DISTRIBUTION STRATEGY: Types, Benefits, and How To Implement Them

Product manufacturers utilize a distribution strategy to bring their items to the consumer market, and there are numerous types and forms to select from. Knowing more about distribution strategies and the benefits of each can assist you in developing the strategy that is best for your company.
In this post, we will look in depth at several sorts of distribution strategies and distribution channels to help you better grasp this element of business.

What is a Distribution Strategy?

Distribution strategy is the method utilized to bring items, goods, and services to customers or end-users. Depending on the item and its distribution requirements, you often attract repeat consumers by assuring an easy and effective manner to send your goods and services to people.

Organizations analyze which distribution strategy is the most cost-effective and profitable overall. To reach specific groups and satisfy company goals and objectives, you can even use numerous or overlapping distribution techniques. For example, a product may sell better online to one demographic and through a mail-order catalog to another.

Consider basing distribution on your ideal consumer, considering where and how they acquire things, as well as what you can do to make purchasing your goods or services easier. The item itself is frequently critical in establishing the best distribution strategy, type, and channel. If your product is a high-end designer furniture line, for example, buying straight from the manufacturer may be worth the customer’s effort. If your product is a commonplace item, such as a bottle of water, buying from a convenient and local store may be more tempting to the customer.

There are various elements to consider while developing your distribution strategy, including:

#1. Product classification

Your distribution strategy may differ depending on the sort of product or service you provide. A luxury vehicle brand’s distribution strategy, for example, may differ from that of a paper towel company. Most consumer purchases fall into one of three categories:

Routine: A routine purchase is often a low-cost item or service that a consumer selects quickly, such as gum, soda, and paper products.
Limited: A limited purchase is a modestly expensive item on which a customer takes more time than a typical purchase, such as a refrigerator, couch, or computer.
Extensive: An extensive purchase is typically an expensive item that a buyer carefully considers before purchasing, such as a vehicle, home, or college education.

#2. Customer Base

Another thing to think about is your user or customer base. Your distribution strategy differs depending on where your clients normally purchase, and technological advances frequently influence distribution as well. For example, if your target consumer for your paper towel product is a middle-aged woman shopping at a grocery store, you may want to distribute to grocery store networks and warehouse organizations. If your target consumer is a high-tech affluent customer, distributing directly from the production warehouse via online sales may be the best option. Consumers’ favorite shopping techniques can include:

Websites for selling products online
Ordering through postal mail
Shops, storefronts, and booths
Door-to-door selling

#3. Warehouses and Transportation Logistics

Another factor to consider when developing a distribution strategy is the capabilities and expenses connected with running a warehouse and delivery operations. For example, having a warehouse for storing goods, a fleet of transportation vehicles such as trucks and vans, and workers to staff the warehouse and distribute the commodities all require a significant financial investment. Choosing an alternative distribution strategy may result in higher cost savings and improved income depending on your product or service’s storage and delivery requirements.

Different Types of Distribution Strategies

While direct and indirect distribution tactics are the most common, there are other sophisticated strategies that businesses can utilize to reach consumers. Here are five of the most common distribution strategies to consider:

#1. Direct Distribution

Manufacturers sell and ship their products directly to consumers under the direct distribution strategy. They may accept consumer orders via an e-commerce website, catalog, or phone call. When a manufacturer gets an order, the product is shipped directly to the consumer’s preferred address. Using the direct distribution strategy might help you gain access to additional data about your customers and target demographic. It may also provide you with greater control over the entire consumer experience.

Many businesses prefer the direct distribution strategy because it might result in larger profit margins than wholesale or retail distribution.

#2. Indirect Distribution

In an indirect distribution strategy, an intermediary aids with product logistics and placement to guarantee that products reach clients in a timely and appropriate location depending on the consumer’s habits or preferences. The product’s actual maker may not have any direct interactions with the end user or consumer. A consumer, for example, may purchase a product from a large, third-party store to which the manufacturer ships their products. Using the indirect distribution strategy will help you improve the overall consumer experience, gain access to new venues, and raise brand awareness.

