Distribution strategies: types and features

The distribution strategies adopted by companies can differ widely.

In this article we will look at the main characteristics of direct and indirect distribution channels, the actors involved and their features.

Furthermore, we will illustrate the actions to be taken when developing a B2B distribution strategy.

We will see how market analysis is also essential in this field, and what are the most effective ways to carry it out.

First, however, we will understand what is meant by a distribution strategy and how it is part of the broader marketing strategy.

Distribution strategy: a definition

Distribution strategy refers to a group of activities united by an objective: to transfer a good or service from the producer to the end consumer, optimising the use of available resources.

Once a target market has been defined, the company must select the channels with which to reach it.

The choice of one or more channels, their activation and finally the control of the results represent the main elements of a distribution strategy.

It is part of the broader framework of a marketing strategy aimed at building lasting and valuable customer relationships. To this end, it is important to make the product or service available in a space – physical or digital – that can be easily reached by customers (the so-called place of the marketing mix).

Let us now look at the differences between direct and indirect strategy, also analysing the players involved in the process.

The direct distribution strategy

In the case of direct distribution, the company is responsible for all operations that enable a product to reach the end customer.

This does not mean that the company carries out all the required activities directly: e-commerce companies most often rely on external transport companies, although they themselves manage a warehouse where the goods are located.

An example in the B2B world could be a multinational company in the chemical sector, which operates with several subsidiaries and sells its products on four continents through its own sales network.

In this case, the group has production plants and storage sites for its compounds, from where it prepares shipments for its customers.

What are the main features of this strategy?

• Greater process control.
• Higher profit margin due to the absence of intermediaries
• Possibility of maintaining a consistent brand image.
• Need for high investment.

The indirect distribution strategy

The indirect strategy involves the presence of intermediaries within the distribution channel. The most well-known are:

• Wholesalers: they buy large quantities from manufacturers to resell to retailers at a higher price. They usually take care of logistical aspects such as warehousing and shipping the products once orders are received.
• Retailers: they resell directly to consumers (in B2C markets) or to companies and other organizations (in B2B markets), after having purchased the products from a wholesaler or directly from the producer.
• Agencies e agents: these are companies or freelancers who participate in the commercial process on behalf of the manufacturer. Sometimes they act as simple signallers, putting the potential customer in touch with the manufacturer for the latter to handle the negotiation. Sometimes, they take care of sales and promotion themselves. Such figures are usually employed for the distribution of services.

Alongside these actors, one can find other ‘hybrids’ capable of performing several tasks.

This is the case of integrated distributors: they do not simply receive orders and fulfil them, unlike wholesalers, but take an active role in the commercial process, pushing the product through the most suitable channels.

They buy from manufacturers and may collaborate with them, receiving directives on the marketing strategies with which to present the product. Moreover, they do not only sell to wholesalers or retailers, but can also deal with end customers.

These distributors offer some advantages:

• Part of the commercial activities (and related costs) are borne by the distributor.
• Possibility to maintain brand identity through marketing collaboration.
• Flexible warehouse management due to lower inventories.
• Opportunity to access new markets through partners who can identify new customers independently.

How to select the right channels if you are a B2B company

What steps should a B2B company follow to define its distribution strategy?

A first analysis is always an internal one: does the company have the resources available to implement a direct strategy? Or would it be better to rely on partners?

In the case of an export project, an SME specialising in semi-finished products for the automotive sector might choose this option, as it does not have sufficient size to support the start-up and maintenance of foreign branches.

In this case, identifying an integrated distributor can be an effective choice. It allows access to the foreign market through a partner who will reach out to wholesalers and retailers specialising in automotive components in the territory.

What has been described applies to an expansion project abroad, but this does not exclude that in its domestic market the company can rely on direct distribution channels.

We are therefore faced with a mixed distribution strategy, based on different channels depending on the area of action.

The factors influencing this choice are many, and as we mentioned, looking at the positioning of one’s own reality is essential.

To this analysis must be added another that takes into account the company’s external environment.

Executing the strategy: the importance of market analysis

Market analysis is the fruit of this study, and for B2B companies it plays a crucial role regardless of the chosen strategy.

Let us understand this better with an example still related to the automotive component company.

After deciding to find new distributors in the Czech Republic for its semi-finished aluminium products, the company starts doing a long series of online searches.

However, the sales department has to continue with its ordinary activities; thus, the mapping of foreign distributors proceeds slowly.

After more than a month, the staff seems to have found the right company: however, after contacting it, it turns out that the latter does not have an established relationship with the automotive sector.

Our company therefore finds itself back to square one. But how can this be made more efficient?

With an automated market analysis, such as the one that Matchplat’s Explore platform makes possible.

Starting from official data on more than 400 million companies, Explore uses Artificial Intelligence to analyse their online content in order to offer up-to-date information.

In this way, the semi-finished goods specialist could only identify Czech distributors active in the automotive sector, in a short time and without wasting resources.

Conclusions

We have seen how distribution strategies can vary according to the channels used by a company.

The main division is between direct and indirect channels.

In a direct channel, the company reaches the customer through its own outlets and sales force, without using third parties.

An indirect channel involves intermediaries such as wholesalers, retailers, or other distributors working directly with the manufacturer. The length of the channel varies according to the number of intermediaries present.

It ranges from a short channel in which the producer sells directly to the end customer, to one in which wholesalers and retailers are located between these figures, as is often the case in the food industry for example.

In the case of B2B companies, we have seen how a direct strategy does not exclude an indirect one, especially for exporting SMEs. The choice of channels always starts with a careful analysis of one’s own reality, but above all it’s important to study the market to identify the most suitable partners.