Product distribution refers to the process of moving a product from its manufacturing source to its customers. A product distribution strategy is the blueprint for exactly how that process happens, including where, when, and how products reach their destination. The idea of product distribution might seem simple, but in reality, it is a critical but often underappreciated product management task.
In this article we are going to discuss various types of product distribution strategies along with some examples and best practices.
What is a Product Distribution Strategy?
A product distribution strategy can be defined as a comprehensive method of delivering products or services to customers or end-users. Companies can distribute products through direct or indirect distribution strategies. In some situations, companies use multiple types of distribution methods in order to deliver products to different types of customers. This is an example of an outside-in approach to product distribution. This approach prioritizes the needs and desires of your target market and it is essential to a successful product launch.
Types of Product Distribution Strategies
Product distribution is not a one-size fits all situation. Not only are there many ways to get products into the hands of customers, but many products are distributed via multiple channels. Sometimes those products are offered through multiple channels at different price points.
Here are some of the most common distribution strategies along with examples of how they work.
What is Direct Product Distribution Strategy?
Direct distribution occurs when the product’s producer and the customer interact directly. In a direct distribution channel, there are no intermediaries. Sales from direct distribution could occur on the company’s website, in a physical store, or through a transaction with the company’s dedicated sales team.
Example of a Direct Product Distribution Strategy: If a customer buys a pair of Adidas shoes from an Adidas store or through the Adidas website, they are buying through a direct sales channel.
What is an Indirect Product Distribution Strategy?
Indirect distribution occurs when companies use partners, sometimes called value-added resellers, to sell the company’s products. In an indirect distribution channel, a third party acts as an intermediary between the company and the customer.
Indirect distribution partners might bundle products with related products or services. This adds value for the customer because it fulfills multiple needs. There are also subsets of indirect product distribution that may add value to customers.
Example of an Indirect Product Distribution Strategy: If a customer buys a pair of Adidas shoes from a third-party marketplace like Amazon or Zappos, or purchases them at another retailer like Kohls, they are buying through an indirect sales channel.
Example of an Indirect Bundled Product Distribution Strategy: If a customer buys a pair of Adidas shoes from Kohls, and Kohls bundles that purchase with KIWI Sneaker Cleaner, it is an indirect distribution bundle. Kohls is acting as the indirect distribution partner and is bundling the Adidas product with a related and complementary product from a different company.
Indirect distribution partners may also integrate related products or services when selling a company’s product.
Example of an Indirect Integrated Product Distribution Strategy: Best Buy may sell a Dell laptop that contains an Intel graphics driver. The customer knows that they are buying a Dell laptop from Best Buy but may not realize that they are also buying a product produced by Intel. In this situation Best Buy is the partner and the Intel graphics driver is the integrated product.
Other Product Distribution Strategies
Other distribution strategies can be used directly or indirectly to distribute products to customers. These include exclusive, intensive, and selective distribution.
Exclusive Product Distribution
Exclusive distribution occurs when the product manufacturer allows a distribution partner to limit the sales of a product. These exclusive indirect distribution partnerships may limit the product to specific stores, geographic locations, or customer segments. This method is preferred for luxury goods because only having a few distributors protects brand equity by closely balancing supply and demand within an area.
Example of an Exclusive Product Distribution Strategy: A popular celebrity might launch a new podcast that is only available on a paid distribution platform like Spotify Premium. In this case, Spotify is the distribution partner. This partnership is exclusive because the podcast is only available to paid Spotify subscription users.
Intensive Product Distribution
Intensive distribution occurs when the product manufacturer uses many distribution partners to reach customer segments through different channels. This enables the product to “be everywhere” and available to as many customers as possible. This can help increase brand awareness and change perceptions of the product as an alternative to similar options in the marketplace.
Example of an Intensive Product Distribution Strategy: Coca-Cola, a global brand with wide appeal, uses many intermediary partners to distribute its products. By partnering with grocery stores, gas stations, restaurants, movie theaters, online ecommerce platforms, and more. Leveraging so many distribution partners and channels allows Coca-Cola to reach many different market segments.
Selective Product Distribution
Selective Distribution occurs when the company carefully chooses its distribution channels to maximize profit and efficiency. This can be considered an extension of the exclusive distribution strategy. However, exclusive distribution focuses on just one distribution channel. Selective indirect distribution may use multiple distribution channels (i.e., wholesale and retail).
Example of Selective Product Distribution Strategy: Selective distribution of a product may occur in the B2B space. For example, manufacturers of large construction equipment like Cat may manage sales through direct sales teams, or through authorized partners such as sales dealers.
Product Distribution Strategies as Disruption
Some of the biggest market disruptors in the last 20 years weren’t delivering innovative products. Instead, they were delivering familiar products like books and movies in new ways. Companies can use novel distribution strategies to disrupt the market and reach new market segments.
Example of Distribution Disruption Strategy: In the 1990s to mid-200s, Amazon revolutionized ecommerce by selling products direct to consumers at lower prices than traditional retailers, who often charge customers more to cover overhead costs of operating physical stores. Amazon has also disrupted direct distribution by offering free shipping to customers. Now, free shipping is considered a standard for the ecommerce experience.
How to set a Product Distribution Strategy
At Pragmatic Institute, we believe that companies can look to their markets to help set distribution strategies. When reviewing market intelligence data, focus on answering these three questions:
- How does your market prefer to purchase your product?
- How do they prefer to receive your product?
- How do they prefer to use your product?
Does the market want to purchase directly on your website, or do they want a more hands-on experience with a salesperson? Do they want to come directly to you to complete the purchase? Or, do they prefer to go through a trusted partner? By letting the answers to these questions guide your distribution strategy, you take an out-side in approach that enables you to focus on your market’s preferences.
Learn More About Distribution Strategy in The Course: Focus
Pragmatic Institute’s Focus product course shows you how to find opportunities in market problems, score them objectively, and identify where your company’s strengths intersect with market values. This allows you to identify and set distribution strategies that combine your company’s strengths with the market’s needs.