Companies that use an indirect distribution strategy may opt to collaborate with the following intermediaries:

Wholesaler: A wholesaler buys things in bulk from manufacturers and resells them to retailers. They may earn a discount if they buy a large number of things at once, allowing them to profit from the products when they resell them.
Retailer: Retailers can buy things directly from the manufacturer or via a wholesaler. They may resell the products to customers directly through physical storefronts, e-commerce websites, social media platforms, catalogs, or over the phone.
Franchisor: Manufacturers may sell the rights to their product or service and their brand name to an individual in order for them to develop a franchise location rather than building their own physical storefronts. While the franchise is owned by the individual, the manufacturer retains significant influence through contractual agreements.
Distributor: A distributor works with a company to transport their products to stores or other endpoint sites. To save money on logistics and transportation, manufacturers may choose to deal with a specified distributor.

#3. Intensive Distribution

Companies that use the intense distribution strategy place their items in as many retail outlets as feasible. Products that need the least amount of effort to market often perform best with this distribution strategy. If your company manufactures a low-cost product that clients buy on a regular basis, this distribution strategy may be appropriate for you. A company that manufactures breath mints, for example, may distribute to grocery stores, gas stations, vending machines, and other prominent retail venues. The extensive distribution strategy can assist you in increasing brand awareness, expanding into new markets, and acquiring new customers.

#4. Exclusive Distribution

Manufacturers use the exclusive distribution strategy to agree to sell their goods to only one retailer. They may also decide to offer their products solely under their own brand, either through their website or physical locations. For example, if you offer expensive automobiles, your clients may be able to buy them exclusively from one of your company’s storefronts. This strategy works effectively for expensive, in-demand commodities. Using the exclusive distribution strategy can assist you in increasing revenue margins, increasing product value, and increasing brand loyalty.

#5. Selective Distribution

The strategy of selective distribution is a cross between intensive and exclusive distribution. Companies who use this strategy distribute their products to multiple locations, but they are more selective in who they partner with than companies that employ the intense distribution strategy.

Instead of distributing its items to massive chain retailers, a high-end clothing manufacturer may choose to sell its products in its own stores and through a few carefully selected boutique shops. You can get more control over the consumer experience and brand messaging by employing a selective distribution strategy. It can also help you boost the worth of your goods and increase the number of people who are willing to buy them.

Benefits of Distribution Strategies

Distribution techniques are critical to getting your goods out there. It’s critical to know how you’ll get your product into shelves, but once there, it’s critical to know how you’ll keep it there.
Distribution plans enable you to control the flow of your product from its conception all the way through the supply chain—from raw materials to manufacturing to distribution and sales.
They also aid in the development of relationships with retailers and consumers, ensuring that they have a consistent experience with your brand.

What are Distribution Channels?

A distribution channel is a journey that services or products take before reaching their final users and customers. The appropriate distribution route is determined by the product, who it serves, and where it is going. A product, for example, may travel from the producer to a warehouse and then to the consumer. It might also go from production to a wholesaler, then to a retail outlet, and finally to the consumer. This sequence of events would function as the product’s distribution channel.

Here are the four main distribution routes, along with explanations of how they work:

#1. Wholesale

A wholesale distribution channel occurs when a wholesaler buys things in bulk from a manufacturer and later sells them to retailers. Because you place a large order, this is frequently an excellent approach to secure things for less money. Wholesalers specialize in the storage and transportation of goods, functioning as a middleman between the manufacturer and the merchant that sells them. They rarely engage directly with customers.

#2. Retail

A retail distributor is frequently the last stop for an item before it is purchased by a customer. Retailers can obtain their products by purchasing directly from wholesalers or manufacturers, and they mark up the cost of an item to earn a profit. Retailers are frequently thought of as physical storefronts, such as a supermarket or department store, however with technology improvements, retailers can also be online websites, catalog firms, or even phone-order businesses.

