Chiodo Candy's decision to pursue discount-club markets has taken business away from its other distribution channel, small sweetshops. Those shops now buy from club stores -- it's cheaper than buying direct.
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It's in the Mail
Product: Catalog of residential building plans
End-users: Professional residential builders and developers
Conventional channel: Classified ads in builders' magazines
Fresh approach: Direct mail
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Dennis Brozak, founder of Design Basics, needed to reach professional house builders and show them how his architectural plans surpassed run-of-the-mill designs.
When Brozak started his company, in 1986, most residential-plan publishers introduced their catalogs at trade shows and advertised in building-trade magazines. Those pages were already thick with competitors' promotions, and Brozak, then only 25, recognized that "I could hardly pass myself off as an industry expert and speak at trade shows." He decided to make presentations -- less personally -- through a direct-mail newsletter, in which he could effectively demonstrate the uniqueness of his designs.
Back then, when direct mail was still pretty new and its volume was lower than it is today, people in the construction trades received it with considerably more enthusiasm than they do now. Brozak invested nearly $10,000 in his first direct-mail effort, cobbling together a list of 30,000 single-family-home builders. To show builders he understood the challenges they face, every issue of his newsletter featured a notorious problem common to architectural designs engineered by nonbuilders. The solution to each of those problems? A Brozak plan.
Today, Brozak says, 85% of Design Basics' $4 million in annual revenues come through direct-mail solicitation. Recently, as a result of an influx of direct-mail competition, Brozak raised the stakes. He has launched a quarterly "magazine," which he circulates to more than 100,000 builders. The larger quarterly publication pitches house designs and the Design Basics catalog, and its special focus on the business basics of the building trades makes it doubly attractive to its readers.
"The magazine has extended the shelf life of our direct-mail pieces from a few days or weeks to a few years," says Brozak. The first issue cost Design Basics more than $70,000 to produce, but it paid for itself within six weeks and has earned Brozak a 550% return on his investment. These days Brozak is busy leveraging his profitable direct-mail channel -- he's introducing another designer's catalog. Design Basics will publish and mail the new catalog to its own subscribers. "This is a win-win deal because the architectural style of the plans in the new catalog is different from that of Design Basics' plans," explains Brozak. "This way we offer our customers a wider selection."
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It Runs Hot and Cold -- Who Wants It?
Product: Combination mini refrigerator and microwave oven
End-users: Dormitory residents
Conventional channel: Distributors and manufacturers' reps
Fresh approach: College-dormitory and army-base housing directors
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Bob Bennett had his business all figured out -- on paper, anyway. His research indicated that large-appliance distributors were hungry for new products. Their customers, mass merchandisers, had started to bypass them, going directly to the large manufacturers. Independent distributors, Bennett believed, had a reputation for "paying vendors quickly, and they had the trucks and needed new products." So he lined up 170 sales representatives from 17 independent distributors to carry his new product, the MicroFridge. "Theoretically, we had three-quarters of the country covered," muses Bennett, CEO of the Sharon, Mass., manufacturer.
The MicroFridge, a combination refrigerator-freezer and microwave oven that plugs into standard electrical outlets, is a gizmo designed for dormitory living. Bennett's distributors, however, had no contacts at colleges or army bases -- places with large concentrations of dormitories. They foisted the appliances on mass marketers, who had no idea how to move them.
By August 1989 Bennett had been in business for five months, and 3,500 units were languishing in the mass-market distribution pipeline. With his company on the verge of going under, Bennett rustled up some investors and hired four full-time sales representatives to focus on college and army-base housing directors. Those prospects quickly grasped the virtues of the product. They could rent the MicroFridge to dorm residents and, over the 10-year life of each unit, earn annual profits of $50 to $70.
In 1990 MicroFridge sold 11,000 units, in contrast to the few hundred units the independent distributors had peddled during MicroFridge's first few months in business. Revenues climbed to $3.7 million. Today 50% of the units that make up MicroFridge's $14 million in sales move through the college-and-university channel, and 25% go to military bases. Bennett is now opening up two new channels: premium hotels and senior-citizen homes.
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The Medium Is the Message
Product: Customized collections of state and federal rules and regulations
End-users: Corporate-regulatory-compliance officers
Conventional channel: Direct mail
Fresh approach: On-line through the Internet
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When, four years ago, Counterpoint Publishing sent out the first direct-mail solicitation for its original product -- subscriptions to federal regulatory data on CD-ROM -- there was no faster way for businesses to keep up with government regulations. Nothing is faster than change, though, and two years ago the Cambridge, Mass., company added the Internet to the expanding list of media -- CD-ROMs, daily faxes, and on-line databases -- it uses to carry the latest regulatory information to its customers. Today 25% of Counterpoint's subscribers get its publications over the Internet.
