A distribution strategy is a set of documents to implement and orient the process of supplying goods to the market. It includes distribution channel models, guidelines, regulations, and policies. The distribution strategy aims to deliver the product from the factories to consumers.
Three-tier distribution strategy model, © Vũ Digital
We will share the complete guidelines to help you understand how to combine tactics versus methods to design an effective distribution strategy model.
This article is not-for-profit. We want to help those struggling to build a distribution strategy but haven’t found a way yet. If you are looking for a way to design a distribution strategy that could contribute to business growth and brand awareness, read on.
One thing we want to alert you about is that you need to read part by part, don’t rush. You must know all the materials well before starting to build a house.
Why do we need a distribution strategy?
Today’s business world is flat. Every corporation has the chance to deliver information and products to consumers globally thanks to logistics and online platforms. The days when the distribution channel was considered a business secret are gone, and we now have the same opportunity.
But why do we need a distribution strategy? Without a distribution strategy, it would be chaotic and ambiguous for companies to deliver goods to the market, along with multi-channel system conflicts. Without a distribution strategy, the opportunity costs would also increase since we might lose potential customers without clear policies and models.
These reduce the advantages and competitiveness of brands. If you want to limit this high-risk situation, a distribution strategy is no longer an option but has become a must-have strategy for every business.
Two distribution tactics in distribution strategy
Distribution Model, © Vũ Digital
Two distribution tactics in distribution strategy
In distribution strategy, there are two main ways of distribution, direct and indirect. These two distribution methods should only be considered as distribution tactics, components of the distribution strategy.
Currently, businesses can apply many different distribution methods simultaneously because technology and infrastructure have effectively supported the connection of these distribution methods.
We should now understand distribution strategy as combining and managing multiple distribution methods simultaneously into an interconnected system that can support each other.
Do not confuse distribution strategy and tactics. This mistake will affect the output target and sales target.
Direct Distribution Tactics
6 forms of direct distribution, © Vũ Digital
Direct distribution is a tactic in which the manufacturer delivers the product directly to the consumer.
There are many different ways to implement this tactic. Some businesses choose the modern approach of using websites, or e-commerce platforms, where consumers can buy goods online.
It is an effective tactic for businesses with a customer database who understand and are familiar with technologies.
There are more traditional ways of direct distribution tactics, such as showrooms, email, sending catalogs, brochures, seminars, phone, or direct sales. These options can fit older, less tech-savvy customers and less social media use in remote or remote areas.
A significant investment budget is essential to keep in mind before deciding on a direct distribution strategy. Enterprises will need to invest in construction, rent a warehouse system, recruit a transport and sales team, and take care of customers.
This tactic helps businesses control their brand image and quickly build a loyal customer community.
Indirect distribution tactics
6 forms of indirect distribution, © Vũ Digital
The term “merchant” often gets a bad reputation in Vietnam, and many people refer to it as businessmen who only aim for profit. However, these merchants have significant roles in the distribution strategy and connect in disseminating goods to consumers.
The indirect distribution method moves goods from the manufacturer to the intermediaries, then to the customers. In detail, an intermediary will replace the brand to approach customers. It would also meet two criteria: popularity and good sales.
Ways to implement indirect distribution can include shopping malls, supermarkets, convenience stores, grocery stores, and traditional markets.
It requires the brand to have a good relationship with the market and understand the target customer and the product information. However, when applying this tactic, many intermediaries will not commit sales revenue, making it challenging for brands to set sales targets.
The two biggest concerns to keep in mind when using this tactic are that it is difficult to control the brand image and to build customer loyalty. Now we have learned about two distribution tactics. It is now time to learn the method of distribution strategy.
Three methods in distribution strategy
Three distribution methods © Vũ Digital
There are three distribution methods: intensive, selective, and exclusive. These three methods are adaptable and customized according to the distribution model and strategy.
Understanding and applying these three methods well is the key to creating unity in the distribution strategy.
1. Intensive distribution
This method aims to bring goods into as many retail points as possible, trying to get the goods to many places and points of sale.
It is suitable for products for which consumers do not have high requirements and do not need to learn too much to buy them. The seller does not need to introduce the product or try to convince the customer.
Example: gum, phone scratch card, battery.
2. Exclusive distribution
Exclusive distribution is based on property rights if the manufacturer holds intellectual rights for trademarks/designs/formulas, and products.
The manufacturer will negotiate with several retailers in many regions. The chosen retailer will exclusively sell products within the defined agreement.
This method requires the manufacturer to own a large enough brand equity and solid legality via franchising.
Exclusive distribution earns significant revenue through franchise contracts, and brands can quickly ask retailers to fulfill the commitments (promotion, sales, etc.)
Example: BMW gives Thaco distribution rights in Vietnam.
3. Selective distribution
Selective distribution is an intermediate choice between intensive and exclusive distribution. This method will distribute goods at multiple locations, but not as wide as the intensive method.
