Distribution channels may not strike you as a business area that requires much development or oversight. When there are aspects like product designs and social media engagement to worry about, strategizing distribution channels may feel like the last thing on anyone’s mind. However, improving distribution channel performance can greatly increase profits and stimulate business growth.
Why Worry About Your Distribution Channel Strategy?
Distribution channels are the ways in which products travel from business to end customers. A typical flow of products for brick-and-mortar retail stores will begin with a manufacturer, move to the hands of distributors, then to retailers who market and sell the products and finally to the end customers. However, e-commerce has made direct-to-consumer sales more available and popular.
The ways in which consumers expect to receive products is evolving. If you haven’t spent much time examining your distribution channel strategy, it’s likely that your business model is behind the times and not optimized for the shifts in the market. This means you are missing out on an opportunity to build customer loyalty, reach wider markets, and maximize profits.
Increasing Distribution Channel Efficiency
Managing distribution channels can be difficult even for veterans in the business. However, there are a few central tips that improve distribution efficiency no matter how large, small, established, or new a firm is. They are:
- Understanding the advantages and disadvantages of your distribution channels
- Efficiently moving product(s) to the end customer
- Controlling costs and saving time along the distribution channel
Of course, this advice is much easier said than done so read on for more in-depth explanations on how to go about implementing them into your business.
Understand Your Distribution Channel Strategy
The first step in improving efficiency is to pinpoint your current strategy. Distribution channels can be categorized by the length of the supply chain or level of market penetration. The five main categories are:
- Direct distribution
- Indirect distribution
- Intensive distribution
- Selective distribution
- Exclusive distribution
1. Direct Distribution
Direct distribution is when a product is sent directly from producer to consumer. It often requires that the business have its own logistic team, warehouses, and transport vehicles. Because of this, establishing direct channels can require a large capital investment. However, in the long-run, well-managed direct channels can be more efficient by bypassing middlemen.
Direct channels are best suited for perishable goods, expensive items, and products with a geographically concentrated target audience; think farmer’s market vendors. Large-scale direct selling can be difficult to oversee. However, the benefit is that they have more control over setting prices and have a more intimate connection between business and consumer base.
2. Indirect Distribution
Indirect distribution is when there are numerous intermediate channels between the manufacturer and end customer. Since everyone involved in the process must be paid, costs can add up, inflating the price end consumers pay. Additionally, product delivery can be delayed by faults in communication and lengthy bureaucratic procedures. Manufacturers must trust that the intermediaries they pass their products to will be capable of managing its distribution and representing it well to customers.
When there is a harmonious relationship between all parties involved, efficiency is greatly enhanced. Each collaborator—manufacturer, warehouses, wholesalers, distributor, and retailer—is specialized in their job and has only one main task to focus on. There is also very little start-up cost associated with indirect distribution since each role in the chain is already established by third party entities.
3. Intensive Distribution
Intensive distribution is a strategy used to sell mass-marketed products—generally fast-moving consumer goods or everyday items. If there are many alternative brands competing with a product, like soft drinks, soaps, and cigarettes, intensive distribution is the way to go. The idea behind this is that the more places the product is seen, the more likely a customer will purchase it. Brand awareness and impulse buying are driving forces behind this.
However, there are risks for spreading one’s eggs into too many different baskets. If you aren’t smart about where your product is going, you could end up with a basket of unsold eggs. That is to say, if competing brands have a stronger customer base in certain locations, then it’s unlikely your product will sell, thereby causing losses. Utilizing this kind of distribution requires constant analysis of market trends and quick responses to fluctuating demands.
4. Selective Distribution
Selective distribution is when products are only distributed to a select number of outlets. Brands that distribute this way often have a more premium feel to their name. They can also enter deals with retailers which keep competing brands off of their shelves. This type of distribution is a middle ground between intensive and exclusive distribution.
5. Exclusive Distribution
Exclusive distribution is exactly what it sounds like—manufacturers agree to sell their product to exclusive distributors in order to distinguish their product as a high-ticket item. This strategy works for luxury items because what they lack in quantity of sales, they make up for with high price tags. Their branding finesse makes it so that there is no need to invest in multiple outlet locations or far-reaching distributors. People value their product enough to travel long distances to view their showrooms.
As you can see, these different types of distribution channels have varying strengths and weaknesses. You will want to verify that the type of distribution you use makes sense for the products you are selling. By understanding the nuances of your distribution channels, you will also have a better sense of what areas can be improved upon.
Streamline Product Movement
In every type of distribution strategy, streamlining product movement is very important for your business. Late or incomplete deliveries drastically hurt customer relations. Warehouse analytics company, Voxware, found that existing customers were 69% less likely to shop from a retailer again if their purchased item arrived more than two days late.
To avoid losing customers to inefficient distribution, consider the following:
- Optimize warehouses
- Utilize direct vendor shipments
- Deliver to parcel lockers
The results: faster delivery times, more productive workers, and happier customers.
