Retail distribution is a simple concept with a complex solution. Any business offering products up for sale – whether in a brick-and-mortar store, online, or through omnichannel presence – must find a distribution strategy that suits their needs to move products to the customer.
Simply put, a distribution strategy is how a business delivers goods to the consumer. In a digital age where customers are able to meet their needs quickly with a variety of shopping options, retailers must focus on getting their products to the consumer quickly and in a cost effective manner – lest they lose their business to a competitor.
Finding the best fit: start with the basics
Deciding whether intensive, selective, or exclusive distribution strategies will best suit the needs of the business is the first step. A poorly managed inventory and distribution is detrimental to business and brand reputation..
No matter the size of organization or complexity of product offerings, planning how to distribute is just as important as manufacturing it – you cannot have one without the other.
If an item is easily mass produced, has an accessible price point and wide appeal, getting it into as many spaces may be the right option. Contrasted with more exclusive or luxury goods, where scarcity is part of the appeal of the product, being highly intentional with distribution is a better strategy.
For hygiene and cleaning products or beverage and snack items, an intensive distribution plan is most common. These products are widely used, often considered a necessity and appeal to just about every consumer.
Whereas items such as high-end apparel and accessories are more likely to use selective distribution. Companies using selective distribution are not as worried about achieving market saturation, opting to maintain closer ties with the retailers selling their product. An example of this would be mid to high end clothing and accessories which are found in stores like Nordstrom and Neiman Marcus, but not in Target or Walmart, for example.
Exclusive distribution is far more controlled and selective, where vendors control the exclusive rights to sell their products. This is popular among luxury brands where prestige is part of the appeal of the product – high price point brands with limited production often fall into this category.
Let’s look at these methods in more detail below.
Intensive distribution: breadth and depth
Depending on the product type and available inventory, intensive distribution could be the answer in building brand awareness and getting products into the hands of target consumers.
This strategy is not suitable for every type of product, and in order to be successful, considerations must be taken to ensure a business’ supply chain, production and distribution can handle this level of market saturation. Suppliers should ask the following questions when determining if this distribution strategy is the right fit:
- Can the supply chain, production facilities, budget, and distribution infrastructure support the production volume and logistics needed for mass distribution?
- Will the company be able to get distribution contracts with large retailers?
- Is the product price accessible for large swaths of consumers?
- Who is the target customer and does that align with retailers who would carry the product?
Above is by no means a comprehensive list, but if the answer is “no” to any of the above, intensive distribution is not a viable strategy.
Suitable items for this strategy encourage impulse buying by being placed in a queue or near the cash registers; have an accessible price point; and need to be replaced, or are quickly consumed.
For an established brand with a new product offering, this strategy is often employed to build awareness around the new item. An intensive strategy is usually more suitable for established companies, since the infrastructure is already available to support it and relationships are already in place for distribution.
This level or breadth and depth of distribution is not without drawbacks and risks. It is expensive and logistically complicated to push products out in hundreds or thousands of locations.
Another consideration is the low margins that come along with producing and distributing low-price products. The level of risk varies, but is higher for a new organization with less brand recognition.
However, when seeking to build brand awareness it may be helpful for a strong go-to-market strategy. Another important factor is the retailer relations; when considering distribution to big box retailers, convenience stores and the like, those relationships are complex to manage.
Before embarking on the intensive distribution strategy, consider what is realistically possible with not just production levels, but also the staffing and infrastructure to manage those relationships and distribution to retailers.
Selective distribution: discerning and limited
Selective distribution is just that: less expansive than intensive and more accessible than exclusive distribution. Selectively distributing a product is necessary when the products have a higher price point, are more specialized, and are targeted to a more specific demographic. This is commonly used for high-end clothing, electronics, appliances and items that don’t fall under the “impulse buy” category.
When determining if this distribution method is best, suppliers should consider:
- Does the product have regional appeal?
- Is there a narrow target demographic to market to?
- Are manufacturing and distribution limited due to organizational design or capability?
- Is the product specialized or luxury?
If the answer to any of the above is “yes”, selective distribution may be the best solution. With this strategy in place, businesses are able to target specific markets, either through geography or retailer-specific distribution.
For example, luxury designer clothing is only found in department stores like Nordstrom or Neiman Marcus, and the product offering is even more tailored from there. Not only are those department stores catering to a more targeted demographic, they’re also located across many locations.
As such, products can be distributed to select locations to further hone in on key demographics. This strategy puts products in front of the customer who is most likely to purchase, allowing for more limited production and distribution. This helps manage costs and is ideal for brands where part of the appeal is the exclusivity.
Selective distribution is also less complex when managing vendor-retailer relations since there are less accounts or opportunities for miscommunication and logistics issues. Additionally, since these products are more expensive, a closer relationship with distributors can ease some of the problems that happen with more complex logistics and third-parties.
Exclusive distribution: focused and specialized
On the other end of the spectrum from intensive, is exclusive distribution. This is a less common distribution strategy, as its name suggests. Companies who use exclusive distribution frequently fall into the luxury category; the most common product types include high-end electronics, designer clothing, luxury cars and specialized appliances.
Some prestige brands using this distribution model include fashion houses such as Chanel and Gucci, and automobile manufacturers like Tesla, Mercedes, and BMW. Brands like those mentioned have recognition and loyalty, and part of the appeal is the exclusivity itself and aspirational luxury.
These high-end items are not marketable to a mass audience, but have great appeal to a specific audience. By operating under this distribution strategy, the company can produce a focused product offering, control production quality and distribution closely, and maintain the exclusive feel of the brand.
Exclusive distribution is most difficult for brands lacking awareness or longevity in the market.
For example, this distribution strategy can be difficult for a new product or brand with a high price point. Picking the right distributor is a high-stakes game when building a brand. But when done correctly can create a buzz and increase demand quickly.
New businesses with a product that would be best served by exclusive distribution often start online with direct to consumer offerings and a strong presence on social media and advertising as a first step. Doing so can create brand awareness and loyalty, which mitigates some of the risk once the business decides to sell products wholesale to other retailers.
Most consumers don’t agonize over the purchase of everyday items like paper towels or hand soap. When considering a clothing, electronics or small household appliance purchase, more thought is given to the purchase, but those are all low-risk items.
As the price of an item increases, more consideration is made by the customer; if this item is a luxury product or not considered a necessity, distribution strategy should be thoughtful and well researched.
The considerations above serve as a guide for the who, what and where of retail distribution strategy. Keeping in mind that it’s better to under promise and over deliver, companies who are creating or reimagining their distribution strategy also need to mind their capabilities. Missteps with manufacturing, distributor relationships or quality control are detrimental to a business.
Creating and maintaining a distribution strategy is just as important as the product itself; proper channels of distribution are imperative to ensure the right products are in the right places, at the right time.
About Francesca Nicasio
Francesca Nicasio is Vend’s Retail Expert and Content Strategist. She writes about trends, tips, and other cool things that enable retailers to increase sales, serve customers better, and be more awesome overall. She’s also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores. Connect with her on LinkedIn, Twitter, or Google+.