Having a million-dollar business idea is one thing, and converting it into a unicorn is another. Being into the business of selling products, you must understand the power of distribution channels; a proper distribution strategy is key.
Assume you have an idea that can solve a very basic problem; such a product is very readily saleable. However, how would you actually make the product reach your customers? How do they find out about it and where do they finally buy it are two questions that must make your mind run. No wonder, strategizing to build the right distribution network is a necessity for
What is a Distribution Channel Network?
Your distribution channel network is the set of channels you could be using to get your products through to the consumers. Although it completely depends on your product type, it could include but not limited to, online store, wholesalers, retailers, brokers, or any other intermediary or agent.
Depending on the complexity and expanse of your business, your distribution network could have one of the different levels. Zero-level channels are one-to-one distributors when the producers sell directly to consumers (no intermediaries). Likewise, a three-level distribution network implies the presence of two intermediates, a distributor and a retailer, for instance.
Furthermore, a distribution channel can be categorized into two classes:
Direct Distribution Channel
Customers buy from you directly; either through your brick-and-mortar (physical) store or an eCommerce platform. Zero-level channels fall into this category.
Indirect Distribution Channel
Customers buy your product indirectly through an intermediary. One higher level of distribution channels is a type of indirect distribution channel.
Strategies for Choosing your Channel of Distribution
Before you can make a choice, let’s discuss a few factors first. Post this, you’ll have to narrow down your answers and reach the bottom to know where to start and how to proceed.
What are you selling?
Is your product perishable or stable? Does it have proper maintenance or storage conditions? Depending on your answer, you may or may not be able to wait for your product to go through the different levels of distribution. If it’s say a vaccine that needs certain conditions to remain effective, you would want it to be distributed directly by a particular channel. If you sell a product like apparel, you can afford to have multiple types or levels of distribution channels.
Moreover, something that needs to be tasted or tried before buying, like some food item or perfume, would sell more in physical retail or wholesale store rather than online. Taking care of such factors can help you determine the percentage of each distribution channel you should be investing in.
Who are you selling to?
If you think of it, it’s a real decision-maker. If your target consumer is a 60-year old human, they might prefer buying something from a physical store rather than online. If the target is a
busy, pregnant mother, she would likely order something online. Nevertheless, exceptions exist, which is why you need to take care of all the parameters before having a plan in place.
Can intermediaries make your job easier?
Depending on the product, intermediaries can both make your job faster or slower. Products like cooked food are better distributed with fewer intermediaries, while for raw food items,
more intermediaries can make the job faster. Nevertheless, the number of mid-parties also depends on your budget and industry or supply chain contacts as a higher number of them could mean less profit. But it’s also true that if your business benefits off more intermediaries, it’s best to have them.
Strategies to Build a Distribution Channel Network for your Brand
After you layout your plan by zeroing down on your target customers and budget, you choose the channels, followed by building a network of these channels. Although this still depends
on the above-stated factors, you’ll also be covering factors like the location of your customers. Ultimately, it’s the percentage of profits you earn that will help you make the final decision.
We have a list of strategies you could employ to use:
1. Rank your Options per the Expenses
You know the kind of channels you could have for your business. Examine a few combinations and rank them according to the net revenue they’re earning you at the end of a pre-stipulated period.
2. Check out your Competitors
With everything on the internet, doing competitor research isn’t that difficult, besides it has many benefits. You can design your plan be learning from the mistakes of your competitors.
(Oh, did your competitor lose out on consumer base due to a wrong distribution channel, red alert!)
You could also get insights as to what channels are getting the maximum customer reach and accordingly make it a part of your plan.
3. Determine the Expenditure Vs. Profit
Having different levels or types of distribution channel networks may lead to lower profits for obvious reasons. However, if you are a manufacturer of a product that sells in huge numbers, having wholesalers or more intermediaries may reduce your storage costs.
4. Plan to Grow
With time, as your capital grows, you can add more and multiple levels of distribution channels. But this requires proper planning. You will have to combine all the strategies and make an action plan that ensures a steep growth of the distribution network. A vast network directly suggests more sales as the product makes its way deep into the market. Once you go there, there’s no turning back.
While experimenting is more or less harmless, it’s better to strategize before you dive into these apparently unknown waters. Know your business, your target customer, your product,
and your budget before you decide on a distribution channel or network. Also, remember that once you choose one distribution channel, you can still add more. Businesses usually have multiple distribution channels, which they use to effectively and instantly sell products. Large eCommerce websites like Amazon, Myntra, and Flipkart are nothing but distributing
channels for various brands and retailers. These could be both large- and small-scale companies. Huge supermarkets and local retail shops set an offline example.