When it comes to determining a distribution strategy for your business, the problem you’re really solving is, “what is the best way to get my product/service to my customers?” To answer this, there are a several important factors you must be considered but first you must understand the fundamental differences between distribution channels. At the most fundamental level, they’re divided into two main categories: direct and indirect. A direct channel allows consumers to make purchases directly from a manufacturer such as with your own website or social media channels. An indirect channel relies on a network of wholesalers and retailers to sell products to consumers.
Here are some questions you should ask yourself to help sort out what model, or models, will work best for your business:
- How much control are you willing to relinquish?
- Even when you own a company, with certain distribution channel models, you’re required to let go of a certain amount of control. If your plan includes staying in the driver’s seat, an indirect model might not be for you.
- Retailers have the ability to trace every online customers’ step and utilize that data to successfully market to them, ultimately curating their experience and establishing loyalty. One drawback to indirect distribution is that you, as the manufacturer, generally do not have access to this valuable sell-through data. Now, with a likeminded, focused retail partner, there may be more room for a discussion about information sharing, but there is no guesswork when selling through a direct channel–you own all the data you collect.
- How does each distribution channel impact costs and pricing?
- Since each participating channel level must be compensated for its services, the longer the channel, the more costs there are cutting into your profit. You can recover losses by building costs into product pricing, but determining what the market can bear requires market research and testing.
- If a longer distribution channel is more costly, that implies a shorter one is less so. On its face, this is true; however, the overall impact on profit that can result from working with intermediaries must be heavily weighed. For example, selling through wholesalers, retailers or sales agents can help circumvent startup costs such as building an online storefront or coordinating transportation logistics. Indirect channel partners can also create a richer variety of product assortments, standardize transactions, and make it easier for customers to find your products–all of which contribute to becoming more profitable.
- What is competition doing?
- Assessing the approach your competitors are taking will probably take you in one of two directions; either using the same channels will yield the best results or selling through different channels will give you a competitive edge. Maybe you recognize value or opportunity somewhere that’s historically been overlooked, or recent events have opened up an avenue that never made sense before.
- What you don’t want to do is exactly what your competitors are doing simply for the fact that it’s how things have been done.
- What adds the most value for your customers?
- Remember that the customer experience isn’t just one thing…it’s everything. One of the earliest considerations in determining your distribution strategy is what experience your customers value most. Will they want to interact with a product before purchasing it? Will their experience be heightened with a demo from from a salesperson? Are they likely to be looking for items that complement your product?
- Prioritizing the needs of your customers should play a key role in refining your channel mix.
This all, of course, is not to say any company should limit itself to only one method of distribution, now or in future. Continue evaluating your choice or mix of distribution channels as your business evolves, and if you do choose to distribute through multiple channels, be sure they’re not competing against each other for sales. Now, make the best choice for your customers and your business by completing the following worksheet noting each distribution channel you are considering and then assess its pros and cons based on the factors listed on the worksheet below.
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