How To Develop A Distribution Strategy

Develop your distribution strategy with our step-by-step guide. Determine your distribution approach and select suitable channels. Evaluate and choose distribution options aligning with your business objectives. Define metrics to measure channel performance. Through this guide, develop a robust distribution strategy to efficiently reach your target audience, maximize market penetration, and achieve business growth.

Updated: April 15, 2024

In the dynamic world of commerce, success hinges not only on the quality of your offerings but also on how effectively you get them into the hands of your customers. This guide delves into the critical role of distribution strategy, using the example of a food supplement company to elucidate essential steps and considerations.

Note: 🍋 Throughout this guide we will use the example of a food supplement company to better illustrate each task and information.

What is a Distribution Strategy?

A distribution strategy is your plan used to make your products or services available to your customers. It involves determining the best way to deliver your products or services to your customers and ensuring that they are accessible and convenient to purchase.

A good distribution strategy ensures maximizing the availability and accessibility of your products or services, while minimizing the cost and complexity of distribution. By choosing the right distribution strategy, you can improve your competitive position and increase your revenue and profits.

There are three major approaches to distribution: intensive distribution, selective distribution, and exclusive distribution. Choosing the right approach for your business depends on a variety of factors, such as your target market, product or service characteristics, competitive landscape, and your overall business goals.

Based on the chosen approach, you will then also have to select your distribution channels, meaning the method of how you will get your product or service to your customers.

However, we will go through defining your distribution approach and channels step by step in a minute. So let’s not waste any time and get started.

What are the Benefits of a well defined Distribution Strategy?

In today’s dynamic marketplace, a well-defined distribution strategy is not just advantageous—it’s indispensable for businesses striving to thrive. Let’s delve into the key reasons why:

  • Increased Market Reach and Accessibility: By strategically mapping out how your products or services will reach customers, you extend your business’s reach to new territories and demographics. This broadened accessibility not only boosts sales potential but also enhances brand visibility and market penetration.
  • Enhanced Customer Satisfaction and Loyalty: A carefully crafted distribution strategy ensures that customers can easily find and purchase your offerings. This seamless accessibility contributes to positive customer experiences, fostering satisfaction and building long-term loyalty towards your brand.
  • Improved Operational Efficiency and Cost-effectiveness: A well-structured distribution strategy optimizes logistical processes, minimizes transportation expenses, and reduces inventory management complexities. By streamlining operations, businesses can achieve greater efficiency, lower costs, and ultimately, bolster profitability.
  • Strengthened Competitive Positioning: A robust distribution strategy can be a potent competitive advantage. By aligning distribution channels with customer preferences and market demands, businesses can differentiate themselves from competitors, securing a stronger foothold in the market and gaining a competitive edge.
  • Facilitated Scalability and Growth: Scalability is essential for businesses looking to expand operations and enter new markets. A well-defined distribution strategy lays the groundwork for scalable growth by providing a structured framework for scaling distribution channels, managing increased demand, and adapting to evolving market dynamics.

A well-defined distribution strategy is crucial for all types of businesses.

  • For Entrepreneurs, it provides a roadmap for scaling their business and reaching new markets efficiently.
  • For Start-Ups, it establishes a strong foundation for growth and sustainability in the competitive landscape.
  • For Corporates, it optimizes resource allocation and strengthens market positioning for long-term success.
  • For Investors, it signifies a well-managed and strategic approach, increasing confidence in potential returns.

Need help?

We can also conduct a Distribution Strategy for you, or you can work with our ready-to-use templates to save valuable time.

Our Tutorial: Step-by-Step

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Step 1: Get Prepared

To define your distribution strategy you can either build your own whiteboard template for example on Miro or you can use our ready-to-use template along with this guide.

Distribution Strategy Template

Included Templates:

  • âś… Distribution Strategy Miro Board
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Step 2: Determine your Distribution Approach

A distribution approach refers to the specific way that you use to distribute your products or services through different channels to reach your customers.

