September 8, 2020
5 min read
Distribution – specifically, product distribution – refers to selling and delivering products or services all the way through a business to the end-user.
A distributor is positioned in the middle of the chain, between manufacturer and retailer or customer.
Product distribution is a vital factor in the success of a retail business. The process directly impacts customer satisfaction, so setting up the right distribution strategy is critical.
When identifying a strategy for distribution, retailers should consider their customer base.
Understanding how customers expect to receive and use a product will directly influence the method of distribution. There are other factors to think about, too.
The scale and complexity of a company will impact its distribution strategy, as will its growth plans.
Essentially there are two overarching strategies: direct (pretty straight-forward) or indirect (way more nuanced).
Depending on the product being sold, a company may opt for indirect distribution through an intensive, exclusive, or selective strategy.
Here are the different types of strategies in more detail.
This is where a company directly provides a customer with the goods or services they have made. It’s a really short distribution model that cuts time – but it can end up being costly.
Direct distributors will need to invest in warehousing and logistics components like trucks and packaging to support this model.
That said, this strategy is great for building relationships with customers.
With an indirect model, products go through more than one distribution channel, from the manufacturer to a wholesaler or retailer before reaching the customer.
Indirect distribution makes it less easy for manufacturers to get to know the end-user, although this strategy also comes with clear benefits.
By passing distribution onto a third party, a manufacturer is able to focus more time on the product or service they’re creating.
This strategy is most commonly used with fast-moving consumer goods (FMCG) which appeal to a mass market.
An intensive distribution model puts products into as many different stores as possible. Bottled water is one example: you see the same brand of water in grocery stores, gas stations, and vending machines.
Products distributed in this way are typically routine purchases, which don’t require much effort on behalf of the manufacturer or retailer to sell.
At the other end of the scale, exclusive distribution is applied to products or services that are highly coveted and often expensive.
With this strategy, a manufacturer will typically strike a deal with a retailer to sell products exclusively through their storefront.
This is beneficial to the vendor, as they’ll be able to tap into a niche demand and enjoy the market share for their products.
This strategy is not quite exclusive, nor is it intensive. It’s the middle ground.
A selective distribution model is used where a manufacturer selects a handful of wholesalers or retailers to distribute its products through.
It’s a method often used by clothing labels, who will sell products in their own stores but also distribute them to customers through department stores.
The parties that products or services pass through are known as distribution channels. Depending on the strategy implemented, one or several channels could be used.
If a company opts for an indirect strategy, their goods might pass through any of the types of intermediaries we’ve listed below.
A broker – commonly known as an agent – works on behalf of the manufacturer to distribute products to retail environments.
This distribution channel can be hugely beneficial to a manufacturer. When it comes to dealing with sellers, brokers ‘own’ the products they are distributing.
They will handle all of the marketing efforts, contract negotiations, and specialized shipments.
A wholesaler sources and buys products in bulk from a manufacturer, and then sells them on in smaller quantities to retailers.
By being able to place high volume orders, a wholesaler will usually obtain a lower cost per product from manufacturers. They’ll make a profit by marking up prices when selling items.
Wholesalers will have their own warehousing to hold the goods they’ve purchased for sale.
This is the final distribution channel before the end-user purchases the product or service.
Retailers have the ability to source goods from a wholesaler or directly through a manufacturer. They will then add a markup to the cost of the product to make a profit.
This distribution channel refers to both physical and eCommerce retail outlets. Retailers are responsible for marketing, providing customer service, and retaining or onboarding customers.
Shoppers are used to having immediate information on everything to do with their orders, from stock availability to the courier’s journey through their neighborhood.
Anything less detailed is no longer good enough, so it’s vital that each distribution channel adapts to the changes that eCommerce has driven.
Although distributing is primarily a business-to-business model, it thrives on customer satisfaction in the same way that retail does.
So, it makes sense that distribution companies implement solutions which enable them to operate much like eCommerce retailers, for example: