Distribution Strategy: Definition and Examples
Companies that make products use a distribution strategy to get them to the consumer market, and there are several types and forms to choose from. Knowing more about distribution strategies and the benefits of each can help you create the strategy that's right for your business.
In this article, we explore distribution strategies with an in-depth look at types of strategies and distribution channels to help you better understand this aspect of business.
Related: Ultimate Guide to Product Distributorships and How They Work
What is a distribution strategy?
Distribution strategy is the method used to bring products, goods and services to customers or end-users. You often gain repeat customers by ensuring an easy and effective way to get your goods and services to people, depending on the item and its distribution needs. Organizations consider which distribution strategy is best while being cost-effective and increasing overall profitability. You can even use multiple or overlapping distribution strategies to reach target audiences and meet company goals and objectives. For example, a product might sell better online to one demographic and via a mail-to-order catalog to another target audience group.
Consider basing distribution on your ideal customer, thinking about where and how they buy products and what you can do to make purchasing your goods or services easier. The item itself is often key to determining the right distribution strategy, type and channel. For example, if your product is a high-end designer line of furniture, buying directly from the manufacturer may be worth the customer's time. Or if your product is a routine, everyday item like a bottle of water, buying through convenient and nearby shops may be more appealing to the customer.
When planning your distribution strategy, there are several factors to consider, including:
Depending on the type of product or service you offer, your distribution strategy may vary. For example, the distribution strategy for a luxury car brand may differ from that of a paper towel manufacturer. Most consumer purchases get categorized into these three groups:
Routine: A routine purchase is typically a low-cost item or service a customer chooses quickly, like gum, soda and paper products
Limited: A limited purchase is a moderately priced item a customer spends more time selecting than a routine purchase, like a refrigerator, couch or computer
Extensive: An extensive purchase is often an expensive item a customer intensively thinks about before buying, like a vehicle, house or college education
Another factor to consider is your user, or customer, base. Depending on where your customers typically shop, your distribution strategy varies, and often advances in technology influence distribution, too. For example, if your target customer base for your paper towel product is a middle-aged woman buying at a grocery store, you may choose to distribute to various brick-and-mortar storefronts, like grocery store chains and warehouse companies. If your ideal customer base for your customizable furniture is a high-tech affluent customer, distributing directly from the manufacturing warehouse via online sales may work best. Types of shopping methods preferred by consumers can include:
Direct mail ordering
Storefronts, booths and shops
Warehouse and transportation logistics
The capabilities and costs associated with running a warehouse and delivery logistics are another consideration when building a distribution strategy. For example, it is a large financial investment to have a warehouse for storing goods, a fleet of transportation vehicles like trucks and vans and personnel to staff the warehouse and deliver the items. Depending on the storage and delivery needs for your product or service, picking an alternative distribution strategy may lead to higher cost savings and increased revenue.
Related: What Are Distributor Sales and Careers in Distribution?
What are the types of distribution strategies?
There are primarily two types of distribution strategies, known as direct and indirect, and depending on the product or service, the two strategies offer different benefits and cost savings to a company. Here's a definition of direct and indirect distribution strategy:
Direct distribution strategy: Direct distribution is when manufacturers sell and send their products directly to consumers without the use of other parties and entities. It often requires having a warehouse to store products and a delivery process to get them to customers.
Indirect distribution strategy: Indirect distribution strategy is when manufacturers use intermediary businesses and entities to help logistically get products to customers. It's often most helpful for large amounts of routine products and can create cost savings for a company.
Within these two main types of distribution strategy are more specific options, including:
Exclusive: Exclusive distribution is when a manufacturer picks a few sales outlets to create a level of exclusivity for an item or brand, like luxury goods or exotic vehicles.
Intensive: Intensive distribution is when a manufacturer wants to penetrate the market by selling its goods to as many sales outlets as possible to reach customers, most often for affordable routine items like candy bars, household products and drink items.
Selective: Selective distribution is a mix of exclusive and intensive distribution, giving you more locations to sell a product while still being choosy in which stores or partnerships to sell within, like a high-end rug manufacturer selecting a specific retail department store to reach more customers.
