The views expressed by the business participants are their own.
For many new business owners, direct distribution may seem like the most cost-effective way to reach customers. Without any need for partnerships, third party integration or revenue sharing, it has very low transparent costs. However, as businesses grow, a well-balanced mix of distribution channels becomes critical in unlocking new growth opportunities. By strategizing your distribution strategy strategically, you can protect your brand, and build a more agile and robust business model.
Despite their high costs, distribution partners not only ease the workload but can greatly expand market access thanks to their established networks. This is certainly the case in the hospitality sector, where distribution has always been very important. Since the products cannot be moved, the entire inventory of the hotel is replenished through smart distribution.
Before the Internet, the huge distribution power of hotel chains gave them greater profits than independent hotels. But since the beginning of the 2000s, hotels have developed new ways of distribution by using various online channels such as Expedia and Booking. In fact, 65% of all direct bookings now come from guests who first booked through an online travel agency (OTA).
In every industry, distribution partners prove their worth over and over again, but they are not the real solution. In order to develop an effective distribution strategy, it is important to look beyond where your competition is coming from. Let’s explore how we can distinguish ourselves, how we can create them and how we can overcome them.
Related: Establishing Your Product Distribution Is Just as Important as Establishing Your Marketing
Estimating the distribution of vertical partners
At its peak in 2011, Toys “R” Us had revenues of more than $13.9 billion. Just seven years later, the brand filed for bankruptcy and closed all of its US stores, although it has since begun a revival under new ownership. CEO David Brandon linked the company’s closure to “the inability to provide fast shipping options” and “the lack of a subscription-based delivery service.”
In other words, in a market dominated by online retailers like Amazon, their distribution strategy had not changed. Similarly, mega-chain Blockbuster was eliminated by Netflix, and RadioShack was stripped of its limited ecommerce strategy. No matter how big your brand gets, maintaining a diverse distribution mix is important.
In practice, this means continuously monitoring the competition and continuously adapting to market changes. Therefore, collect and analyze data from your distribution channels regularly. This will help you make quick, effective changes to optimize your sales and market conditions.
Additionally, while brands should not rely solely on direct distribution, it is an important part of maintaining control over brand image, customer experience and pricing. Apple is the industry leader in this regard. While the company has many retail partners, it also invests heavily in its stores and direct-to-consumer online channels, allowing it to maintain its market dominance.
Finding new distribution channels
In competitive markets, the path of least resistance is to identify and mirror the distribution channels of the major players. Ironically, this approach to safety first comes with risks. Instead of marketing, a better way would be to find niche markets. To do that, be aware that some channels are stronger in certain markets than others. If you want to expand into a new region, for example, identify channels that can reach demand in that area.
In our industry, some Asian countries have some OTAs that are widely used, so listing on these platforms can attract new customers. Although investing in niche segments may not offer the same visibility as mainstream markets, a well-targeted niche strategy can lead to greater conversions and higher profits. Red Bull, for example, has carved out a $10 billion market in the energy drink industry by targeting extreme sports enthusiasts with special events and sponsorships.
Taking care of unmet needs means you can be the “go-to” solution in a small but profitable market. The caveat is that this niche approach can take months or years to develop. While it’s still important to grow the big players, you can lose your unique value proposition in the process. The “be everywhere” strategy can work well if you don’t try to be everything to everyone.
Marriott is an example of this balance. While guests can book any branded hotel through the company’s central reservation system, Marriott uses both direct channels (website, mobile apps) and indirect channels (OTAs, travel agents) to reach different market segments. This allows Marriott to cater to travelers’ preferences, from business-oriented brands like Courtyard by Marriott to leisure-oriented properties like Sheraton.
Related: 8 Ways to Make Sure You’re Selling Solutions Through the Right Channel
Expansion of strategies as things change
Markets will always fluctuate. But if you listen to what customers have to say about where they shop, you’ll learn about new trends and new places to put your products. If your distribution strategy is well-mixed and you are not overly dependent on any one channel, you will be in a good position to develop changes in your favor.
At least once a year, change one or more channels that generate fewer sales to search for new customers. As a rule of thumb, when market demand decreases, brands should increase the number of distribution options for distribution. On the contrary, when the market demand is high, be more selective and focus on the quality of the audience, average prices, cost and ease of management. Successful brands often exhibit this type of flexibility.
Perhaps the biggest name in graphic design, Adobe, even used its entire revenue model when facing the software industry towards cloud-based solutions. Although Adobe’s move away from licensing and expanding its software creation system to a SaaS model initially attracted criticism, it proved a smart move – posting a record revenue of $19.41 billion in the 2023 fiscal year.
Related: 4 Must-Know Strategies for Selling Effectively to Distributors
Premium brands such as Apple and Marriott are able to gain increasing market share despite higher prices by improving visibility and improving engagement. As you prepare your distribution strategy, find ways to build in flexibility. By establishing metrics early on and recognizing the need to evolve as market conditions change, you’ll be in a better position to explore emerging platforms, explore new areas and tailor a strategy that can drive both revenue and long-term growth.
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