Retailers will select products based on the filter that the manufacturer creates. This filter is based on product positioning, price, and brand strategy that the manufacturer wants.
It is suitable for high-end or limited-production product lines, but it can also be ideal for the goal of bringing goods to the market to test the reaction.
Example: Limited edition supercars only appear at specific dealers and markets.
Five members of the distribution strategy
5 members in the distribution strategy, © Vũ Digital
The indirect distribution strategy offers many different methods to bring products to consumers. Below, we will learn about the middle members involved in this tactic.
1. Distributors
A distributor’s role is to transport goods from the place of production to the retailer or other point of sale. The benefit of working with a distributor is that the manufacturer does not have to build a team of logistics, staff, salaries, and preparation of production materials.
Professional distributors can also have a complete line system that packs the goods before shipping them to the retailer.
Example: Your company makes remote control toy cars but does not manufacture batteries and chargers. A distributor can connect to a unit with these two products and package them into a product to compete and improve sales ability.
2. Business
A wholesaler’s primary role is to source products in bulk from various manufacturers, then deliver them to retailers.
The method that wholesalers often use is to find a way to buy goods at the lowest possible cost. The goal is to increase the difference when buying and selling, making a profit for themselves.
Wholesalers will often have their warehouses and a wide range of merchandise from which every retailer can choose. Wholesalers often ask retailers to buy some goods according to their requirements and only focus on selling orders in large quantities.
3. Retailers
Retailers are the final stage in the distribution channel model, where they deal directly with consumers, and retailers can purchase goods now from manufacturers or wholesalers.
Retailers often buy goods at a lower price than the listed price set by the manufacturer and then sell them to consumers for a profit.
Retailers do not necessarily have a store or business premises; they can sell goods via email, phone, website, or e-commerce platforms. Many retailers today may not have a busy physical space, but they have a tremendous website.
4. Franchisee
Franchising is a particular distribution method. You must have heard about this form, such as Trung Nguyen, Highland, and Tocotoco.
Franchisees are usually individuals or businesses with sizeable idle finance. They desire to find investment and business opportunities that generate profits more significant than the Bank’s interest rate.
Help brands quickly expand brand recognition and profit from brand equity without managing or running day-to-day operations.
5. Influencers
Influencers are a completely new member of the distribution strategy model. They are influential individuals on the internet, in specific fields, with several “likes” and superior tracking.
The unique feature of this member is that they sell based on personal trust. Influencers earn profit based on a percentage of the commission agreed on the selling price with the manufacturer or wholesaler/retailer.
Sometimes they don’t own their own sales channel. The standard form is that the partner provides them with a code (discount code) or an online store so they can sell on their own on the partner’s platform. Their mission is to recommend and to drive the order behavior to fulfill.
Four key factors of a distribution strategy
Four key factors of a distribution strategy
Four key distribution strategy factors include brand equity, product type, customers, and logistics capabilities. We should carefully consider each element before making a decision:
1. Brand Equity
We always emphasized the importance of brand equity. It comprises two components: brand awareness and product/service experience.
Brand equity is the brand awareness that a business creates. Businesses with substantial brand equity have the freedom to choose and use distribution tactics and strategies.
When your brand equity is strong enough, you can only use franchising or impose sales quotas on the distribution system.
2. Types of goods
Depending on the three purchasing decision behaviors: habitual decision, limited decision, and careful decision, there are three types of goods: ordinary goods, intermediate goods, and high-value goods.
Habitual purchase decision: It is the buying psychology for daily goods. Customers spend little time choosing low-value products, such as chewing gum, tissues, or water. The intensive distribution tactic will work with these products.
Because customers do not think of the common goods too much, they need products that meet basic features and are distributed widely. The more you deliver them at the sales points, the higher the sales.
Habitual decisions also come from loyal customers who trust the brand and always have a clear position with the brand. It will be complicated for other brands to attack this area of perception.
Limited purchase decision: It is a psychological decision mixed between habit and selective buying. These goods are often moderately priced, and customers spend more time choosing than common goods.
Example: pants, shirt, water purifier. Customers buy these products because they need to use and function rather than spending as much time and effort learning essential goods such as Real Estate. Products and Cars.
Intensive and selective distribution methods are suitable for this type of product-buying behavior.
Careful purchase decision: It is the psychology of buying high-value products such as real estate, cars, educational programs, etc. When the price of a product increases, the purchase decision is also more complicated.
Exclusive distribution methods may be suitable for these products, as it increases customer confidence and requires professional customer service. Profits can increase too if the product is limited.
3. Customer portrait
Before you want to conquer a market, the first thing is to understand the audience in that market. Getting someone to trust and buy a product is complicated if it is not made for buyers or appears haphazardly.
Customer portrait helps the distribution team understand who they are selling to, their needs and behaviors, and then plan the appropriate distribution strategy.
What would happen with building a vegetarian product distribution strategy but selling it at the butcher? Or when someone sells high heels at a mountaineering store? Troubles can occur if brands don’t have a clear customer persona.
