Distribution & Availability:

So, you made your portfolio roles analyses and now very well know what part of the business to boost, what part to drive, what part to milk, with which part to defend your space and which part to part your ways unless you find a way to cure them and find them a role to play. Each part of your strategic growth efforts is amplifying the impact of others when done right. It is easier to list a product to a distribution partner or sell a service when there is already a demand behind it via its user right-to-win and superiority communication addressing the respective user need and sufficient resources to operationalize your strategy.

Distribution is about making your product or service attainable when needed by its consumer @pointofsales (POS) where this consumer shops. Be it a consumer perishable product for a consumer who is shopping from a particular supermarket or a SaaS that you can buy online from the company site.

It may be a direct distribution like Tesla, Avon, Amway, Nestlé Nespresso SA from your own stores and/or website/app or indirect distribution via intermediaries like retailers or dealers like Procter & Gamble Unilever The Coca-Cola Company , PepsiCo , Reckitt , Ford Motor Company, Caterpillar Inc. or hybrid distribution doing both like Nike , Apple, Tchibo depending on the pros/cons and your decision criteria. I used the table from a very good article of stratechi consulting regarding distribution strategies to illustrate better below.

So, what is key here is either to know your product experience fundamentals, target consumer/user and where s/he shops, your industry sales dynamics and your structural financials to decide the best distribution strategy.

Lets go little deeper in the indirect distribution where I have more experience.

This was much easier for the manufacturers 25 years ago when I started to work in FMCG industry where nearly all the shopping was happening from brick & mortar stores be it modern or traditional trade or pharmacies depending on the country market development phase. There was no e-commerce and very limited Direct-to-consumer business model. It was a seller market given the scale of the manufacturers vs the retailers. Retailers did not have the negotiation power they have today. There was barely no private labels at all in the country where I started to work. Retailers had to stock and sell the brands offered to them to make a living. In a nutshell, distributing your product where your target consumer shops was much easier and effective.

Then came the wind of change gradually. Retailers got bigger and expanded into multi-formats ie. hypermarkets, supermarkets, convenience stores. Consolidations came with allot of M&A activity through buying local supermarkets. They discovered the sweet margin potential of private labels with more local manufacturers pass the walls of cost of market entry with technology got more accessible and affordable. Specialty stores started to pop in health and beauty named as drugstores. Depending on the country they could be both drug and pharmacy. And finally, the e-commerce started to emerge and came the era of omni-channel always on distribution strategies.

There is one thing that did not and will not change tough in any kind of manufacturer and reseller relationship. Especially for brick & mortar re-sellers where there is limited space for products but also valid for gaining support of any re-seller ie. e-retailer support in e-commerce. It is the “Reseller value-add = Incremental Distribution” equation.

What is this “Re-seller value-add”? It means your product’s added value to deserve the space it has taken at a re-seller. Financially it is the net incremental nominal profit it brings to the reseller.

Net incremental profit = Gross incremental profit – Cannibalization from other player’s profit.

Simply put this listing should not only bring incremental profit to your existing listings (if any) but also needs to compensate the loss of profit from your competition in case of cannibalization.

This is the hard and demonstrable benefit that you sell when you are listing your product to a retailer. A soft benefit can also be improving the innovation image of the retailer as being the first to have new innovations in the market packaged with a co-marketing activity or a differentiated packaging to claim exclusivity in the market etc. But the hard one is sustainable the soft ones are one-time bullets.

Let’s go back to our equation and look deeper into it for more strategic insights.

To be able to sustain this equation, mathematically you need to either have higher price or higher re-seller margin percentage or both vs. your alternatives. So, you need a product which can justify a price premium with its superiority and/or high gross margin to give away a part of it to the re-seller. So, if you are a manufacturer who needs re-sellers for your product (who are not exclusive to you) to reach your consumers, you better have a business model continuum of

“Superior products => Superior Communication => Superior Pricing => Superior Gross Margin => Competitive Re-seller Margin => Superior R&D investment => Superior Products”

in the market you play in ie. @Procter & Gamble, @Unilever, @Benckiser ,@Caterpillar etc. This of course would be different if you have an exclusive relationship with your reseller as in the case of distributors in many cases ie. Coca-Cola bottlers, Microsoft Solution Partners etc. But if your distributors are not going direct-to-consumer then the same equation would apply between them and their re-sellers.

The other extreme alternative is of-course direct-to-consumer (DTC) model ie. Tupperware doing it in home parties to market their products. The most powerful would be to be able to execute DTC with a superior product and premium pricing which would yield enormous profits for the company given lower cost-to-serve ie. Nestlé Nespresso SA , Tesla . To me Hard Discounters like ALDI SÜD is also an example of a direct-to-consumer model addressing low price tier consumers with own private labels cutting all intermediary cost in the system to sustain the everyday low price model. These are good sustainable business model examples. If you are not in one of these clear-cut business models, you are likely to have more problems with distributing your products to reach your respective consumers.

Availability at POS is more of a logistics and customer service topic which I will not go into deep. Let me just say consumers would switch a brand or a retailer when they cannot find what they are used to find before which is a lose-lose case for both sides that needs to be tracked (ie. Logistics Service Level, In-store and stock data) and addressed on a regular basis.

As per the format, let me share one of my personal distribution related experiences.

I was the commercial director of the company in charge of all categories also baby care at the time. Our diapers business was in a market share losing trend and this has also triggered to get delisted from some key retailers and we were struggling to list our new diaper products (mostly commercial innovations no big product upgrade). Our diaper portfolio was consisting of 2 price tier line-ups. Let’s say one premium and one low tier with different product performance of course. We were losing market share in both tiers, more in the low tier and being delisted only with the low tier. Basically our premium tier superiority has been eroded to justify our price premium with lack of new product innovation and our low tier had neither product superiority nor pricing edge vs private labels and low tier local competition to justify their asset space at the retailers. Sales team and us were being fried due to the delistings but we had no “Reseller value-add” story to stop it.

After explaining the problem to the global category business unit, the superior performance innovation needs in the market in 2 consecutive years during yearly strategy meetings we first got a super-premium product line-up same time with US the first year and then another product upgrade on our premium line-up the second year. Using the “Reseller value-add” equation story we were able to list the super-premium line-up in all distribution channels (including hard discounters showing they lose market share not playing in this segment) in no time and grow shelf and merchandising space using all segments even low tier playing its portfolio role of defense until the premium line upgrade hit the market and thus stopped and reversed the market share trend. When the premium upgrade came, we were able to justify our price premium in our biggest segment and gradually got back all the market share loss and more. Then we discontinued our low tier ourselves (as there were no portfolio role left for it) without losing any space filled with new and higher performance line-ups.

Lesson Learned: If you need re-sellers in your business model to reach to your consumers where they shop, your products need to deliver “re-seller value” equation.

You can message me from linkedin for questions regarding the topic.

Hope you enjoyed it.

See you soon on the next article,

Firat