Each distribution approach has its advantages and disadvantages, and selecting the most appropriate approach requires careful consideration of these factors. The right distribution approach can not only help you effectively reach your target audience but also reinforce your desired brand image.

There are three primary approaches:

Intensive Distribution: 

 

  • This strategy involves making a product available in as many retail outlets as possible.
  • The goal is to make the product easily accessible to the customer.
  • Companies that typically use this strategy include for example fast-moving consumer goods (FMCG), personal care products, consumer electronics products, Social media platforms, online streaming services
  • Typical Channels include:
      • Indirect channels are typical for this strategy, including retailers such as supermarkets, discount stores, and convenience stores.
      • Online channels are also common, such as e-commerce websites and online marketplaces.

âž• Advantages:

  • Maximizes the product’s exposure to the market.
  • Increases sales volume and revenue.
  • Enables the product to be easily accessible to customers.

âž– Disadvantages:

  • Leads to price wars and erodes brand image.
  • Difficult to maintain control over the product’s distribution.
  • Can result in the product being sold in outlets that are not a good fit for the brand.

Selective Distribution: 

  • This strategy involves choosing a limited number of retail outlets to sell a product.
  • The goal is to ensure that the product is only sold in outlets that meet certain criteria, such as having a certain level of customer service or a certain target market.
  • Companies that typically use this strategy include for example technology products, sporting goods , home appliances, business software, online education
  • Typical channels include:
    • A mix of direct and indirect channels are typically used for selective distribution.
    • Specialty retailers, electronic retailers, and sporting goods stores are common indirect channels for this strategy.
    • Direct channels may include the company’s own stores or e-commerce websites.

âž• Advantages:

  • Allows the company to maintain control over the product’s distribution.
  • Helps to ensure that the product is only sold in outlets that meet certain criteria.
  • Enables the company to reach a targeted market.

âž– Disadvantages

  • Limits the product’s exposure to the market.
  • May result in missed opportunities to sell the product in other outlets.
  • Can create conflicts with retailers who are not chosen for distribution.

Exclusive Distribution: 

  • This strategy involves limiting the distribution of a product to one retailer or distributor in a specific geographic area.
  • The goal is to maintain tight control over the product’s distribution and ensure that it is only sold in premium retail outlets.
  • Companies that typically use this strategy include for example luxury fashion brands, high-end automobile manufacturers, high-end appliances, high-end video production software, digital content, high-end virtual reality headsets
  • Typical Channels include:
    • Direct channels are often used for exclusive distribution to maintain tight control over the distribution of the product.
    • Offline channels, such as high-end department stores and exclusive boutiques, are typical for this strategy.

âž• Advantages:

  • Maintains tight control over the product’s distribution.
  • Ensures that the product is sold in premium retail outlets.
  • Helps to maintain a premium image for the product.

âž– Disadvantages:

  • Limits the product’s exposure to the market.
  • Can make it difficult to increase sales volume and revenue.
  • May lead to conflicts with retailers who are not chosen for distribution.

✅ Keep in mind your target customer: Before you can choose a distribution strategy, you need to have a clear understanding of your target customers. If you have completed the previous toolkits you’ve already done an in depth analysis of your customers. And if you worked on your own at this stage of the process you hopefully did your customer research as well. When selecting your distribution approach you want to consider factors like their demographics, geographic location, behavior, and purchasing habits.

So go ahead and use the first area of your Distribution Strategy 📒 Template. To shortly describe each of your customer personas and note down any target customer segments characteristics or insights that could have an impact on the distribution approach you chose. For example, what expectations and preferences do they have? Do they rather shop at a large wholesaler, online or do they expect a high level of attention and service? Keep in mind that the customer personal is a fictional representation of the ideal customer, you can have various customer personas, one representing each of your target customer segments.

✅ Remember your product/service positioning: Use the corresponding area of your Distribution Strategy 📒 Template to copy the positioning map you developed during the first work package. Use the post-its to note down any additional comments or insights regarding your positioning.

