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Craft a distribution strategy to win loyal customers

Distribution strategy: entrepreneur using a laptop

 Key takeaways

  • A distribution strategy helps you efficiently deliver goods and services to satisfy end users 
  • Choose a direct distribution strategy if you want to build strong relationships with your clients and maintain control over pricing
  • Choose an indirect distribution strategy if you want to simplify logistics and focus on one part of the supply chain

You’ve marketed your product, streamlined your sales pitch, and finally closed a deal with a customer. But what happens after the sale? You have to deliver on your promises—and for many small businesses, that means delivering your product or service right into your customer’s hands. 

Navigating these logistics might seem intimidating, especially with customer demand for convenient shipping on the rise. But even more than cost and speed, shoppers value transparency and dependability. According to a Shopify report, 74% of consumers say they want to see shipping costs upfront when making purchasing decisions, and 68% would like free returns and estimated arrival times.

How can you provide your target audience with a reliable and trustworthy delivery experience? First, you need a distribution strategy, which keeps your supply chain running smoothly and eliminates dreaded delays—all while improving the customer experience. Below, learn which distribution channel makes sense for your business so you can start crafting a strategy of your own.

What is a distribution strategy?

A distribution strategy includes all the tactics you use to make your products or services available to the people who will use them. It can outline what types of businesses you’re working with (if any) to sell and deliver your goods or services, as well as what sales channels you’re using to capture purchases from buyers.

A great distribution strategy helps you gain brand loyalty from your client base by keeping your sales and delivery processes as efficient as possible. Plus, it can help you build a formal process for evaluating and entering new markets as your business expands.

Types of distribution strategies

Distribution strategies form the foundation of a successful distribution process. Most business owners choose between two main types of distribution strategies: direct and indirect. Once you pick a distribution strategy, you can also hone your approach with a subcategory strategy, known as exclusive, intensive, and selective strategies.

Direct distribution strategy

Distribution strategy: entrepreneur happily handing a paper bag to a customer

Direct distribution is when a company sells and delivers its own products and services directly to end users. You can use this distribution method whether you operate a brick-and-mortar or e-commerce store. For example, businesses that use direct distribution include hair salons, plumbers, artists with an Etsy shop, and clothing brands with their own retail stores.

Pros: Direct distribution eliminates middlemen from the distribution process, giving you total control over how you price a product. It also helps you build closer relationships and collect valuable data from your clients, since you’ll be selling to them directly.

Cons: You’ll take on more costs and logistics, such as renting storage space, buying delivery vehicles, and hiring drivers. You’ll also be more vulnerable to changes and challenges within the supply chain.

Indirect distribution strategy

An indirect distribution strategy is when a company works with third-party businesses to deliver or sell products or services to their users. For example, the brands you see at grocery stores, like Pillsbury or Kraft, use an indirect product distribution model. Since these brands don’t have their own stores, they rely on retailers to sell their products. 

In some cases, indirect channels include other intermediaries, such as real estate agents, who facilitate sales on behalf of a business, or resellers, who buy from retail stores to sell to consumers at a markup. 

Pros: Indirect distribution greatly simplifies logistics because experts take care of each step of distribution so you can focus on your own business. This distribution method allows you to save on shipping and storage costs while also benefiting from your distribution partner’s expertise. 

Cons: Relying on third parties separates you from your end customers, which can make it harder to achieve brand loyalty. If your intermediaries make mistakes, such as using low-quality packaging that makes products prone to damage, it can reflect poorly on your brand.

Subcategory 1: exclusive distribution strategy

Exclusive distribution is when a manufacturer limits the sales channels selling a product or service. This method can be both direct and indirect: A brand might sell its products only at its own stores—or, if it works with third-party distributors, it might allow select retailers to carry its products. For instance, Apple once agreed to only sell iPhones through AT&T.

This strategy is often used by high-end brands that want to give their target customers an exclusive experience. Using this method can also help a new brand make its product or service look more desirable from the time of its release. Then, when your product or service starts to gain traction among your ideal customers, you can broaden your distribution network to maximize sales.

Subcategory 2: intensive distribution strategy

Intensive distribution is the opposite of an exclusive strategy. Instead of limiting sales channels, you work with third-party distributors or retail locations to get your product in front of as many potential buyers as possible. For instance, a chocolate brand might use this strategy to get its products stocked at every supermarket and gas station in a region.