In order to prevent delays in delivery, learning how to maximize warehouse efficiency is crucial for it to be able to run in impeccable order. in impeccable order. Warehouses are the distribution and fulfillment centers where goods are stored until retailer’s stocks run low or an online order needs to be fulfilled. Since warehouses concentrate goods in local areas, products can be easily disseminated to meet stable demands. However, this can only be achieved if the warehouse operations are efficient in picking, packing, and shipping out inventory.
Well-organized workstations, energized teams, and updated technology are crucial assets for an optimized warehouse.
Utilize Direct Vendor Shipments
Direct vendor shipments are useful when demand is unpredictable and spans a wide area. In these cases, it is generally quicker for vendors to skip the warehouse processing and make a beeline to stores or potential customers. Although it is accompanied by higher shipping costs, there is less expenditure on storage or management of goods, as is the case in warehouses.
Deliver to Parcel Lockers
One way to streamline distribution is to deliver all products being shipped to the same area to one centralized location via parcel lockers. For example, if you are a brick and mortar business, you can sell your products online and have them picked up in store. This buy online pick up in store strategy (BOPIS) is quickly gaining traction among top retailers around the U.S. due to efficiencies it creates in the distribution process. By utilizing retail parcel lockers, which are smart systems that store orders until they are picked up by their purchaser, you can further streamline this process.
This is how it works. When a customer makes an online order, warehouses or retailers place the item into a secure retail parcel locker. Then, once it’s ready for pick up the customer will be notified by a text, email, or app alert and they can then retrieve their package from the locker using a unique code whenever is convenient for them.
Parcel Pending’s Buy Online, Pick-Up in Locker, or BOPIL solution makes the order fulfillment process seamless. In addition to enhanced customer satisfaction and loyalty, BOPIL systems also provide these benefits:
- Both warehouse and retail workers spend less time sorting out packages and more time on more valuable business.
- Distribution channels that used to make thousands of stops at individual homes are able to make a one-stop drop, cutting transportation and labor costs.
- Inventory can be managed with further meticulousness as the smart lockers provide information on what products are in holding or have been returned
- Delivery success rates will be nearly perfect since there is no chance deliveries will be sent to the wrong address and no risk of porch pirates whisking away unattended packages. Additionally, the product is sure to be in pristine condition as the weather-proof lockers protect it from rain or wind.
- Customers can easily return items to the lockers by scanning them in. This allows retailers to process the payment reimbursement and place the product back into circulation in a timelier manner.
Control Costs of Distribution
Saving time saves money, but there are also other ways in which costs can be cut. You could be overpaying for much of the distribution process, but you wouldn’t know it unless you really took the time to audit your distribution channel strategies. This can be done by developing measurements to track performance, reviewing channel intermediaries, and building strong partner relations.
Develop measurements to track performance
By measuring performance, it will become clear which steps in the distribution process are strongest and which require additional management. For example, total revenue at each point in the channel is a good indication of which partners are strong assets, and which should be providing more productivity.
Tracking inventory and regional sales is also essential. This information helps you determine which areas distribution should be directed towards. Meticulous record keeping ensures that when business is down, appropriate actions can be taken. It highlights what sales strategies were historically successful and which ones were not as effective.
Review Channel Intermediaries
As discussed in the earlier section on indirect distribution, working with multiple channel intermediaries can be tricky. However, when the benefits of each intermediary are maximized, everyone wins. A perfect example of how much money can be saved when specialized groups work together would be in the case of hamburger production. At a restaurant, anyone can buy a nice hamburger for $10, but if one person tried to create a hamburger from scratch on their own—wheat fields, cattle tending, and all—they’d be looking at a price tag of well over $1000.
Of course, cooperation is key to the success of channel intermediaries. Improved supply chain management can help mediate this cooperation. Clear communication is a must as well. If multiple channels are in the mix, then pricing is often more flexible. The bottom line, don’t be intimidated to review channel intermediaries and suggest changes when things aren’t working as smoothly as possible. Building strong partner relations benefits all parties involved.
- Distribution channels should be tailored to the type of product sold. Is it perishable? Is it a common item with many similar alternatives or is it a niche product with a valuable brand name? These different goods should go through different types of distribution channels.
- Distribution should be orderly. If customers aren’t happy with delivery times, then the distribution strategy is failing. Warehouses and retail locations are often where products get stuck and distribution slows down. Reviewing the performance of your warehouse, utilizing direct vendor shipments when applicable, and installing parcel lockers will help streamline distribution.
- Distribution channels should be regularly reevaluated. After evaluating your current distribution strategy, look for opportunities to rework old deals with partners, or create new ones if stagnation becomes an issue.
Distribution channels are much more than just the movement of physical products from place to place. They are the roads that carry your brand to success and they must be well-maintained and improved upon to be effective. No matter how great your product is, or how influential your marketing, your business cannot thrive unless the product you promise is delivered. This is why firms should always aim to improve distribution channel strategies.
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