The distribution approach is closely related to a product or service’s positioning because it also affects how your target customers perceive your product or service compared to the competition. By selecting an appropriate distribution approach, you can reinforce your product or service positioning.

For example, a business that positions its product as a luxury item may choose an exclusive distribution approach to reinforce the idea of exclusivity and rarity. On the other hand, a business that positions its product as a value item may choose an intensive distribution approach to make the product widely available and easily accessible to customers.

Therefore, the distribution approach should be aligned with your product or service’s positioning to ensure that the product or service is made available to customers in a way that reinforces its perceived value and meets the expectations of its target market.

✅ Assess the competition: Take a look at how your competitors are distributing their products or services. Use the Distribution Strategy 📒 Template to note down the distribution approach that you think each of your competitors is using, and add any supporting evidence, such as notes, screenshots, or links. Consider how you can differentiate your distribution strategy to stand out in the market.

✅ Determine your distribution objectives: Next brainstorm and determine your distribution objectives. Note them down in the corresponding area of your Distribution Strategy 📒 Template.

The Distribution objectives are the goals or outcomes that you aim to achieve through your distribution activities. They can include increasing sales revenue, reaching new customers, improving customer satisfaction, reducing costs, or enhancing brand recognition, among others.

The distribution objectives and the chosen distribution approach should be aligned and complement each other to ensure that the distribution activities effectively contribute to the overall success of the business.

For example, if your objective is to increase sales revenue, an intensive distribution approach may be appropriate because it would make the product widely available and easy to find, potentially leading to increased sales. On the other hand, if the objective is to improve customer satisfaction, a selective distribution approach may be appropriate because it would allow you to work with distributors that provide a high level of customer service.

The chosen distribution approach can also influence your distribution objectives. For example, if a business chooses an exclusive distribution approach, it may be able to charge a higher price for the product, which could lead to increased revenue. However, this approach may limit the number of customers who can access the product, which could reduce customer reach and satisfaction.

✅ Choose the right distribution approach: Finally, with all this in mind choose the right distribution approach for your business. Also, consider your budget and resources when choosing a distribution strategy. Some distribution channels may be more expensive than others, so you need to make sure you have the resources to execute your chosen strategy effectively.

Evaluate the pros and cons of different distribution channels: Consider the advantages and disadvantages of various distribution channels, such as direct sales, online sales, retail sales, and wholesale sales. Think about factors like cost, reach, control, and efficiency.

Note down the chosen approach on your Distribution Strategy 📒 Template and explain in the comments your reasons for choosing this approach and how you plan to implement this approach on a high level.

 

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Step 3: Distribution Channel Selection

Depending on the sales approach you chose, you now want to go a level deeper and select the right distribution channels. The distribution channels represent the specific methods or ways by which the products or services are provided and delivered to the end customers. The different types of distribution channels can be divided into several large categories.

Direct Channels vs. Indirect Channels

 

We can differentiate between direct and indirect distribution channels.

Direct distribution channels involve selling products or services directly to customers without the involvement of intermediaries or third-party distributors. This can include channels such as company-owned retail stores, sales teams, or e-commerce platforms. Direct distribution channels give businesses greater control over the customer experience and can often lead to higher profit margins, but they may also require greater investment in logistics and sales teams.

Indirect distribution channels involve the use of intermediaries or third-party distributors to sell products or services to customers. This can include channels such as wholesalers, distributors, and retailers. Indirect distribution channels can help businesses reach a wider audience and can be more cost-effective, but they may also involve giving up some control over the customer experience and may lead to lower profit margins due to the costs associated with intermediaries.

Digital vs. Physical Distribution Channels

Another differentiation would be digital and physical distribution channels

Digital distribution channels: These are the methods by which products or services are delivered to customers through digital means, such as through websites, mobile apps, social media, email, or online marketplaces.

Physical distribution channels: These are the methods by which products or services are delivered to customers through physical means, such as through retail stores, wholesalers, distributors, or direct-to-customer delivery services.

