The distribution strategy is established by the company when it launches its product or service offering. The company then adapts it over time, particularly in view of its budget and changes in consumer habits. Distribution channel, catchment area or even distribution method: many elements come into play in developing the strategy, and all the more so as the Internet increases the number of sales opportunities.
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The distribution strategy is part of the overall corporate strategy. In fact, it is articulated with the marketing strategy and it is consistent with the positioning of the brand. The company’s budget constraints also help determine its distribution strategy.
What is a distribution strategy?
The distribution strategy aims to establish how the company sells its products or services to the end consumer. The company determines the means to deliver the products or services to the customer, so as to generate the maximum amount of sales at controlled costs, with the objective of profitability.
The different elements of the distribution strategy and their interests
When building its distribution strategy, the company considers the following elements: the distribution channel, the method, the single-channel or multi-channel nature of the distribution, the mode of distribution and the catchment area.
The distribution channel
There are 3 distribution channels, not mutually exclusive:
- The direct channel: the company sells directly to the customer, without any intermediary. Its margin is therefore greater, but the marketing efforts to be deployed are greater.
- The short circuit: a single intermediary intervenes to sell the company’s products or services to end consumers. Thus, the company focuses exclusively on production.
- The long circuit: several intermediaries are involved in the sales circuit. The company produces, sells to a wholesaler who himself sells to a retailer. The customer buys from the retailer.
Example : the wine producer can choose the direct circuit, in which case he sells his wine directly at the château or on its website. He opts for the short circuit if he wishes to offer his wines on the restaurant menu, the restaurateur then acting as the sole intermediary. In a long circuit, the producer sells his wine in supermarkets: he sells to a purchasing center from which the supermarket gets its supplies.
The method of distribution
As part of its distribution strategy, the company reflects on its distribution method. It is a question of determining the nature of its points of sale:
- Physical points of sale: the company chooses to market its offer in stores. Physical points of sale can also be itinerant: door-to-door door-to-door sales and market sales make it possible to save on commercial land.
- Virtual points of sale: the company sells online on its website or on a marketplace.
Example : the company Vorwerk sells its Thermomix product during workshops led by home counselors. The impact of containment is prompting the company to review its distribution method: its products are marketed online on its website.
When developing its distribution strategy, the company chooses one or more complementary methods: distribution is in fact single-channel or multi-channel.
Single-channel or multi-channel distribution
The distribution strategy is single-channel when the company sells exclusively in physical point of sale or virtual point of sale. Conversely, the distribution strategy is multi-channel when the company markets its offer through several points of sale that are distinct by nature. Illustrations:
- Single-channel distribution: Amazon has no physical store, the company sells exclusively on the internet. Amazon is considered the best example of pure player, but there are others, the Zooplus online pet store for example. Cloud-based service providers, too, de facto use single-channel distribution: LegalTechs, for example, sell their legal services only online. In the digital age, single-channel distribution is mainly on the internet. Few of the companies sell exclusively offline, excluding e-commerce opportunities.
- Multichannel distribution or click & mortar : Fnac, Zara and even Ikea use the multichannel distribution strategy. And to improve the customer experience, these companies are banking on omnichannel. That is to say that the consumer uses the channel of his choice indifferently, the different channels being complementary. Example: the consumer visualizes on the website the offer available in store, he orders and pays for his products then collects them in store via the click & collect not to pay for delivery.
The mode of distribution
The distribution strategy is your choice: exclusive, selective or intensive.
- Exclusive distribution: the offer is available through a single point of sale, or in a restricted geographical area.
- Selective distribution: the company selects a limited number of points of sale. Franchises, in particular, use this mode of distribution in order to maintain control over their brand image.
- Intensive distribution: the company is increasing the number of points of sale, without increasing consideration of retailers, in order to massively cover the market.
Example: the renowned painter chooses an auction house to sell his works. This exclusive distribution method helps to preserve its brand image. Conversely, the producer of mass consumption yoghurts wants to make his offer accessible to as many people as possible: he chooses intensive distribution in supermarkets.
The catchment area
The catchment area is also a determining element of the distribution strategy.
- The company that markets its products in physical outlets pays attention to the location of its stores, so as to facilitate access to its products according to its target customers. In a multi-brand store, the company also ensures the strategic establishment of its on-shelf offer compared to competing products.
- The company that sells online determines its catchment area, in particular by choosing whether or not to export internationally. If necessary, the company plans to translate its e-commerce site into the appropriate languages and ensures that it can deliver its products to the target countries.
Example: the fast food company is looking for a commercial space on a busy road, near an office area. It is at this location that it more easily multiplies sales.
How to choose the right distribution strategy?
Observe the competition’s distribution strategy
The company can model its distribution strategy on that of its direct competitors, whose business model is successful. Observing the competition also allows the company to innovate to adapt to changing consumer habits. The company can also choose to stand out from the competition.
Example : the baker traditionally sells his bread and pastries in his bakery. The craftsman can follow this distribution strategy to market his offer without risk. It uses the direct circuit, as part of a physical, single-channel, proprietary distribution method at a through location. But observing this strategy, the craftsman notices that other opportunities are available to him. To differentiate themselves, the craftsman innovates: he offers his bread and pastries for sale not only in his bakery but also on his website or on the website of a specialized marketplace. Its distribution strategy then becomes multi-channel, adapted to the digital age, and its sales volumes increase.
Deal with the budget and distribution costs
When launching a brand, the problem is often budgetary. The company does not necessarily have sufficient cash flow to invest in the distribution channels of its choice. In practice, the young company starts with a distribution strategy suited to its means, then changes it as it grows.
Example : the costume jewelry brand begins by selling online on a marketplace. It thus avoids the costs incurred by the creation of a website, marketing expenses as well as a commercial lease rent. With a marketplace as the only intermediary, the distribution strategy is in short circuit: the company correctly preserves its margin. Over time, brand awareness grows and the company has significant cash flow. She invests in a website then in a shop at a busy address. In direct circuit, the company’s margin increases. In addition, its distribution strategy is now multi-channel: the brand optimizes its sales potential. She then decides to create franchises, for selective distribution: her offer is more easily accessible, yet she keeps control of her brand image.
For a low-cost distribution strategy:
- The long circuit reduces marketing costs, logistics costs and storage costs. But in return, the company’s margin is reduced. The direct channel, when the business sells online, requires investing in a website in marketing means. The short circuit, on the marketplace model, is a compromise to be considered.
- A physical point of sale is expensive: the company pays monthly rent for its commercial lease. Other physical sales methods, such as door-to-door sales, are less expensive but also more restrictive and relatively outdated. Dematerializing points of sale is the preferred option for reducing distribution costs.
Adapt the distribution strategy to product characteristics and target customers
The distribution strategy is in harmony with the corporate strategy. Depending on the type of product and the typical customer, the company does not make the same choices. Illustrations:
- The influence of brand positioning: the luxury product is not marketed as part of a long circuit, nor in intensive mode. The brand sells directly and minimizes points of sale, to preserve the high-end image of the product.
- The influence of intrinsic characteristics: in terms of food, the notion of expiry date (DLC) influences the distribution strategy. With a short shelf life, the company favors a catchment area close to the place of production to prevent products from expiring during transport or delivery. Another example: the company that markets very fragile products sometimes prefers the physical distribution method to avoid damaging the items on delivery.
- Customer influence: in B2B, products and services are not sold in stores. Another example: the company that targets customers of the millennial generation necessarily uses virtual points of sale, as part of an omnichannel strategy.
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