Distribution Strategy

Strategic distribution is a competitive advantage that accrues generally from the configuration of a distribution network (who, what, where, when) and, more specifically, from the selection of partners (i.e. middlemen) who intermediate between the company and the customer by performing necessary fulfillment and service activities.

More specifically, a company's distribution strategy is largely defined by decisions on the number and type of customer interfaces. That is, order entry points (where and how orders are placed) and fulfillment nodes (where and how customers obtain finished goods).  

At the extremes are two fundamental fulfillment options: direct distribution from the manufacturer to customers, and intermediated (indirect) distribution through aggregators that carry products from multiple suppliers (who may themselves be complementors be competitors).   

For consumer products , aggregators fall into two broad categories: remote access (catalogers, eCommerce companies) or local access (typically brick and mortar retail stores).  

Remote access fulfillment typically involves the submission of an order via mail, telephone, or the internet to a centralized site with shipments made to a customer's specified location from one or more remote distribution centers, usually via a 3rd party carrier such as UPS or FedEx.

Local access fulfillment is the traditional and still more prevalent form.  Inventory is maintained at physical outlets for immediate on-site purchase by customers, or with remote orders placed for subsequent pick-up by customers.

An increasing number of manufacturers have implemented direct fulfillment capabilities. Manufacturers that fulfill directly typically do so remotely (from factories or central distribution facilities), though some have local presence with retail stores (e.g. Sherwin-Williams paints) or factory outlet stores (which are primarily used to clear excess inventories and outdated merchandise).  

Some companies have coordinated their remote and local capabilities.  For example, Best Buy allows customers to order on the web, and either receive direct shipments or pick-up (or return) products at local stores.  Gateway has opened local stores for demonstrating products and closing sales that are remotely fulfilled.

In general, both direct and intermediated fulfillment are becoming increasingly integral to most companies' retail distribution strategy.  At the retail level, there are two distinct types of distribution: exclusive distribution  (the retailer carries only one brand), and shared distribution among many brands.  For example, soft drink brands share distribution in grocery stores (all major brands are carried), but have exclusive rights at some venues (e.g. restaurants, sports arenas, college campuses, vending machines).  Securing distribution at the exclusive venues (that, by definition, offer 100% share where carried) typically requires companies to deeply discount prices or pay rights fees.  Winning in shared distribution is a function of traditional day-to-day, hand-to-hand marketing combat, including strong brand recognition, aggressive pricing, prominent display presence, and demand-driving promotions.