A successful business depends on various components such as marketing, sales, and retention of customers. But the sustainability of a venture can only be ensured if the products are reaching the market on time, which can only be possible through a well-defined distribution strategy.
What is distribution?
Distribution is the process of getting your ready-to-sale products from the warehouse to the point of sale.
Manufacturers decide their methods of product distribution depending on the feasibility, ROI, and nature of the product.
For example, a biscuit maker would want to reach out to as many types of consumers as possible, whereas car manufacturers would choose to take their products only to a selective set of audiences, who can afford them.
A shoe company, on the other hand, might want to do both. They can choose to sell their costliest shoes only to the rich through a website, and sell the regular less-pricey shoes to everyone at their shoe store.
Although it is not as simple as it sounds, it can be achievable by building strong distribution channels.
What does a distribution channel do?
The distribution channel is a path from the producer to the final consumer. For sales success, defining a business channel is extremely important. The path is decided based on things we mentioned earlier: feasibility, ROI, and nature of the product.
Broadly speaking, there are two types of distribution channels:
Direct Selling: Also known as direct-to-consumer (D2C), this channel enables the manufacturer to directly sell to the end consumer without paying any intermediaries. An ideal example of this is brand websites where you can buy directly from the company or even social selling platforms and groups like Instagram and WhatsApp.
Direct distribution is perfect for businesses looking to streamline their downstream supply chain, cut out the middleman, and save money on logistics, distribution, and brand-building.
Business owners these days always prefer to have the additional capacity and have a direct distribution channel, as it can help through immediate feedback from your target audience and provide better clarity on how well your products are performing in a market.
This type of distribution is optimal for new brands that want to invest less and enter the market before deploying indirect distribution channels that can provide a better market reach for its product range.
Indirect Selling: This is the most commonly practiced method of distribution. This is because a manufacturer it would take a manufacturer a long time to sell every product unit. Many products like curd or ready-to-cook mixes might even expire before they find a buyer.
Indirect distribution helps the manufacturer get back the cost of manufacturing the product even before it reaches the final consumer. The manufacturer sells to one distributor at a price lower than MRP. The distributor then sells it forward to a retailer, at a higher price than he paid. The retail will sell the product at MRP, ensuring that everyone in the distribution channel makes a profit.
In this type of distribution, there are various partners who help ensure that products are reaching the right place, at the right time.
They buy directly from manufacturers in bulk through primary sales and store a large amount of product inventory, which gets distributed to different retailers.
They are the merchants who sell directly to consumers at MRP. A retailer ensures that products are showcased in a lucrative way in their shops and is also the one who convinces the consumer to make the purchase.
Agents are additional intermediaries by a company as they usually work on a commission and are hired by companies to sell goods to end consumers.
Once you determine the distribution channels you want to opt for, the next step is to choose the type of distribution strategy that best suits your business goals.
What is a distribution strategy?
A plan that chalks out how to distribute products, depending upon your pricing, promotions and value proposition.
The following distribution strategy guide will help you learn how to get your products and services in front of your target audience, intelligently and without breaking the bank.
But why do you even need one?! What is the purpose of the distribution strategy, and what makes it so important?
Well, a distribution strategy actually focuses on the 4Ps of marketing: Product, Price, Place, and Promotion. Even if you have a great product or service that people need, the lack of a solid distribution strategy can make revenue generation a difficult task. Your strategy drives your business goals, ensuring that you choose the most optimal way to reach your customers.
Let’s explore the types of distribution strategies and how to determine which one to choose.
Types of distribution strategies
A distribution strategy is not one size fits all, so before selecting a go-to-market strategy, focus on the different fundamentals to understand the market, product behavior, and product opportunity.
Broadly, these are the major distribution strategies followed by retail businesses:
An intensive distribution strategy focuses on distribution at a large scale and making products available everywhere from small vendors to multifunctional stores, with the aim to reach larger audience.
An intensive distribution strategy is not just about making your product visible in the market, but about making your product visible everywhere in the market. Companies such as Coca-Cola, Hershey, Marlboro, and other FMCG businesses use intensive distribution strategies.
Selective distribution is a marketing strategy that uses specific demographic locations for higher sales. Businesses use this model to attract a particular set of audiences.
The selective distribution strategy has been used for decades by companies such as Mcdonald’s, Dolce&Gabbana, and many others.
Exclusive distribution is a business strategy to sell products or services to specific distributors. There are many advantages of exclusive distribution. It can help you penetrate the market and also helps to create a niche market for your products.
Exclusive distribution can also provide businesses with some protection from competition and have the potential to be very profitable.
High-end businesses such as Luxury automobiles, and premium watches follow an exclusive distribution strategy.
But before deciding the distribution strategy(ies) that best suit your business, keep the following factors in mind.
Here’s what to consider while choosing your distribution strategy:
1. Meeting consumer demand in every right place
Every producer strives to be there when the consumer registers the need for their product. The objective of the distribution strategy is to deliver goods or services to customers on time. A successful distribution strategy will also help the company maintain long-term customer relationships.
2. Customer retention
Businesses use their distribution strategy to keep their customers happy and ensure repeat purchases. That may include discounts and offers set by the company to increase customer purchases. Additionally, a distribution strategy should also ensure that the customer meets the brand everywhere they experience the demand for the product.
3. Profit margins
The profitability of a business is crucial for staying sustainable in the market, so it’s important to map out your profit margins from each distribution channel.
Depending on which channel brings in the highest ROI, choose how you want to spend your efforts and money.
4. Higher growth
An effective distribution strategy can open new business opportunities like new revenue channels and outlets.
Additionally, a strong strategy leads to brand awareness amongst potential customers and aids in market expansion and new customer acquisition.
5. Reduce cost and time
A distribution strategy can be structured in a way to ensure maximum cost and time savings. Money saved can be invested in promoting the product more effectively to increase revenue share.
6. Demographic coverage
With the right distribution strategy, companies can reach their target audience more rapidly. High demographic coverage focuses on large groups of prospective buyers. This helps increase sales more efficiently and effectively.
7. Inventory management
Inventory control is an essential component of the distribution strategy. The primary function of the inventory management system is to control the flow of goods from suppliers to retailers.
The inventory management system is vital for the physical distribution of goods. The system tracks the goods in a company’s inventory and examines whether enough stock is available for customers.
A successful distribution strategy focuses on the right place based on thorough market research.
However, when these distribution strategies are used at a large scale various challenges arise as well:
Tracking the product
When the manufacturer dispatches the product, it becomes hard to keep track and leads to many questions:
How much time will it take to reach the retailer?
How many products are sitting in how many retail stores and for how long?
How to capture competitor data that can help you to stay ahead of them?
How to find out which competitors are in which locations?
Building continuous sustainable demand through a distribution channel can be a tough task. Growth can easily be saturated, which is why companies hunt for data and intelligence.
To tackle all such problems, modern retail businesses are choosing digital distribution!
Retail intelligence is overcoming these difficulties a cakewalk by automating the sales force and providing better clarity on daily sales by simply optimizing market requirements at different levels of users and helping businesses have complete visibility on their sales teams and distributors, channel partners, and retailers.
Using solutions like SFA and DMS, companies such as Hershey’s, Frooti, Dettol, Godrej, and hundreds more are strengthening their distribution channels and building distribution strategies with utmost precision.
Hence, the perfect distribution strategy requires a solid structure and high data intelligence to drive growth and profitability.
Keep all the above points in mind before implementing a distribution strategy and focus on optimizing for desired results.