How to Build a Winning Business Distribution Strategy
By: Robert Hennessey
Beginning the process of creating a business distribution strategy will provide the basis for making an informed decision on a host of critical strategic business decisions. The early stages of the process will allow you to assess your company’s fit for employing a distribution strategy that will determine if a distribution strategy is right for your business.
The initial step begins with gathering some answers to some fundamental top-level questions.
Do you need a distribution partner?
What type of distribution channel is appropriate?
What kind of distribution partner will serve your needs and that of your customers’ best?
How much profit sharing is available for a distribution partner?
Why creating and maintaining distribution partner leverage is paramount?
Do you need a small business distribution strategy?
Getting your product or service to market may require your sales effort and/or the physical transfer of your product with one or more intermediate parties before it reaches the ultimate end-user. A ‘distribution channel’ or ‘chain’ is the process of getting products or services from its originating source to its ultimate end market.
There are important reasons to utilize distribution partners and critical questions to get answers on deciding the appropriate channel of distribution for your business.
1. Common Reasons for Using Distribution Channel Partners:
Selling- A common reason is to expand sales quickly by employing either directly or indirectly a channel partner to perform the task of selling your products or services.
Physical Product Distribution- Products that are sold in a master pack and require a cutting, or breaking down the of the master pack to be sold in smaller quantities shares marketing expenses, provides credit and last mile delivery - in local markets
Value Add- Where a channel partner adds to the value of the product or service sold through providing additional services to the end-user. Examples of value-add are installation, assembly, and customization of the product, or service and repair services.
2. What type of distribution channel strategy is appropriate?
Distribution channels options are direct or indirect distribution. The following common distribution channels and their designation as direct or indirect follow.
Direct Distribution - Company owned or provided
Distribution Centers
Franchising
Retail Outlets
Value Added Resellers (VARs)
Sales Force
Independent Distribution – Not Company-Owned or Controlled
Distributors
Franchising
Retailers
Value Added Resellers (VARs)
Independent Sales Agents
There are also hybrid combinations of these distribution types.
3. What type of distribution partner will serve your needs and that of your customers’ best?
To answer this question you will need to answer a host of other questions first that include:
Your Business
the specific nature of your business
the type of product or service you want to sell
the geographic makeup and location of the markets you serve
selling costs versus the amount control over the sales process you desire
the profit margin of your products or services
Your Customers
preferred purchasing methods of your customers
size, quantity, price, convenience, variety
Importance of Brand
Required or preferred presale services by your customer
Required or preferred after sales services by your customer
Your Distribution Partners
The intensity of distribution partners to your product or service
Integration of various types of distribution partners
Cost of distribution partners
4. How are distribution partner profits shared?
You will need to assess your ability to provide sufficient profit enticement to your distribution partners. This is dependent on your gross profit margin per unit sale, which must be adequate to share profits with your distribution partners.
You must identify the specific services that your distribution partner will perform on your behalf. Common distribution services are:
Inventory carrying costs
Credit financing
Salesforce expense
Sales promotion
Delivery
Installation
Repair Services
Once you have decided the services, your distribution partner will provide to your ultimate customer on your behalf, you can then calculate a reasonable profit margin to reward your channel partner for their services.
5. Why creating and maintaining distribution partner leverage is paramount?
In any successful partner relationship, each partner must know and understand their role. Creating the guidelines of the relationship in a written agreement is best. It should spell out the responsibilities of each partner and the remedies for non-performance clearly. In addition, setting quarterly and annual milestones of performance are also required to keep expectations and communications from being misunderstood.
Maintaining your business relationship leverage with your partner on an ongoing basis is necessary for a stable and enduring relationship. Common ways to maintain your leverage are:
Brand Recognition
Product/Service Quality
Reasonable Compensation based on services provided
Performance Evaluation & Recognition
Takeaway: Creating a successful distribution strategy can make or break your business No shortcuts here you must do your research and get the answers necessary to make smart business decisions.