Distribution Strategy: Finding The Right Channels To Reach Your Customers
Unless distribution is a top priority,
products will not sell
Let’s say you’re a manufacturer who has developed a fantastic new product. You know it’s something your customers need or desire. It’s been carefully developed. You’re confident a good marketing strategy can be established to generate awareness. Everything seems to be going according to plan.
However, there’s one very important aspect of the marketing and sales equation still left to answer – distribution. What channel or channels will you use to get your product on the shelves of retailers? Perhaps, your distribution strategy is to sell direct? Or, maybe you’ll use wholesalers or other distribution partners to do some of the heavy lifting required to get your products into retailers?
The point is that without product distribution, you might as well take marketing and promotions and brand awareness and toss them out the boardroom window. Distribution is one of the most important components of a successful end game for brands and retailers. Put it this way, if the intended end users of your products or services are unable to access those products or services, where does that leave you in terms of selling reasonable numbers? Hint: the answer is not a pleasant one.
Overall Distribution Strategy – Direct or Indirect?
Before digging deeper into formulating a distribution strategy, let’s look at the two overall types of distribution channels – direct distribution and indirect distribution.
This form of distribution occurs when manufacturers and brands sell directly to end users. In other words, they go straight to customers with no intermediaries. A good example of direct distribution are businesses that sell exclusively online. Often, these companies are responsible for production as well as delivering products directly to customers. However, direct distribution means taking on a long list of other marketing and sales functions, from website development and management to marketing strategies and promotions.
This is how most products are brought to market. Manufacturers sell to retailers who then place products in their stores and implement marketing strategies to sell to end users. Sometimes wholesalers or distributors will also be involved, adding another layer to the distribution channel. For example, a brand might sell in bulk to a wholesaler. The wholesaler then warehouses the product while looking to sell it at a markup to retailers, who then put the product on store shelves in order to sell to end users.
Distribution Strategy Step One – Determine How Customers Relate To Your Product
So how do you begin forming a distribution strategy and determining the right distribution channel or channels? A good start is to identify and understand the customers you’ll ultimately be marketing to and how they will purchase and interact with your products or services.
For instance, does your product require important information be provided at the point of sale? Is it an impulse buy or is it a product that requires a customer to invest time and considerable dollars into the purchase. Will you be marketing multiple products and services that can be purchased together? Does your product require installation or customization? Do customers need to be trained on how to use your product? Is yours a mass marketing strategy or a niche marketing strategy?
Your distribution strategy should always align with how customers will purchase and use your product.
Retail Technology Brings New Insight Into Marketing & Distribution
Many brands today are leveraging the latest advancements in digital data solutions to better understand their business operations. This is a tremendous advantage when it comes to marketing and distribution. Intelligent data solutions capture and distill valuable data into digestible reports that reveal real-time business insights into key areas, such as:
- Store appearance and merchandising (shelves, displays, cleanliness)
- Product inventory
- Demand by geography and demographics
- Marketing effectiveness
- Customer preferences
- Proper pricing
- Competitive analysis
Having this intelligence leads to a more informed distribution strategy. Plus, once distribution channels are in place, digital solutions make it possible to track performance by region, marketing and distribution partner, and individual sales channel in real time. When you know exactly where performance is excelling and where it is struggling, it enables you to adjust your marketing and distribution strategy quickly and effectively.
Aligning Distribution With Your End Users
Once you’ve determined the relationship between product and customer, you can develop a distribution strategy that optimizes it.
For example, if you sell an exclusive item consumers look for online and the shopping journey is relatively simple one, you might consider a direct distribution channel.
But what if your item is anything but exclusive? Let’s say it’s an inexpensive item that tends to be purchased on a whim. In this case, people aren’t making trips to stores just to find it, which probably means you’ll need to place it in various locations in order to generate sales. This may require large-scale distribution through many different resellers – big box stores, drug stores, grocers, etc.
Or, let’s say you’re manufacturing and marketing a more complex product, such as a smartphone or home entertainment system. These products require a team of trained salespeople to assist customers and answer questions, plus, most people want to see and touch these products before purchasing. Once again, distribution with resellers is probably the best bet, however, in this case it may be best wise to partner with a select group of retailers.
Distribution strategies (other than direct distribution) can be classified into three categories:
Intensive Distribution is the strategy of placing products in as many channels as possible. This is a smart strategy for marketing items a producer wants to sell to a broad audience. Intensive distribution involves many distribution partners.
Selective Distribution is a strategy that involves marketing products by offering them in a select group of outlets. This is usually done when marketing products that require more customized and in-depth shopping experiences. Selective distribution limits the number of outlets, providing more control over areas like pricing and customer engagement strategies, while still delivering market penetration.
Exclusive Distribution is just what it sounds – a distribution strategy for selling exclusive products and services. Distribution is limited to very particular locations. The goal is to maintain a brand image that revolves around marketing uniqueness and exclusivity. A good example would be your nearest Tesla dealership.
The Role Of Wholesalers, Distributors And Brokers
More often than not, a distribution channel will lead to a retailer – a store or venue that exists to sell directly to end users. Getting to these stores, however, can take different paths and include different partners.
Wholesalers purchase products in bulk from manufacturers and then sell them to retailers at a slightly higher price, keeping the difference as profit. The advantage for manufacturers is that wholesalers handle product storage, transportation and delivery. Plus, a good wholesaler will have strong relationships with retail groups which facilitates getting products into stores.
Distributors work a lot like wholesalers; however, they are much more of a marketing partner. Not only do they help guide distribution, they help develop marketing strategies and work with marketing agencies to help sell to consumers. Distributors tend to focus on specific regions and product categories and develop deep ties to key manufacturers and sales channels.
Brokers are third parties that handle all aspects of distribution on behalf of brands and manufacturers – securing outlets to sell, negotiating contracts, managing product storage and delivery, maintaining relationships with channel partners. Brokers handle the logistics of distribution, which typically are not a core competency of brands and manufacturers.
There You Have The Basics Of Distribution Strategy
As you can see there are quite a few factors to consider when developing a distribution strategy. If you found this post helpful, you may be interested in digging deeper into how advancements in technology are transforming marketing and distribution. If so, you can learn more at www.mobileinsight.com.
Mobile Insight® is the only retail and merchandise management solution designed to meet the brick and mortar sales challenges of high-value brands and retailers. Unlike hardware and software providers that focus on fast-moving goods, the Mobile Insight® platform delivers assisted sales solutions for more complex, interactive, and customer-centric environments. Combining data from in-store systems, 3PLs, employee and partner activity, Mobile Insight® enables informed, smarter decisions that drive sales and operations excellence. For more information, visit www.mobileinsight.com.
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