It’s a whole new year already! It’s high time brands and businesses upgraded their operations and came up with new strategies to thrive in 2021. One of the most fundamental elements to keep in mind while strategically planning for a successful business operation is distribution. Distribution is the core of every business as it ensures a stable and steady supply flow. In today’s article, we’ll present you with the best retail distribution strategies to embrace in 2021.
What is a retail distribution strategy?
A distribution strategy is a method of goods or services being disseminated from manufacturers to end-users. It involves a number of different parties based on the type of retail distribution and other business elements like business sizes and types. The parties include manufacturers, wholesalers, retailers, agents, etc. Choosing the right retail distribution strategy is the key to an efficient distribution process, increased revenue, and sustainable customer loyalty.
At its core, deciding on a distribution strategy embraces a marketing channel choice and processes coordination. A company must determine who would be its intermediary, and under what conditions he/she is going to deal with the products. It is built up around 3 main factors: customer services, inventory management, and transportation.
There are 3 retail distribution strategies to pay attention to in 2021: intensive distribution, selective distribution, and exclusive distribution.
Best retail distribution strategies
Intensive distribution strategy
Intensive distribution is a distribution strategy that companies utilize to spread the availability of products widely to penetrate as much of the market as they can. This goal is achieved by brands putting their products into as many retail locations as possible. Intensive retail distribution is particularly common among retailers selling convenience products. For example, you can easily find a pack of instant noodles practically almost everywhere you go. It appears in many places such as a supermarket, gas station, vending machine, drug store, convenience store, you name it. After all, it’s more likely for a pack of instant noodles to become recognizable when it’s been placed in multiple locations.
Intensive distribution advantages
- Boost product awareness. This is perhaps the most vital advantage of intensive distribution. Besides, it’s also the main reason why so many manufacturers adopt this retail distribution for their products. With this strategy, customers also begin associating print ads and digital ads with the products they regularly see in stores. As a result, product awareness increases.
- Encourage impulse buying. Despite controversies among experts about the effectiveness of impulse buying, companies still can benefit from it under some certain circumstances. For instance, for retailers that are selling convenience products which customers are likely to grab whichever they see on the shelf, it’s fruitful for them to make their products appear in as many locations as possible. Additionally, when shopping for such a product type, buyers also tend to select the most recognizable product if their normally-go-to brands aren’t available. This can increase the chances of unexpected sales which wouldn’t have been possible if the product wasn’t widely available.
- Enhance revenue. When you think about it, it’s pretty straightforward: The more ground you cover, the more sources you’ll be able to generate revenue from, the more profits you’ll gain. Additionally, to increase product visibility even more, manufacturers can invest in better product locations. As a result, they can increase the chances of sales.
Selective distribution strategy
Selective distribution is a middle-ground retail distribution between intensive and exclusive distribution. Products are disseminated to multiple locations with this retail distribution, but not as many as with the intensive distribution strategy. For example, a high-end clothing brand like Tommy Hilfiger may choose to distribute its items to its own branded stores. In addition to that, buyers can also find its products in a few selected department stores. However, places like Walmart or Target can’t be seen selling Tommy Hilfiger’s items. The reason is that brands like Tommy Hilfiger, Gucci, or Balenciaga need to implicit and maintain high-end brand messages.
Selective distribution advantages
- Ensure good market coverage. Even though the aim of the selective retail distribution isn’t to cover as many retail locations as possible, it allows companies to have good market coverage. Additionally, this distribution strategy is more cost-effective than intensive distribution is since there are fewer outlets to look after. With that being said, both new and existing firms can experiment with this alternative to optimize their market coverage.
- Have more control. Since there are only a few outlets to manage, manufacturers are able to have more control over and establish good working relationships with channel members. Additionally, manufacturers also have better control in terms of how the product is handled by distributors. Better communication and coordination ultimately result in an improved brand image which is what almost all companies are desiring for.
- Boost customer satisfaction. Since the companies handpick the number of distributors, it’s more likely that customers can have better quality services and products. Besides, manufacturers having more control over their retail channels leads to a decrease in fumbles. As a result, they can boost their consumer satisfaction as well.
