How To Develop A Distribution Approach For Your Business
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Customers are the business's lifeblood. Increased sales from more customers result in better financial health. Manufacturers have no choice but to look for more clients in bigger markets if they want to stay in business. A company can accomplish this objective without making a major investment in sales infrastructure by using an efficient distribution plan.
So, what steps should a company take to create a distribution network? The first step is to draught a distribution strategy outlining a route for entering the market. To create a distribution strategy that is specifically tailored to their products, businesses should ideally engage knowledgeable distribution industry professionals. If you don't, you could lose money, waste resources, and in the worst-case scenario, damage your brand's reputation and repute.
In this article, the key components of a distribution plan are described. If you require a specific distribution plan created by qualified distribution trade specialists, please let us know here.
1. End-user analysis
The basis of a distribution strategy is heavily influenced by the nature of the product. The majority of items can sell on their own without the help of a channel partner, but others may require some complexity. Before beginning channel building, it's crucial to grasp the qualities of the product. The type of end user will have a big impact on the product's nature and how well it will sell. For instance:
Is the final buyer more likely to purchase the product online or through a physical retailer? (e.g. consumer products, snacks, soaps, washing powder, etc.)
Does the end user require individualized service? (For instance, consumer durables like a washing machine or an air conditioner that require installation or maintenance)
Does the product require training for end users? (For instance, software or unique devices that require initial training)
End-users (customers) can use the reseller program or dealer network if they require individualized service. If a consumer chooses to purchase products online, one can either set up a direct sales website with a delivery system or use an online marketplace like Amazon, Flipkart, etc. To approach and close deals directly with customers, one can either form a dedicated sales team or approach bigger retail outlets.
2. Choosing the Target Channel (s)
A business or a network of businesses that a product must travel through before customers can purchase it is referred to as a "channel" in sales and distribution. In India, there are numerous channels accessible for the sale of goods and services; manufacturers must choose the best one or a combination of them that best suits their product. For instance, outlets that are accessible to Indian businesses
- Direct To Consumer Utilizing one's own sales team (any company begins with this method for the local market)
- Online E-Commerce (Online) - the simplest, such as Amazon, BigBasket, Flipkart, etc.
- Modern Trade (MT), such as retail giants like DMart and BizBazaar.
- General Trade (GT), which includes dealers, distributors, etc.
- VARs (value-added resellers)
- Sales agents
Selling via just one channel is very dangerous. Companies should develop a cogent channel strategy that ensures channel partners are in mutually exclusive zones, i.e., one type of channel partner does not encroach on the space of another.
3. Choosing Your Target Markets
India is my market is a fantastic statement, however, due to resource constraints, one must give states or regions priority. The business must decide where to begin right away and where to go from there. Analyzing the product and its end customers, supply chain requirements, regulatory limits (if any), etc. are typically used to do this. The greatest option for a corporation just starting out in distribution may be to start in their home state and subsequently expand to other states in a circular circle. This would relieve supply chain logistics of needless burden. There isn't a one-size-fits-all approach, though, as the needs of every company are different.
4. Channel Organization and Margin
The number of channel partners and how they are related to one another determine the channel structure. It significantly affects the manufacturer's profit margin and product pricing. Depending on the channel structure and margins of channel partners, distribution costs can range greatly, from nothing (for direct sales) to as much as 40%. More channel partners mean higher distribution costs, more demand for logistics, training, skill development, etc. Sales volume and absolute profit must be balanced against distribution costs and profit margin.
Channels frequently get bigger over time. If product pricing is not based on current and projected distribution costs, it could negatively impact the profit margins of popular products. Here is a piece on potential channel partner margins: How To Set A Fair Price For Your Product And Avoid Common Mistakes
5. Credit Policy
In the distribution business, credit is not only required but also bad. Offering trade credit is a must for the majority of businesses since, when your rivals do it, you are at a disadvantage. Companies in the distribution industry must create a credit policy as soon as possible
Credit granting has a price. There is the cost of capital, which can be either the opportunity cost of lending or the cost of borrowing given that the money advanced to the client could have been used more effectively. Then there are the overhead expenses for collecting, keeping track, etc. Lastly, certain consumer debt can become problematic. By creating a wise credit strategy and then meticulously managing accounts receivable, a company can reduce these costs. Failure to convert receivables into cash will inevitably affect vendor payment and, in turn, vendor credit choices. Usually, credit policy and sales strategy go hand in hand.
6. Supply Chain Management
The choice of target markets is significantly influenced by the supply chain, or rather its capability and reach. A corporation shouldn't choose channel partners randomly until there is a reliable, affordable supply chain.
Other aspects of a personalized distribution strategy could include:
- what types of clients a business hopes to have,
- Potential channel partners need to possess particular knowledge or skills.
- What type of geographic area the organization must cover
- Any quantitative criterion, such as investment capacity, sales force size, number of years in the company, etc., for choosing a channel partner.
The channel partner must sustain a certain value proposition and brand strategy, among other things.
There is nothing wrong with a distribution plan changing direction or evolving over time. However, having a distribution plan is very advised because it protects against costly trial and error methods.
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