If you want to grow revenue, you need to have the ability to sell products and services. Manufacturers and brands know this – business owners know this, the question is “how do you do it?” A big part of the equation that is often overlooked is product distribution.
Before we jump into that, there’s 2 main types of distribution you should know, those are direct distribution and indirect distribution.
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.
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. Most of what we discuss in this guide will fall under the indirect distribution side as it’s the most commonly used distribution type.
Now, distribution would be referred to as the process of selling and delivering products or services from the manufacturer to customer. As a company experiences growth, it becomes critical to optimize your distribution to ensure everyone in your distribution channel is satisfied and happy. While your network in your distribution channel is going to vary from one to the next, there can be a lot of people, strategies, and moving parts involved in the company’s product distribution.
So, why is product distribution so vital to a business?
Why Is Product Distribution Important?
Product distribution will always play a pivotal role in a company’s operations. As a company owner, you want the opportunity to evaluate, analyze and improve relationships between manufacturers and customers. If you don’t have that ability, relationships are going to break down and I can guarantee performance is going to fall. If you have logjams in your distribution, the end results are not going to be pretty. We discuss this all the time with ecommerce order fulfillment, if deliveries are not being made on time, the whole chain is going to suffer. That includes your customers, your retailers and your suppliers, you can’t have that. If you want product distribution to be successful, the greatest asset you can add is an open forum, allowing everyone to voice what’s working, what’s not working, and how it can be improved.
Since ecommerce is such a big industry and I see no reason why that trend won’t continue, I want you to think about your online customers. When customers are buying your products online, there’s a trust factor there. You have to remember, they’re buying a product they can’t touch, see, smell, etc. Most business owners don’t think about this, you’re too busy, but it’s true. All of us want our customers to have trust – this is why product page optimizations, images, and descriptions are so important.
Now, I don’t want to get off course, we’re discussing distribution. In total, there’s three types of product distribution you need to be familiar with.
3 Types Of Product Distribution
The type of distribution strategy you use will depend on the product you’re selling.
- Intensive Distribution
- Selective Distribution
- Exclusive Distribution
Now that you know what those 3 product distribution strategies are, let’s break them down to see how they’re unique and differ.
(1) Intensive Distribution
This strategy targets as many channels and outlets as possible. The goal of intensive distribution is to penetrate as much of the market as possible. You want to be everywhere you can.
(2) Selective Distribution
This strategy is selective, only focusing on specific channels and outlets. There’s going to be specific locations you want to be at with this method. This is often based on a particular good and its fit within a store. Doing this allows manufacturers to pick a price point that targets a specific market of consumer, therefore providing a more customized shopping experience for customers. Selective distribution caps the number of locations in a particular area.
(3) Exclusive Distribution
This strategy focuses on limiting the channels and outlets you use. Very selective. The first example for this particular method is luxury brands, perhaps a special collection of some type where it’s only available at specific locations or stores. This method helps maintain a brand’s image and product exclusivity. Some examples of companies that use exclusive distribution would be high-end designers like Chanel or even an automotive company like Ferrari.
There’s 4 core profiles in distribution.
- Brokers And Agents
We’re going to be comparing distributors and wholesalers as they play the main key roles in distribution.
How Do Distributors And Wholesalers Differ?
Distributors and wholesalers do have a lot in common, but they differ in key areas and you should be aware of that.
Distributors work closely with manufacturers – their common goals are to increase awareness and visibility of goods while selling more of them. You’re going to hear about distributors reaching out to wholesalers in hopes to resale their products.
On the other hand, wholesalers tend to focus on working with retailers, they want to buy products in bulk due so they can get it for the best price from retailers. With that being said, they rely on distribution because it plays as the balance between manufacturers and their customers.
Distribution And Dropshipping
What about distribution and drop shipping?
Every company has a goal of operating a product distribution channel that is going to benefit the whole channel. With ecommerce and dropshipping, that goal doesn’t change.
Manufacturers, suppliers and distributors know how important online marketplaces are – this is where they can sell products. Ecom merchants can leverage online channels to choose the products they want to sell as need be. If customers purchase these products from the merchant’s online store, they will get a notification and the orders will be placed with the distributor, the distributor would also arrange the shipment from their facility location.
If you don’t think merchants rely on distribution partners, think again – those relationships are key. However, if a product is no longer available, that would be out of their control. The balance between the two is key to a successful long-term relationship.
