales Management
You’ll want to maintain a strong field sales force capable of deploying to serve high-ticket customers to the fullest extent. This includes any high-volume business transactions with partners but can also be direct consumer transactions for high-ticket or B2B sales.
Five Tips to Achieve a Successful Route to Market
Channel Cooperation Vs. Channel Conflict
It’s much more important to ensure channel cooperation than it is to avoid channel conflict. Of course, you don’t want channels to overlap too much, or the messaging you use could be muddied. However, success doesn’t come from separating channels and customer segments. It comes from combining them to create more opportunities for value capture. If there is some overlap between channels, it could be a sign that you have good market coverage and a cohesive target audience.
Utilize The Right Channels for Each Segment
It’d be unwise to utilize your lower-cost channels on the highest-value customers, as would using your expensive channels on a low-value segment. Match channels with appropriate market segments, using lower cost channels on lower value segments to save on costs. It’s also important to make sure the channels you’re using are likely to meet these segments where they are.
Route to Market Strategies Cannot Outwork Bad Business Models
A sound business model is fundamental to business success, and great distribution innovation will not change that. Make sure your business model makes economic sense before layering a more complex sales execution strategy overtop.
Results Will Not Be Instantaneous
It takes quite some time for a successful route to market strategy to reveal itself. Perhaps six to twelve months would be a good timeframe to begin expecting clues that it’s working well. However, it could take even longer than this.
The strategic development, where the team conducts crucial market research to determine which markets need to be addressed, could take anywhere from one to three months.
Channel planning and design, where the company plans and implements the various sales channels, such as relationships with retail outlets, or online stores, need to be developed. This can take anywhere from one to three months as well, but perhaps even longer.
Finally, the implementation, reiteration, and refinement of the systems need to take place. This process can run anywhere from four to twelve months by itself, but it has the potential to take even longer before it becomes successful.
A Successful Route to Market Strategy is Innovative
It’s not enough anymore to simply rinse and rehash a successful route-to-market strategy that somebody else used to succeed. Of course, it has a chance of working in the short-term, especially if there is something changed about it, such as applying the idea to an entirely different industry. However, it could be argued that this would be innovation in and of itself. Regardless, the future of marketing will be much more advanced than what we have today. Current innovations and novel channels will be tomorrow’s typical offerings. Be sure to combine channels that meet customers where they are with a unique angle to forge your own path into the market.
The Common Types of Distribution Channels
What was once an innovative and niche way of making purchases is now many customers’ preferred method of buying practically anything. You can now buy vehicles, pay for hotel rooms, pay your bills, and buy practically anything you’d like on the internet. This makes it a key part of many businesses’ route to market strategy.
It’s important to note that selling online can be done through external platforms like Amazon, but it can also be done on your own eCommerce website. Each of these methods has benefits and drawbacks, so you’ll have to think carefully about which one is right for your business.
Opening a Brick and Mortar Store
This is the traditional way of running a business, and while it has declined significantly over the past couple of decades, it’s still alive and well. Businesses like Walmart still operate hundreds or thousands of physical retail stores to great effect. This method works great for products that need to be touched or tested before they are purchased, as well as goods that need to be purchased instantly. Food, clothes, and household items are all sold here effectively. However, the costs of opening a physical shop are high compared to an online store.
Trade Shows or Exhibitions
Trade shows and exhibitions are an often underutilized and underrated way of selling products. It can put you in direct contact with many potential customers as well as help facilitate network connections which can be valuable down the road. This method is best for startups and small businesses with very limited resources.
Pop-up shops are temporary shops that can be moved from location to location. Think taco truck, but for whatever you’re selling! This can create a sense of urgency and hit potential customers by surprise, giving them reasons to buy from you. However, it can have surprisingly high costs and may not produce optimal results if your positioning isn’t very strategic.
Selling to Retailers
You can sell directly to large retailers with brick-and-mortar stores, who will hold your inventory to display. However, you can also sell to online stores. Sometimes they’ll take your inventory, but other times they’ll take orders for your product and send them off to you for fulfillment. This can make the process simpler by eliminating the need for extra transactions between you and the retailer.
Wholesalers and Distributors
Wholesalers and distributors act as middlemen between suppliers like your business and end customers. They can get your product in front of many potential customers, and many wholesalers also specialize in a potential category of products. This means they can generate sales for you with relative ease.
Be weary of distributors, as exclusivity contracts are often required to work with them. If this is the case, be sure that the contract has a minimum volume agreement because, without it, they can keep their purchases small and keep you from growing your business.
Catalogs are a method of sales that used to be absolutely ubiquitous. Today, it’s much more niche and obscure. However, it’s still used by some demographics, such as older generations, and it’s also used to sell to other businesses as it makes it easier for them to see what it is that you sell at a glance.
Using Sales Agents
Hiring freelance sales agents can bolster your sales force and round out your route to market strategy. They are often paid on a commission-only basis, which mitigates the risk that they underperform.
Things To Consider When Designing A Route To Market
If your business is very small or new, it might be a great idea to stick with some of the low-cost channels and marketing methods. For instance, if your product needs to appeal to teenagers or young adults, utilizing a brand TikTok account and a mobile-optimized online store may be much more effective than hiring sales professionals.
If your brand image is of utmost importance, perhaps it’s a better idea to focus on retaining control. This could also mean running your own online store, or it could mean building brick-and-mortar stores. However, be weary of utilizing retailers, wholesalers, or distributors if this is your biggest concern.
Creating an efficient route-to-market strategy is something that takes time and effort to accomplish. Not only that, but it’s generally a work-in-progress for a very long time. Learning the markets you want to be in, the sales channels and distribution methods you’ll use to reach them, innovating, and improving on all of this is a great place to start. If you can accomplish that, you’re well on your way to launching a successful project.