How to design a successful Distribution Strategy
Distribution strategy lays out the details of how you plan to get your product into the hands of your customers.
In a traditional distribution model, the products flow from the manufacturer to the end user through different routes like wholesalers, retailers, or contractors.
Your distribution strategy would identify your intended paths to get your products to the end user.
Either way, you’ll need a strategy that identifies and outlines how you plan to move your product so that you can generate the best return on your investment.
Before you can sell to someone, you need to understand what they want and how they want to buy it.
Does the end user need personalized service? If so, who is the best person to provide that service to them?
Is the end user more likely to purchase this product online or in a physical store?
How much will you need to educate the end-user on your product? Who is in the best position to help you educate the end user?
Once you’ve answered the above questions, start working backward in the distribution model to choose the best Intermediaries.
Intermediaries will help you sell your product to the end user. In general, there are four different categories of intermediaries:
Agents and Brokers – Agents and brokers act as an outsourced sales force. The main difference is that agents and brokers don’t typically buy the product from you. Instead, they sell it for you and make a fee or commission.
Wholesalers and Distributors – Wholesalers and distributors purchase the product in bulk from the manufacturer and store it until they can sell it to retailers or contractors at a profit.
Retailers typically purchase products from wholesalers/distributors and resell them to contractors and end users.
Value-Added Resellers – Lastly, value-added resellers such as contractors typically purchase products, bundle them within their service, and sell them to the end user.
We must consider a few essential facts before deciding on the best way to proceed, like:
Form of partnership
Intermediary weaknesses and strengths
Who are the intermediary's customers?
What is the markup?
Distribution channels are, essentially, paths that you push your products. In most cases, it’s common to have multiple channels of distribution that you manage. Different distribution channels may have different sets of intermediaries who help you move your product.
Distribution can typically be grouped into three primary categories:
Intensive distribution – intensive distribution means there are a lot of intermediaries. An example of intensive distribution is that one product may be stocked in many stores and may have many different distribution channels.
Selective distribution – selective distribution means there are a few intermediaries. For example, equipment that is only sold within a certain geographical area.
Exclusive distribution – exclusive distribution means only a few intermediaries must carry their products. An example of exclusive distribution might be custom-branded electrical/electronic equipment or components that are only sold in very specific stores.
The types of intermediaries will differ slightly depending on where you are in the distribution model and whom you are trying to sell to.
Distribution channels are, essentially, customers, and their goal is to make money. That means we need to work with them to come up with a mutually beneficial agreement so both could make a profit.
As with any investment, we must manage our distribution channels to ensure that we maximize our return on investment.
How to manage distribution channels:
Track each distribution channel's progress against the goals laid out in the previous steps.
Implement leading KPIs to identify any coming underperform.
Periodic face-to-face meetings with distribution partners to go through numbers and figure out where the leak is in the distribution model.
More importantly, determine how to get things back on track and optimize each distribution channel.
Improving a distribution strategy is a better investment than throwing more money at marketing promotions.
