Distribution is one of the key elements to build a viable business model. Indeed, Distribution enables a product to be available to a potential customer base; it can be direct or indirect, and it can leverage on several channels for growth. Finding the right distribution mix also means balancing between owned and non-owned channels.
If you’re trying to digitalize your business or to build a digital business, it might be easy to get lost in the plethora of platforms and available channels.
How do you make order to that?
A distribution channel is the set of steps it takes for a product to get in the hands of the key customer or consumer. Distribution channels can be direct or indirect. Distribution can also be physical or digital, depending on the kind of business and industry.
A business distribution (being able to match customers with your product) is a vital asset. Without distribution the business will always be fragile.
A digital channel is a marketing channel, part of a distributionstrategy, helping an organization to reach its potential customers via electronic means. There are several digital marketing channels, usually divided into organic and paid channels. Some organic channels are SEO, SMO, email marketing. And some paid channels comprise SEM, SMM, and display advertising.
There isn’t a single way to build a distributionstrategy, and in many cases, it will depend on factors like what channels might be more suited for your product, what channels enable faster growth, and those distribution channels that are also stable over time.
Lastly, distribution is also a matter of choice. Indeed, some companies (also based on their vision and culture) prefer certain distribution channles over others.
So how do you find the right mix?
We need to look at two key elements.
The key elements of a distribution strategy
When building up a distributionstrategy, there are many factors to take into account. For the sake of this guide we’ll look at two primary, major factors, that affect a business over time:
Control: how much do you own that distribution channel?
Growth: what kind of growth does the channel unlock?
Let’s look at them.
Control: Owned vs. non-owned distribution channels
When building up a business from scratch, chances are, none will know you. There is no customer base. There is no product recognition. So how do you unlock growth?
Usually, companies tap into existing distribution networks, where they have none, or little control over how the product will be delivered to customers.
This might dilute the customer experience. However, it will enable the first traction of growth. As the business grows and it acquires its customer base, the same company might start investing on its own platform, thus asserting more control over how the product gets distributed.
For instance, if you take a company like Apple, it leverages both on a direct (controlled) distributionstrategy where it sells its products via its stores. And an indirect (partially controlled thanks to Apple’s branding power) distributionstrategy.
When looking at the Apple Business Model, it is easy to assume that it is solely a product company, which sells devices that are beautifully crafted. However, there would have been no success for the Mac without its OS operating system. There would not have been iPod success without iTunes. And no success for iPhones without the Apple Store. What’s next for Apple’s success?In 2021, most of Apple’s sales (64%) came from indirect channels (comprising third-party cellular networks, wholesalers/retailers, and resellers). These channels are critical for sales amplification, scale, and subsidies (to enable the iPhone to be purchased by a larger number of people). While the direct channel represented 36% of the total revenues. Stores are critical for customer experience, to enable to provide the service business, and for branding at scale.
While some businesses thrive in the long-term without building a mix between controlled (owned) distribution and non-controlled distribution, by solely relying on one or the other.
Scale customer base by keeping a good customer experience
Growth type: Organic, paid and viral channels
On the other end, when building a distributionstrategy, you might want to consider the kind of growth strategy to adopt. In this guide, we take into account three main types of growth:
Organic: this kind of growth is built over a long period of time, and it’s bottom-up. As more customers join, they give slow but less noisy feedback on the product.
Paid: in a paid growth strategy the company allocates resources to push its products in the hands of potential customers. In this case, the budget allocated for growth is primarily used to distribute the existing product to as many potential customers as possible.
Viral: in a viral growth strategy (usually the less expensive but also the riskier) a brand leverages the features of its product to push it in the hands of as many users as possible, independently from the fact that those will convert in paying customers. As a classic example, think of a freemium strategy.
Distribution mix matrix
From the balance between a controlled and non-controlled channel and the growth strategy (organic, paid and viral) we can find the right mix.
A solid distribution strategy will leverage on both controlled and non-controlled channel. And at the same time those who are organic, paid and viral.
As you build up your distribution strategy you want to move from non-controlled to controlled distribution channels to build a solid company.
Some examples below.
Media-driven PR
A media-driven PR growth strategy is a viral strategy where you have not much control. You can changes the message to fit the market and as you do that you might get some good media coverage.
This is a viral strategy as it is usually inexpensive. At the same time, you’re not changing the underlying characteristics of the product.
While you’re working on the perception of the product you want to make sure also to develop the core parts of it in line with its new perceived value.
Which leads us to a product-driven word of mouth strategy.
Product-driven word of mouth
In a product-driven word of mouth strategy, you iterate on the core features of the product to make it more appealing to a wider customer base. As those features will gain traction through word mouth that will also make your brand known.
With this strategy the product will evolve to fit the market needs. Therefore, you can push it further also at PR level, as a solid product, can scale in terms of attention and users’ base without too much risk.
Beware though, as many people get to know your product the more your product will need to evolve.
SEO
Search engine optimization (rank your pages on Google organic results) is an organic growth strategy, which do not control. While you can structure content to be picked up by Google’s algorithm, a change in those core algorithms might cause your website to lose traffic (and customers) over night.
While SEO rankings might be stable over time. You still want to diversify this organic growth strategy that you do not control, with a growth strategy where you have more control.
Email list
As you build up an organic audience via search engine optimization, building an email list from the contacts that reach you organically, is a great way to move from a channel where you have little control, to another where you have more control.
Key takeaway
Distribution is a core asset of any business. That is why it’s important to find the right mix to build a solid business.
While building up a distribution strategy we can take into account the amount of control you have on that channel, and the growth strategy adopted (organic, paid, viral).
As the business grows, you can develop a distribution steered toward more control, and less dependent on channels you do not control.
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.
A four-step innovation process is a simple tool that businesses can use to drive consistent innovation. The four-step innovation process was created by David Weiss and Claude Legrand as a means of encouraging sustainable innovation within an organization. The process helps businesses solve complex problems with creative ideas instead of relying on low-impact, quick-fix solutions.
Innovation in the modern sense is about coming up with solutions to defined or not defined problems that can create a new world. Breakthrough innovations might try to solve in a whole new way, well-defined problems. Business innovation might start by finding solutions to well-defined problems by continuously improving on them.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
Open innovation describes a situation where a business does not rely on its internal knowledge or resources for innovation. They instead source ideas from external sources through the sharing of knowledge and in some cases, collaboration with other businesses.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
