Biz Features

Basic Marketing Concepts Demystified! Part 6: The Big Four Popular Distribution Strategies

by . August 16th, 2014

It’s a testament to the seat-of-your-pants nature of entrepreneurship that so many attempt to start a business without even a passing knowledge of basic marketing concepts such as distribution. In this part of the series, we explain the “Big Four” distribution strategies.

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We’ve found many of the explanations online either too dry and academic, or outright useless for many entreps with no formal marketing background. We hope this does the job better.

Wait this book says there are only 3 major strategies! What gives?

While there are alternate frameworks with which to view distribution strategies, the truth is there are no hard and fast rules, regardless of whoever business writer you try to follow. Strategies can be multi-pronged or be viewed differently depending on context.

In the end, it’s less important to argue about specific terms than it is to understand how certain strategies will broadly affect your market share and how your offers are seen.

What should I include in my distribution strategy?

Shopping Key

Dumb question, right?

Yes and no.

It’s fairly obvious that planning where your products and other offers are made available should be a major part of a distribution strategy.

As far as distribution channels is concerned, many newbie entreps fall short is planning their:

  • Promotions channels
  • Product development
  • Brand development
  • Risk mitigation
  • Pricing
  • Customer service

 

These are just some of the things to consider when creating a distribution strategy.

Most distribution strategies will fall under one of these broad categories:

1.) Intensive distribution

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What it is

Toothpaste, cigarettes, detergent, batteries, phone credits, feminine hygiene products, and similar knickknacks and daily necessities are usually distributed widely enough so that customers don’t have to go out of their way in order to purchase them. It works best when your offer isn’t very different from your competitors’.

When you think of an item that’s got a “household name,” it’s likely distributed this way.

Upsides for producers

  • It’s easy to become part of your market’s consciousness
  • Sheer volume can lead to customer loyalty, especially with customers who aren’t too particular but fall back on familiar brands.
  • Loyal customers will not be in a position where they are forced to choose a competitor’s offer.

Downsides for producers

  • Generally expensive, unless you also control distribution.
  • Waste is generally unavoidable in many cases. Newspapers and magazines, fast food, and low-end consumer electronics often make their way to landfills without being sold.
  • Requires an efficient logistics system to reduce waste.
  • Severely limits how you could brand your offers; products will never be seen as “exclusive” or “upscale”.

 

2.) Selective distribution

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What it is

Selective distribution involves selecting specific markets and optimizing offers so that they are easily available only to those markets.

This strategy is most often used with items such as higher-end electronics and furniture. General Electric and Whirlpool for instance, are well-known for distributing their home products in some stores, but not others. High-end clothing is also often distributed this way. This type of distribution normally gives more rights to the producer.

Traditionally, this strategy was severely limited by geography. The same broad principles are now easily applicable through online channels, so now anyone can easily target specific niches, instead of being hampered by your market’s physical location.

Most items and services available online through multiple intermediaries can be considered to be distributed this way.

Upsides for producers

  • Lower distribution costs, relative to an intensive distribution strategy.
  • Lower wastage.
  • More efficient for most products and services customers may want to research and compare beforehand (i.e. specialty services, travel tickets, specialty items, musical instruments, intermediate to high-end electronics, novelty items, power tools, etc.)
  • One can choose to avoid competition in specific geographic areas not served by the competition
  • May be the most practical method of widely distributing some items that would otherwise be prohibitive to distribute intensively.
  • Can be used to reduce both interbrand (with outside brands) and intrabrand (within a brand family) competition.

Downsides for producers

  • It may be difficult to find and match up 3rd party distributors for some products and services.
  • Often requires producers to open their own distribution centers/stores in these cases, necessitating an added expense.
  • Slower market penetration outside of selected markets.

 

3.) Exclusive distribution

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What it is

Exclusive distribution involves having a single online/offline channel for a given market. This strategy is most commonly used for “upscale” items such as jewelery and bigger ticket, expensive items such as cars.

This method is also common for specialty items in smaller markets. Food trucks are one offbeat example.  This distribution method often gives more rights to the distributor, due to the special requirements of these items.

Upsides for producers

  • Gives the producer significantly more control over price and profit share, even in cases they team up with a 3rd party distributor.
  • Producers can opt to sell with a prestige, quality, or exclusivity cachet.
  • Desirability can be dramatically increased compared to products distributed in other ways.

Many of the other advantages are similar to those of a selective distribution strategy.

  • May be the most practical method of widely distributing some items that would otherwise be prohibitive to distribute intensively.
  • Can be used to reduce both interbrand (with outside brands) and intrabrand (within a brand family) competition.
  • Lower distribution costs, relative to an intensive distribution strategy.

Downsides for producers

  • Much more attention to detail must be given to your offers, from both a marketing and product development view. This entails additional expenses in time and other resources that would not be necessary for the other distribution methods.

Many of the other disadvantages are similar to those of a selective distribution strategy.

  • It may be difficult to find and match up 3rd party distributors for some products and services.
  • Often requires producers to open their own distribution centers/stores in these cases, necessitating an added expense.
  • Slower market penetration outside of selected markets

 

4.) Franchising

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What it is

A franchisor allows an operator, or a franchisee, to use their trademark and distribute the supplier’s goods. In return, the operator pays the supplier a fee. In many cases, the franchisor also acts as a supplier.

The operator often does the heavy lifting on the front end, while the franchisor develops products, develops the brand’s direction, and ensures a consistent experience for customers.

This business model has famously been applied to fast food businesses, but has also been proven a viable option for events, social enterprises, hotel and lodging businesses, and small-scale manufacturing.

Why bother including it?

Many other frameworks for understanding distribution strategies omit franchising. This is because for all intents and purposes, you could franchise your business and still distribute offers intensively, exclusively, or in select channels. It is worth mentioning, however, that franchising offers risk reduction

Upsides for producers

  • Many of the inherent risks of expansion and distribution are absorbed by the operator.
  • Rights are heavily in favor of the franchisor.
  • Franchisors can focus on developing core aspects of their brand instead of relatively trivial day-to-day issues.

Downsides for producers

  • Quality control becomes an overriding concern. Franchise operators have to be selected very carefully to assure offers and service levels are uniform. This level of control can be very expensive for some types of businesses to exert.
  • Legal issues differ between markets, complicating expansion in some cases.
  • Your business model has to be proven before most potential operators can be converted.

This won’t come close to covering all the implications of each of these major distribution strategies, but hopefully at least a few of you walk away with a better understanding of where your good and services should be available, as well as how to promote and develop them.

Other parts of our Basic Marketing Concepts series!

The Marketing Mix: The 4 P’s of Marketing

Customer Relationship Management 

Demand Generation 

The Sales Process

The Purchase Funnel

 

Did we mess up somewhere? Help us out and comment below!

ABOUT THE AUTHOR:

Arthur Piccio manages YouTheEntrepreneur and has managed content for major players in the online printing industry. He was previously BizSugar's contributor of the week. His work has appeared multiple times on The New York Times' You're the Boss Small Business Blog. He enjoys guitar maintenance and reading up on history and psychology in his spare time.

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