#3. Franchisor

A franchise distribution channel is a distinct method of delivering goods and services. Flat fees and precise royalty amounts agreed upon in a contract are paid by a business owner to use company branding to boost sales. Organizations and manufacturers with established client bases and brand recognition can benefit from this distribution channel without the daily obligations of managing each site. Well-known fast-food restaurants, real estate offices, and several healthcare firms are examples of franchise distribution networks. These three types of franchising are frequently used:

Franchised product distribution
Franchising of business formats
Social entrepreneurship

#4. Distributor

A distributor receives and transports things from manufacturers to stores and other sites, and using this strategy saves money on the costs of owning a shipping facility, staff, and logistics operation. A distributor can also benefit from having many clients who overlap, resulting in more complete product groups and increased sales. For example, a distributor with different furniture, rug, and lighting manufacturers can build an all-in-one living room package offer that includes a sofa, chair, coffee, end tables, and two lamps for the consumer to purchase.

How To Choose The Best Distribution Strategy

While each of the five most prevalent distribution techniques has advantages, taking the time to examine your company’s specific needs is critical to implementing the optimal one. Here are some pointers to help you choose the best distribution strategy for your company:

#1. Consider the goods or services.

The type of product or service your firm offers can influence how potential clients want to buy from you. There are three categories of purchase decisions to think about:

Routine: If your product is reasonably priced and customers may make a rapid decision to buy it, it may be a routine purchase, such as hand soap, toothpaste, or toilet paper. For products that clients buy on a regular basis, an extensive distribution strategy frequently works well.
Limited: If your product is reasonably priced and customers tend to consider its usability before purchasing it, it may be a limited purchase choice, such as apparel or small appliances. These products may benefit from a targeted distribution strategy.
Extensive: If your product is expensive and buyers prefer to think long and hard before purchasing from you, it may be an extensive purchase, such as a car or a house. For certain products, an exclusive distribution strategy frequently works well.

#2. Determine your intended audience.

Create a target audience to identify your existing and ideal customers. A target audience is the segment of the population most likely to buy your goods or service. You can examine your present consumers to see what important demographics, beliefs, interests, values, and ambitions they all share. You might also look at who your competitors’ customers are in order to uncover prospective prospects to grow into new markets.

Understanding your present and potential clients can assist you in determining which distribution techniques they may prefer. For example, if your target audience consists mostly of college students and young people, you might choose the direct distribution strategy and offer your items to them via social media sites. If your target demographic is largely middle-aged people, you may want to explore using an indirect distribution strategy to get your products into large retail outlets.

#3. Examine your warehousing and logistics skills.

Next, evaluate your warehouse’s capabilities and logistics. Consider your budget, inventory storage space, personnel count, and current worker skill sets. Understanding your in-house capabilities can assist you in determining which distribution strategy will provide you with the most benefits.

A cell phone manufacturer, for example, could choose the direct distribution strategy by building its own physical store. However, after examining their current budget and in-house skills, they may decide that selling their cell phones through an indirect distribution strategy that allows them to collaborate with a wholesaler or retailer is a more cost-effective choice.

#4. Define your company’s objectives.

Examine your business objectives to determine which distribution strategy will best help you achieve them. You can choose if your goal is to gain lifelong customers, boost profit margins, increase sales, or raise brand awareness. For example, adopting the intense distribution strategy may help you raise brand awareness and sell your items to a larger target audience, whereas using the direct distribution strategy may provide you greater control over your brand messaging and bigger profit margins.

#5. Keep track of your progress.

Determine which key performance indicators (KPIs) you will use to monitor the success of your distribution strategy. This is especially useful if you utilize different distribution tactics and examine your results to see which one performs the best. You might consider using the following KPIs:

The total number of orders
Rate of order accuracy
Price of a typical sales order
Cost of distribution per shipping unit
Rate of revenue growth
Percentage of on-time deliveries
Rate of sales growth

Conclusion

Developing an effective distribution strategy is dependent on elements such as the intended demographic, the type of item, and the current logistical infrastructure. Whatever approach your company picks, it’s critical to account for client wants and purchase decision levels, since these aspects will assist define the best distribution strategy.

What is your distribution strategy, and why do you employ it? Please let us know in the comments!

References

Indeed
Marketing91