What Is Distribution Management?
Distribution management refers to the resources and processes that are used to deliver a product from a specific location to the point-of-sale, which includes storage at warehouses, retail distribution points, shipping and delivery and others.
- Warehousing – This would refer to where you choose to house products.
- Packaging – You always want to make sure your packaging is efficient so products can be safety shipped. Brands should also leverage custom packaging as it gives them the opportunity to stand out versus the competition.
- Inventory Management – Proper inventory management is key to distribution. Managing your inventory is one of the core pillars in distribution management. We’re always talking about ways to optimize inventory, like inventory control and (EIF) ending inventory formula.
- Order Processing – When a customer places an order, it would be distribution management that would need to plan for that product delivery. This involves collecting the stock, loading it and delivering it in a timely manner. Approval needs to be sent and invoicing done for this step to be valid.
- Logistics – You always have to think about how products are going to be shipped. What type of transport and shipping you’re going to use is important to your bottom line. If they require overseas shipping there must be agreements in place for permits to be approved quickly.
- Communication – Clear communication along the entire distribution channel is always vital to success. You want to make sure you have such processes in place. This is to ensure that the correct products are shipped and customers know when they will receive their items.
What Is E-Distribution?
E-distribution is a relatively new term, so you may not be familiar with it.
With the world heavily trending in this area, E-distribution would include a lot of different categories:
- Computer software
- Video games
- Courses and programs
- Marketing software and tools
- Online advertising
- Digital assets
For the most part, creating multiple products or subscriptions don’t require a lot of effort and resources, this is one of the main reasons this specific industry is growing fast; it has great profit margins. While E-distribution obviously differs from physical distribution, in order for it to be successful, it has to be immediate.
When a customers purchases a digital product, they expect to get that product immediately. The customer will usually get a download link or some type of access to interact with the online product. If you buy a digital product and don’t receive it, the excitement quickly fades and you’re going to reach out to the supplier.
What most people don’t realize, in the background of that operation, there’s a lot of systems running to ensure digital products are delivered properly. While some systems can be as simple as running email marketing software that sends the digital product via email, other systems can be a lot more complex – involving multiple resources to interact together as one.
As it looks like 2022 will be another record high for the industry, it still has a lot of potential to grow for years to come. When you can instantly create a product and duplicate that product over and over again with high profit margins, it will continue to acquire the attention of entrepreneurs.
What Is Marketing Distribution?
As slightly different from e-distribution and supply chain distribution, marketing distribution is how the marketing department makes products and services available to potential prospects and customers. Availability can be through the manufacturer, supplier, distributor, retailer, or wholesaler. From the perspective of the 4P’s of the marketing mix, marketing distribution can be slotted into the place category. Examples of marketing distribution channels include:
- A distributor can be employed by a manufacturer to reach out to suppliers or retailers to purchase their product,
- A supplier can make their stock available on a marketplace for merchants to find and sell,
- A retailer could stock a wide array of products strategically placed across their store to entice customers to buy,
- A wholesaler can build a website so customers can order products straight from them.
How To Choose Your 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?
All of these are important questions.
(1) Product Category
What type of product(s) are you selling? Are you selling high-end products, such as vehicles, computers, or sports memorabilia? Are you selling products on the lower tier, something such as keychains, pop, soaps, chips, or brushes?
If you’re selling items that cost a lot of money and have a high value, many of these distribution channels are very selective, where customers come for expert service and answers to all their questions. If you’re selling routine items, you’ll likely want to focus on an intensive distribution model – this is due to the fact that “convenience” is a priority in this type of channel.
(2) Customer Preferences
What type of people are buying your products? Do your customers prefer to shop online, or do they prefer to visit a brick and mortar store? Do they like buying online and having products shipped to their home? If that is the case, the direct distribution strategy may be a good fit for you. Yes, warehousing and transportation do have costs but it’s an investment that can pay off time and time again in the near future. Both wholesalers and distributors can help with order fulfillment, which is a big key to a growing company.
(3) Technology and Distribution
Are you using technology to make better business decisions? We talk about how important data and analytics are all the time. Companies can use this data not only to make better decisions, but also to increase sales. Technology that Thill Inc. offers allows you to better understand your customers, stores, inventory, merchandising, and sales patterns with real-time efficiency real-time.
If you want to learn more about our technology and how we can help, be sure to reach out. You can reach us at 1-920-967-9201 or through this online form.