Product Distribution: Building the Right Strategy to get Your Products in the Hands of Customers
Manufacturers and brands know that growing revenue ultimately comes down to how effectively they can sell their products and services. This is just basic economics. However, there’s a critical part of the process that is all too often taken for granted or left to the status quo, and that is product distribution.
In this article, we’ll discuss the value of having a clear and practical distribution strategy, as well as different methods of distribution retailers might want to explore. First, however, let’s start off with a simple definition of product distribution.
Product Distribution Defined
Distribution is the means by which goods and services get from the manufacturer to the purchasing customer. It is how products move from where they are made into the various sales channels that reach end users – store shelves, mall kiosks, even vast warehouses that store products to fulfill e-commerce shipments.
Distribution includes the packing, transportation, and delivery of these items. It also includes the people and processes that ensure goods are moved with maximum efficiently in terms of time and cost.
A strong product distribution strategy is critical to the sales and growth of any brand. After all, it doesn’t matter how great the marketing is, or how many exciting promotions you’ve created, if the product isn’t available in stores and customers can’t get their hands on it, you’re not selling anything.
Is your business using the right distribution strategy? Are you confident you understand your market, customers and operations well enough to formulate an effective strategy? If not, get more insight.
The Two Primary Types of Distribution
There are essentially two main ways distribution can work. One is a direct channel and the other is an indirect channel.
Direct Distribution is a strategy that eliminates any middlemen from the equation. In this distribution method, manufacturers sell directly to consumers, which means they also assume a lot more responsibility than simply making a great product.
Direct distributors are also tasked with the many other aspects of selling, most notably marketing and fulfilment – pricing, storing, packaging, shipping and delivering products to customers. The cost and headaches associated with direct distribution can be daunting. For example, a manufacturer who sells directly online may now find it also has to invest in warehouses to store the products; purchase and manage a fleet of delivery vans; and hire a team of drivers to handle customer fulfillment.
Additionally, managing an effective e-commerce site might very well demand the addition of a technology team. Fielding customer questions and concerns may warrant the creation of a new customer service department. Direct distribution can be effective, but it is important to consider the cost of doing business this way – both in terms of hard dollars and in terms of time and energy.
Indirect Distribution is the most common method of product distribution and includes the services of at least one intermediary whose job it is to ensure products are placed in channels that are easily accessible and desirable for customers.
For example, a retailer is an indirect distributor. Products are placed on local store shelves, so that customers can get to them quickly and easily. They might get there through a direct relationship between the retailer and manufacturer. Or, it might happen though the services of a wholesaler or distributor.
Wholesalers are companies that buy products in bulk from manufacturers at a sharply discounted price. They then resell these products to retailers at a higher price point and pocket the difference as revenue. Wholesalers are solely concerned with the storage and delivery of goods as they travel between manufacturers and retailers. Beyond serving as this intermediary, wholesalers are not participants in the sales process.
A distributor, however, does more than serve as a middleman. Distributors are actively involved in the sales process. They help conduct market research. They find new sales and marketing channels. They go beyond simply making sure products are available on store shelves. Distributors take it upon themselves to make sure the products they represent are actually selling.
Because distributors work so closely with manufacturers and retailers, they tend to forge strong and long-term relationships with these clients. In fact, it’s quite common for a distributor to focus on a select group of companies and territories in order to provide the highest possible levels of service and support. Wholesalers, on the other hand, are used on an as-needed basis and usually work with a wide variety of manufacturers and retailers.
Manufacturers: The producers of products and services for the marketplace.
Wholesalers: An intermediary between manufacturers and retailers.
Wholesalers buy products from manufacturers in bulk and warehouse them before reselling to retailers.
Distributors: Serve as an intermediary between manufacturers and retailers, but also play an active role in marketing, research and sales strategies.
Brokers/Agents: Often hired by manufacturers to represent the brand throughout the distribution process, including actively managing marketing, contracts, orders, etc.
Breaking Down Indirect Distribution
As pointed out, indirect distribution is the most popular method of distribution. If we dig deeper, it can be broken down into three distinct types. This is where a strong product distribution strategy begins to take shape. The right type of indirect distribution has a lot to do with what type of product or products a business is selling. First, let’s examine the various forms of indirect distribution.
The strategy here is to place products in as many retail locations as possible. Intensive distribution is about making the product easily accessible to the consumer. A good example might be a potato chip manufacturer. You’ll find them in almost every retail outlet – grocery stores, gas stations, big-box retailers, convenience stores, drug stores, sub shops, and many others.
Exclusive product distribution can occur in two ways. One is when a manufacturer partners exclusively with a single retailer to market and sell its products or services. An example of this might be a bicycle company partnering with a big-box retailer like Walmart or Target. The second form of exclusive distribution is when a manufacturer sells through its own branded retail locations
– think car dealerships.
There’s always a middle ground and selective product distribution is it. This method lives somewhere between intensive and exclusive distribution with manufacturers limiting the number of retail outlets allowed to sell their products, however, not entering into an exclusive arrangement with just one retail partner.
Choosing The Right Distribution Channels
Should you work with a wholesaler to get your products to customers? Or, would you be better served employing the augmented marketing and sales services of a distributor? Do you the capital and resources to act as your own direct distributor? If not, which form of indirect distribution will work best for your company?
These are the questions to ask yourself when formulating a product distribution strategy. Here are two of the other factors to consider.
What are you selling? Is it a high-value product, such as an automobile or a personal computer? Or is it a routine purchase, like candies, sodas, beer, toothpaste, shampoo, and the like.
More expensive items lend themselves to selective or exclusive distribution channels, where customers come for expert service and answers to all their questions. Routine items do better with an intensive distribution model, because convenience is the top priority.
Who’s buying your products? Do they prefer shopping at a brick and mortar store. Or, do they prefer ordering online and having products shipped to their homes? If so, then direct distribution may be worth considering. Just remember, this comes with additional costs, such as warehousing and transportation. It’s important to understand all the investments you’ll need to make before jumping into direct distribution. After all, wholesalers and distributors can help with online fulfillment, as well.
Technology and Distribution
Many of today’s top brands are incorporating the latest advancements in data capture and analytics into their sales strategies. Leveraging it allows these brands to better understand their customers, stores, inventory, merchandising, and sales patterns with real-time efficiency. This can be a tremendous advantage when it comes to distribution. Imagine knowing what stores are selling and what stores are not; where inventory is moving and where it’s not; what territories and locations are selling out and which ones are struggling.
The more you understand about your market, operations and customers, the more effectively you can manage distribution. If you’d like to learn more about how digital data and insights can improve the performance of your brand and improve sales across all your distribution channels, visit 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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