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How to Build a Winning Business Distribution Strategy

By: Robert Hennessey

How to Build a Winning Business Distribution Strategy

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 
    • selective distribution, exclusive distribution, limited product offering, private label 
  • The motivation of distribution partners 
  • Ability to manage distribution partners 
  • 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

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.

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