Dual: Dual distribution combines direct and selective distribution strategies to grow market influence and also maintain direct sales with customers.
Reverse: Reverse distribution is often less common, where an item flows from the customer back to a company, typically for recycling or refurbishing of goods, like used computers or other electronics.
Read more: 7 Types of Distributors (Plus Considerations for Choosing One)
What are distribution channels?
A distribution channel refers to the path that services or products follow until they reach their end-users and customers. The proper distribution channel depends on the product, who it's serving and where it's going. For instance, a product may go from the factory to a warehouse to the consumer. Or it may go from the factory to a wholesaler to a retail storefront to the consumer. This series of events would be the product's distribution channel.
Here are four primary distribution channels with explanations of how they work:
A wholesale distribution channel is when a wholesaler purchases items in bulk from a manufacturer and then sells them to retailers later. This is often a good way to secure products for less money because you place a large order. Wholesalers focus on the storage and delivery of goods and act as a trader between the manufacturer and the retailer who sells them, rarely interacting directly with the customer.
A retail distributor is often the place an item ends up before being purchased by a customer. Retailers can get their products by buying from wholesalers or the manufacturer directly, and they mark up the cost of an item to earn a profit. Retailers are often thought of as actual storefront locations, like a supermarket or department store, though with technological advancements, retailers are also online websites, catalog companies or even phone-order businesses.
A franchise distribution channel is a unique way of distributing products and services. A business owner pays to use company branding to gain sales through flat fees and specific royalty amounts agreed upon in a contract. Organizations and manufacturers with brand recognition and established customer bases can benefit from this distribution channel without the everyday responsibilities of managing each location. Some common examples of franchise distribution channels are well-known fast-food restaurants, real estate offices and some healthcare companies. Franchising often centers on these three types:
Product distribution franchising
Business format franchising
Read more: What Is a Franchise?
A distributor gets and transports items from manufacturers to retailers and other locations, and it's beneficial to use this method to save on the cost of having a shipping site, staff and logistics operation. A distributor can also benefit by having multiple clients that overlap, creating comprehensive product groupings that generate more sales. For example, a distributor that has separate furniture, rug and lighting manufacturers can create an all-in-one living room package deal for the customer to buy that includes a sofa, chair, coffee and end tables and two lamps.
Related: Guide to Distribution Channels
What are examples of distribution strategies?
Here are three examples of various distribution strategies using business examples from various industries:
A toothpaste company
With this example, a toothpaste company wants to have its product sold at as many locations as possible to reach consumers so it selects intensive distribution through both direct and indirect outlets. It sells online via a website and ships directly to customers but also uses indirect methods like wholesalers and distributors to sell more. With an intensive distribution strategy, the toothpaste gets sold at places like:
Intensive distribution strategies for everyday items like toothpaste are useful for consumers who are loyal to a brand, buying it each time regardless of where they make the purchase, but also for those who buy based on sales promotions, to try a new brand or variety or to substitute for a brand they usually buy that's not in stock or costs significantly more.
A luxury watch brand
A high-end luxury watch brand company has two flagship stores, one on each U.S. coastline. This exclusive distribution strategy leverages the prestige and rarity of its brand by having a limited number of locations to buy a watch. By maintaining this exclusive distribution strategy, the company also has more control over manufacturing, price, contract negotiations and more because it involves fewer entities in the process.
The watch company may choose to overlap its exclusive distribution strategy with a selective distribution one to garner more customers in a controlled way. For example, the company may partner with a luxury department store that has more locations than its flagship stores, but not as many locations as more affordable department stores in order to maintain its luxury appeal and brand. It might be something they consider doing year-round, for a select amount of time or special occasions, like the holiday sales season.
A neighborhood lawn care business
With this example, a small business owner may distribute its lawn care services through direct marketing and distribution to the customer, choosing to advertise and provide all the lawn care services themselves through an online presence, door-to-door flyer sales and a small staff.
As the company grows, it might consider franchising to other neighborhood businesspeople who want to sell lawn care services using the name of this now established business. The lawn care business owner can charge a flat fee to use their name and collect a percentage of profits from each franchised area.
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