4. Logistics capabilities (warehousing, transportation)
Enterprises have the right to choose, using direct or indirect distribution tactics, depending on whether the business is willing to invest in items such as transportation, delivery crews, and product storage.
It is not a hasty decision. Businesses must research carefully and determine an appropriate budget investment to build logistics capabilities.
Enterprises need to study the background financial ability and compare the pros and cons of setting up direct distribution channels instead of indirect tactics.
Investing can be difficult but think about it. It might not be crucial at first, but you will see the results in the future.
5T model for developing a distribution strategy
5T model for developing distribution strategy ,© Vũ Digital
The Vu team created the 5T model. After consulting and building distribution strategies for many partners, we decided to share them with the community.
We take our knowledge and hands-on experience and simplify them with our approach.
T1 – Thấu hiểu (Understanding)
Sun Tzu once said, “No one is perfect, and to err is human.” Understanding products, business information, and markets are the solid foundation of every process.
Make sure the insight phase is completed contains the following seven elements:
- Type of goods
- Customer portrait
- Target market and competitors
- Logistics capabilities
- Tactics, methods
- Implementation team
- A platform for building a distribution strategy
T2 – Thảo luận (Discussion)
The goal is a future concept that expresses the business’s wishes and requirements. The goal is the destination of the distribution strategy. During the discussion phase, we must create precise numbers on brand recognition, output target, and revenues. It is the firm foundation for the distribution channel model, investment budget, and completion time.
- Brand goal
- Output target
- Sales target
T3 – Thiết lập (Preparation)
The preparation, or in detail: design of the distribution channel model, is the stage of simplifying the knowledge from T1 and T2. We should skip the unimportant content and focus only on enterprise goals, and the result would be a systematic document and a detailed content description.
- Distribution channel structure
- Brand/volume/sales target ratio for each tactic
- Describe the functions and duties of each distribution channel
- Describe the scope, authority, and requirements of each distribution channel
- Distribution strategy operation team
- Vision and mission of distribution strategy
- Building ethical standards in distribution strategy
T4 – Thực hiện (Implementation)
To change or affect people and processes, business people need to understand two factors: numbers and policies.
These policies are the documents to realize the target of our distribution strategy model, and it serves as a bridge between partners and brand goals/output/sales.
Each policy can include the following contents: discount rates, discounts, sales requirements, promotions, customer policies, marketing programs, etc. It is necessary to create the following six policies:
- Policy for wholesalers
- Policy for distributors
- Policy for retailers
- Franchise Policy
- Policy for influencers
- Online sales policy
T5 – Truyền tải (Convey)
It is the time when businesses have fully equipped with “weapons and forces” for distribution strategy, brand transmission, ethical standards, vision, mission, community values, and sales policy.
You should always present yourself as a leading brand that inspires and creates demand for partners before they decide to join the distribution channel strategy.
Ensure that every link in the distribution strategy receives enough information that the distribution strategy has built up in the previous stages. The set of transmission content includes six items that we need to accomplish.
- Creation of messages and content
- Graphic design (print, digital)
- Deploy communication through the right channel
- Sales kit
- Distribution Strategy Manual
- Data collection and transformation
Conclusion
Distribution strategy is a vague concept. With this article, we want to help you understand it from the basics and know how to build a complete distribution strategy with the 5T model.
The 5T distribution strategy is circular, and businesses can apply for many different products or use this model to refresh the distribution strategy of outdated products.
Building a distribution strategy is not difficult, but it takes time and resources. At Vu, we have these three factors. So if you need a professional, time-saving, and unique distribution strategy, please get in touch with Vu via Hotline: 0366.366.999
To understand the world of branding and strengthen your knowledge of brand & brand design, you can connect with Vu through the links below:
- Website: https://vudigital.co/
- Fanpage: https://www.facebook.com/vudigital.co
- Instagram: https://www.instagram.com/vu.digital/
- Behance: https://www.behance.net/vu-digital
- LinkedIn: https://vn.linkedin.com/in/vudigital
Sincerely,
Common Questions
What is distribution strategy?
A distribution strategy is a set of documents to implement and orient the process of supplying goods to the market. It includes distribution channel models, guidelines, regulations, and policies. The distribution strategy aims to deliver the product from the factories to consumers.
Why do we need distribution strategy?
Without a distribution strategy, it would be chaotic and ambiguous for companies to deliver goods to the market, along with multi-channel system conflicts. Without a distribution strategy, the opportunity costs would also increase since we might lose potential customers without clear policies and models.
What is direct distribution?
Direct distribution is a tactic in which the manufacturer delivers the product directly to the consumer.
What is indirect distribution?
The indirect distribution method moves goods from the manufacturer to the intermediaries, then to the customers. In detail, an intermediary will replace the brand to approach customers. It would also meet two criteria: popularity and good sales.
What are three methods in distribution strategy?
There are three distribution methods: intensive, selective, and exclusive. These three methods are adaptable and customized according to the distribution model and strategy.