Exclusive distribution strategy
Exclusive distribution strategy is the contrast to the intensive one. This retail distribution holds particular distributors who are obliged to sell products exclusively in certain defined places. Exclusive distribution is normally practiced in businesses dealing with luxurious and high-end products. Therefore, there’s a correlation between this retail distribution strategy and the brand’s prestige image. It targets a niche segment who are well-defined and able to purchase the product, even if it is hard-to-reach. For example, let’s think about how many BMW outlets where you live. 1? 2? Or maybe you might have to travel to another city if you wish to purchase a BMW. That’s the exclusivity right there.
Exclusive distribution advantages
- Keep the firm focused. Once having many distribution channels to manage is off from the company’s focus, it can effectively concentrate on other means of increasing the publicity and sale. Moreover, the fewer outlets to watch out for, the more effectively the company can take care of its retail distribution.
- Secure the manufacturer’s finance. The ability to stock a large number of products is an attractive trait of exclusive distributors. With that being said, the product is readily available to wholesalers and retailers, which increases distribution. Furthermore, it’s normal for exclusive distributors to have substantial amounts of money to pay for the products. Thus, the manufacturer’s cash situation is enhanced by the payments made by the distributors to stock the product. As a result, the manufacturers are risk-free from financial problems thanks to the distributors. However, bear in mind that all this is true only when the distributor is ethical, trustworthy, and financially stable.
- Facilitate localization. If a company is entering a foreign country, there are many things which the company won’t know. Moreover, it could take a really long time for companies to catch up with all of those things. That’s why at such time, entering an exclusivity agreement with a local distributor who is trustworthy is a marvellous option. The reason is that the local distributor will have a solid knowledge about the market and some handy relations with existing retailers and wholesalers. As a result, brands can start strong in a new market.
What to consider when choosing your distribution strategy
At its core, there are 3 types of purchase decisions: routine, limited, and extensive.
A routine purchase is products that normally have low prices and customers usually don’t spend much time considering while making purchasing decisions. Those products deem highly replaceable as when the product is out-of-stock from certain brands, people tend to switch to another instead of going to other stores for a particular brand. Examples are hand soap, paper towels, etc. With these items, an extensive distribution strategy is suggested. Because customers aren’t necessarily devoted to specific brands, making the products everywhere and easily accessible increases sales chances.
Limited purchase decisions are somewhere in between routine and extensive purchases. These items are generally moderately-priced. Consumers spend more time considering and comparing among different brands than they do with a routine purchase. Some examples of limited purchase products are clothing and kitchen appliances like blenders or toasters. Customers put more effort into the purchase of these items in terms of price and usability. And either a selective or intensive distribution strategy is suitable for this type of product.
Finally, extensive purchase includes high-risk items such as houses, insurances, cars, and education. Because the cost of an item goes up, the intensity of the purchase decision increases as well. An exclusive distribution strategy works well for these items as it supports customers’ belief that the product or service is worth its price. Some brands even produce fewer of these costly products to increase the price of each item.
Costs and losses
As mentioned above, each retail distribution strategy has its own advantages coming along with its requirements and costs. In order to choose the right distribution strategy for your retail businesses, it is important to be aware of the costs to ensure that your business finance can fulfill the expenses and backup the losses if they ever happen.
In detail, the extensive retail distribution strategy means making products appear in as many markets and retail locations as possible. So this is fairly obvious: increasing product awareness is expensive, especially if a company wants its products in every store. The prices may vary depending on the retailer’s location. Thus, it is an important factor to consider if you’re planning to adopt the intensive distribution strategy for your retail business.
Even though selective retail distribution deems to be not as expensive as the intensive option does, disputes with distributors can lead to hefty losses. With that being so, this might be an expensive method of distribution. In the case of disagreements occurring, companies must ensure a good amount of proper communication to resolve all the conflicts immediately.
As same as selective retail distribution, disputes in exclusive distribution can cause huge losses. Regularly, a disagreement with one distributor means that the single distributor won’t perform but the distribution will still go on through other distributors. However, a dispute with your exclusive distributor can cause you to lose the whole market. This exclusive distributor might have strong and long-lasting relations in the local market, making it hard for another distributor to create the same relations. Thus, in exclusive retail distribution, if a company experiences a major dispute with its exclusive distributor, then it might undergo huge losses, not only in terms of money but also in terms of time lost, too.
In a nutshell
To conclude, the 3 major retail distribution strategies to pay close attention to in 2021 include intensive distribution, selective distribution, and exclusive distribution. Each of these strategies has its own advantages and disadvantages. Thus, we hope that this article will act as a guide assisting you with choosing the right retail distribution for your business.
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We wish you all the best in 2021!