Here is a đź“‹List of of distribution channels with their respective advantages and disadvantages:

So, let’s get into it and evaluate and select the right distribution channels for your business. Just as for the pricing strategy, your distribution strategy and channels are also something that can change as your business evolves. You might start off selling through Amazon and end up getting your products into large retailers.

Besides your distribution approach, there are a number of factors that play into your choice of the right distribution channels, like your target customers’ preferences and behavior, your competitors’ channels, your distribution objectives, budget, and so on.

✅  So the first thing you want to do is recall your target customer personas and their preferences. Remember on day one you described a customer personas that was a detailed description of a typical customer within a specific segment. Now for each of those customer personas, think about the channels where they usually search, discover and buy products or services like yours.

Use the second area of your Distribution Strategy 📒 Template and describe high-level each of your personas, then use the post-its to describe in detail the different distribution channels they would use.

✅ Next, take a look at your competitors’ distribution channels: How are your competitors distributing their products or services? What channels are they using, and how successful are they using those channels?

Analyzing your competitors’ distribution strategies can help you understand the channels that work for your product/service category and identify opportunities and gaps in the market.

Again use the corresponding area of your Distribution Strategy 📒 Template to note down our findings.

âś… And last but not least, select the types of distribution channels you want to use. As mentioned, you can always evolve your distribution channels, so you want to consider those channels that you will be using at the beginning to launch your product and those that you will be aiming to use at a later point as your business keeps growing and your brand becomes more established.

When selecting the channels, take into account the distribution objectives that you defined in the previous step, your target customers’ preferences, the channels your competitors are using, as well as the following factors:

  • Product characteristics: The characteristics of the product or service being offered also play a significant role in the distribution channel selection. For example, perishable products may require fast and direct delivery channels, while durable goods can be sold through more traditional channels.
  • Cost: The cost of distribution is also a critical factor to consider. How much does it cost to distribute products through different channels? Are there any fixed costs associated with a particular channel, such as renting a physical store or setting up an online platform? It’s essential to evaluate the cost of each distribution channel and weigh it against the potential revenue it can generate.
  • Control: Another consideration is the level of control that the business wants to maintain over the distribution process. Direct channels, such as company-owned stores or e-commerce platforms, provide more control over the distribution process but may come at a higher cost. Indirect channels, such as third-party retailers or wholesalers, may offer less control but can be more cost-effective.
  • Scalability: Finally, it’s essential to consider the scalability of the distribution channels. Will the selected channels be able to accommodate the growth of the business? Can the channels be easily scaled up or down as the business evolves? It’s important to choose distribution channels that can grow and adapt with the business.

So go ahead and note down on your Distribution Strategy 📒 Template:

  • the distribution channels that you are planning to use,
  • the timeline, meaning when are you planning to implement them short term, mid-term or long-term?
  • the reasons why you selected the specific channel (consider the factors  mentioned above.)
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Step 4: Evaluate and Select Distribution Options

Once you have decided which types of distribution channels you want to use for your business, go a level deeper and evaluate and select your distribution options. Meaning, for example if you decided you want to sell through online marketplaces and online retailers you now want to understand which marketplaces and retailers exist and select the right ones for your business.

âś… Start by researching potential third-party distributors that fit your distribution channel criteria. The availability of distributors, of course, depends on your geographic target markets. Look for distributors that have a strong presence in your target market, target customer segment, and have experience distributing products similar to yours.

Use the third area of your Distribution Strategy đź“’ Template to first generate a long list of potential distributors. Therefore, indicate the type of distribution channel at the top and note down all distributors that you can find on the post-its below. Note that a distributor can also fall under more than one channel type. For example, offline distributors might also have an e-commerce platform and distribute online as well.

Here is a 📋List of major international distributors by channel type, that should help save some time during your research. Of course this is just a small extract of all potential distribution partners that are out there, so try to complement your long list through your own research.

