Distribution Strategy - Definition, Importance, Types, Factors & Example
What is Distribution Strategy?
Distribution Strategy is a strategy or a plan to make a product or a service available to the target customers through its supply chain. Distribution strategy designs the entire approach for availability of the offering starting taking inputs from what the company communicated in marketing campaigns to what target audience is to be served. A company can decide whether it wants to serve the product and service through their own channels or partner with other companies to use their distribution channels to do the same.
Some companies can use their own exclusive stores for their own products or can use available retail chains to sell their products. It can be combination of both. Many companies these days also use online exclusive channels to sell their products or services.
Importance of Distribution Strategy
Distribution Strategy is precisely the strategy deployed by a company to make sure the product/service can reach the maximum potential customers at minimal or optimal distribution costs.
A good distribution strategy can maximize your revenue and profits but a bad and unplanned distribution strategy can lead not only to losses but also helping the competitors get the advantage through the opportunity in the market which you created. Many times companies spend a lot on promotions and campaigns without ensuring the availability of the products at the point of sale. In that case, a customer comes to buy the product seeing the campaign and expects its availability but doesn't get it as either the product is delayed or was not planned for that location.
Distribution strategy ensures that product movement and availability is planned well in advance by ensuring a proper strategy may be through owned stores, through partners etc.
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3 Types of Distribution Strategy
Overall there are 3 major distribution strategies
1.Exclusive Distribution
Exclusive distribution includes have exclusive stores/partners to sell products leads to more control. This can be good for niche, luxury or specialty goods where in a single partner or niche partners can help you reach core audience.
Example, Luis Vuitton Stores
2.Intensive Distribution
Intensive distribution is about maximizing outlets from a small retail to big retail stores to maximize sales of the products. This is good for mass products which have to reach maximum target audience and the manufacturing is also high as compared to other normal goods.
Example, Coca Cola
3.Selective Distribution
Selective Distribution approach includes carefully choosing multiple channels and partners.
This is more hybrid approach and needs to be carefully formulated to make sure that there is optimized distribution of the product/service.
Selective Distribution is an approach that lies between exclusive (1-2 partners) to intensive (maximum partners and territories).
Example, Adidas, Nike
These 3 distribution strategies are the most used but a typical strategy may differ for a particular product or a company.
Many companies use online as well as offline strategies together to optimize sales e.g. Apple iPhone.
In many situations one or more distribution channels can be used, for example (there are many more forms apart from these)
1. Manufacturer -> end customer
2. Manufacture -> agent -> end customer
3. Manufacturer -> retailer -> end customer
4. Manufacturer -> wholesaler -> retailer -> end customer
5. Manufacturer -> reseller -> retailer -> end customer
6. Manufacturer -> franchisor -> franchisee -> end customer
Distribution strategy should be optimized and updated regularly as per the market parameters through demand analysis and supply analysis so that it can keep up with the current market scenarios and does what it is intended to do i.e. make product reach to potential customers. Push or pull marketing strategies would both not work if a company's distribution strategy is not in place.
Factors affecting Distribution Strategy
Distribution Strategy depends upon following parameters too:
1. Location of business
This is one of the most important factor in deciding the distribution strategy. If location is business is at a place where distribution can be readily done like near a port or railway lines, then we can rely on that mode for distribution and save costs as well.
2. Location of target market
Now distribution is done from manufacturer/distributor/retailer to the end customer. If end customer is located or interacting with similar products at a particular location then the distribution strategy needs to include it. If the target market is professionals then the product should be available near offices or inside offices through partnerships so that the product is available where the demand is.
3. Reaching the target market
The end goal of a product is to reach the target audience when required. Distribution strategy has to ensure that the product reaches the potential customers when they look for the same. During summers e.g. a beverage company would make sure that it is present in all retail stores in sufficient quantity.
4. Warehousing
Properly storing the inventory at apt locations is an important aspect while deciding the distribution strategy. Warehousing and inventory management come into picture.
5. Transportation and logistics
Transportation is one of the most important aspect of distribution strategy. Without proper transportation either the product will not reach the target market in time or may be it would not be in right quality. e.g. if a company deals in frozen foods, then it needs to make sure that the transportation and logistics are taking care of that through cold storage and temperature maintenance.
Distribution Strategy Example
Let us take example of a soft drink manufacturer which glass bottles of the product. For a company to succeed, it needs to make sure that it is located at a place where the water is readily available and after manufacturing the bottles can be quickly filled and transported to the next channel. The glass bottles can be fragile so they need to make sure that the transportation is through robust packaging and storage. Same applies to the warehousing.
The other aspect is the distributional channel selection. Is the product going to be available to all retailers or is there a partnership with an exclusive partner to do the same? The distribution strategy has to make sure about intensive or exclusive strategy.
Hence, this concludes the definition of Distribution Strategy along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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