You can also use intensive distribution online, such as a small jewelry maker selling on Amazon, eBay, Facebook Marketplace, Etsy, and their e-commerce website. While this strategy helps you reach as many customers as possible, it also creates a lot of extra work: The jewelry maker will have to carefully manage a large amount of sales channels on their own.

Subcategory 3: selective distribution strategy

Manager holding his phone while looking at some clothes

Selective distribution is when a company sets guidelines for where a brand can or cannot sell. Generally, these decisions revolve around your target audience. For instance, a spa chain might choose to open no more than one store in each metro area, while a shoe brand might only place its products in stores with an upper class customer base.

A selective distribution system helps you control the kinds of buyers in your target market, allowing you to price your products or services effectively and boost your marketing strategy. It also reduces the impact of competition in the market by ensuring that you’re only reaching your most likely customers. However, it can open you up to costly legal challenges if you’re discriminating against protected classes. For these reasons, selective distribution is generally used by companies selling high-value items, such as luxury clothing brands or pharmaceutical companies.

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How to find and optimize the right distribution strategy

Distribution strategies are not one-size-fits-all. To find the right distribution strategy for your brand, consider your product or services and target audience, then follow these three simple steps.

1. Select your distribution channel

A distribution channel is the path products take to reach consumers. Most companies use one of these three types of distribution channels:

  • Direct to consumer: Companies sell and deliver goods directly to end-users
  • Wholesale: Manufacturers sell goods in bulk to wholesalers, who then sell these products in smaller bulk quantities to retailers at a markup, who then sell products to consumers at another markup
  • Retail: Producers sell bulk products straight to retailers—cutting out wholesalers—which then sell to consumers at a markup

Each product distribution channel has its advantages. If you have a direct distribution strategy, you’ll likely choose a direct-to-consumer channel, which minimizes your reliance on third-parties. 

For businesses with an indirect strategy, wholesale channels allow you to focus on a specific part of the supply chain, while retail channels help you reduce unnecessary transport. Ultimately, the best channel for your business depends on what type of products you sell and how large of a role you want to play as a distributor.

2. Build your distribution network

Once you’ve chosen your channels, start building your distribution network. If you’ve chosen a direct channel, you’ll need to ensure you have all the resources required to serve your clients, such as a warehouse, retail store, website, shipping supplies, and staff.

If you’ve chosen an indirect channel like wholesale or retail, you’ll need to reach out to third-party businesses with an existing distribution network. You can search on supplier sites, wholesale directories, LinkedIn, and other platforms to find potential partners. Chat with each candidate to gauge their quality of work and make sure you choose partners you trust. They may do the work for you, but your brand will assume any praise or complaint that results from the partnership. 

3. Optimize your distribution strategy over time

As you put your strategy into action, monitor your distribution channel’s performance. For example, do customers in your industry expect faster shipping times? You might need to take shipping into your own hands if intermediaries can’t deliver in time. Are you unable to meet increasing customer demand at your brick-and-mortar? Consider adding wholesalers to your channel. 

Pro tip: Learn how this small business owner expanded his bakery operation from direct-to-consumer to a wholesale model. “Never in a million years did I ever think I was gonna run a business that had anything to do with wholesale, especially supplying to grocery stores,” said Kevin Moulder, owner of Tres Lecheria in Seattle. “We found our own mentors. We talked to our distributor to get answers to our questions. We talked to anyone that would listen and give us the time. And now this is where we are.”

Streamline your distribution

With a distribution strategy in place, your small business can consistently deliver products or services to end users (and thereby help win their loyalty). Start by choosing between a direct channel, which gives you control over your distribution and pricing, or an indirect channel, which simplifies logistics and gives you the support of other experts.

No matter which distribution strategy you choose, it’s crucial to improve your process over time. Learning how to do market research can help you keep up with distribution trends and meet changing customer demands in your industry.

The information above is provided for educational and informational purposes only. It is not intended to be a substitute for professional advice and may not be suitable for your circumstances. Unless stated otherwise, references to third-party links, services, or products do not constitute endorsement by Yelp.