✅ Once you have created your long list, choose those distribution options that you would like to go with and evaluate and compare all distribution options, including your direct distribution channels. Use your Distribution Strategy 📒 Template to shortlist your desired distribution options and compare them by noting down your findings on:

  • Channel Type(s) – as mentioned earlier, a distributor can cover more than one distribution channel type.
  • Markets/Locations – note down in which (of your) markets this distributor is available.
  • Reach – try to gain insights into their reach, meaning, for example, how much traffic they approximately have or how large their existing customer base is.
  • Cost – try to understand their cost of selling, how much and how do they “charge” you for using their distribution channels. Do they work with fees, on a commission basis, revenue share, etc.?

Based on this criteria, select the most relevant distribution option for your business. Again, consider that you probably won’t implement all channels at the same time. You will probably start with one or two distribution options and evolve them as your business grows.

Of course, after defining your go-to-market plan, including your distribution strategy, you will also have to execute it. Depending on the individual distribution partner, the way of getting your products or services in/on this channel differs. For some (e.g. Amazon), you can just sign up as a new provider and register your products or services, while for others, you will have to find a way to get in touch, apply as a provider, and negotiate the terms individually.

 

 

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Step 5: Distribution Channel Objectives and Metrics

Last but not least, you want to be able to track the performance of the different distribution channels to analyze which channels work best and keep adjusting your channels until you find the ideal channel mix for you.

So, in this last step, you want to define a number of metrics and corresponding objectives to track performance.

Possible performance metrics could include:

  • Sales revenue: This metric is a key performance indicator that shows how much revenue a particular channel is generating. It can be broken down by product or service, customer segment, or geographic region.
  • Traffic: Refers to the number of visitors to a particular distribution channel, whether it’s a physical store, website, or social media page. This metric can help track the overall popularity and awareness of the channel and can be further broken down by source (e.g. organic search, paid advertising, direct visit).
  • Product views: Refers to the number of times a particular product has been viewed on a given distribution channel, such as a website or social media platform. This metric can help gauge customer interest in specific products and can be used to inform inventory and marketing decisions.
  • Conversion rate: This metric measures the percentage of visitors to a channel that convert into customers. It can be broken down by product or service, customer segment, or geographic region.
  • Inventory turnover: This metric measures how quickly a particular channel is selling inventory. It can help businesses identify which channels are most efficient at moving inventory.
  • Customer lifetime value (CLV): This metric measures the total value of a customer over the entire relationship with a business. It takes into account repeat purchases, referrals, and other factors that contribute to long-term revenue.
  • Return on investment (ROI): This metric measures the return on investment for a particular channel. It takes into account the cost of acquiring customers and the revenue generated from those customers.
  • Channel margin: This metric measures the profit margin for a particular channel. It takes into account the cost of goods sold, marketing expenses, and other costs associated with the channel.
  • Customer acquisition cost (CAC): This metric measures the cost of acquiring new customers for a particular channel. It includes advertising and marketing expenses, sales commissions, and other costs associated with attracting and converting customers.
  • Customer satisfaction: This metric measures how satisfied customers are with a particular channel. It can be measured through surveys, reviews, or other feedback mechanisms.

✅ Use the last area of your Distribution Strategy 📒 Template to define the metrics that you want to track for each distribution option. You can choose several metrics for each channel that will help you to best evaluate its performance. In the best case you will have comparable metrics for the different channels, however, this is not always possible since they also depend on the data you have available and can measure.

Then define a specific objective for each metric. Remember objectives should be SMART:

  • Specific: The objective should be clear and specific, so that everyone involved understands what needs to be accomplished.
  • Measurable: The objective should be measurable, so that progress can be tracked and success can be determined.
  • Achievable: The objective should be realistic and achievable, given the available resources and capabilities.
  • Relevant: The objective should be relevant to the overall goals and mission of the organization.
  • Time-bound: The objective should have a specific deadline or timeline for completion, to keep everyone focused and motivated.

Conclusion

In conclusion, a well-defined distribution strategy is not just a component of business operations; it’s a cornerstone of success in today’s dynamic market environment. Whether you’re a small start-up or a large corporation, investing time and resources into crafting an effective distribution strategy can yield significant benefits, driving growth, profitability, and ultimately, business success.

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