whats-distribution

What’s Distribution?

Distribution represents the set of tactics, deals, and strategies that enable a company to make a product and service easily reachable and reached by its potential customers. It also serves as the bridge between product and marketing to create a controlled journey of how potential customers perceive a product before buying it.

What your remote can teach you about distribution

When you pick up your smart tv remote you might not even ponder it, yet that space where you hover with your fingers represents  “a piece of mind” and a distribution channel

That is what distribution is all about.

Of course, distribution comes in many forms, yet when that is integrated with your product (the button on a remote is indeed a product’s feature to easily access your Netflix subscription) and your marketing (the button is also a branding device) and indeed customer journey (you might consider the easy access to the subscription as an onboarding service). 

When you find that sweet spot that is a magic place in business where you want to be. 

Integrated distribution: a primer 

By Gennaro Cuofano – FourWeekMBA

There isn’t a single way to classify how several pieces make up the distribution puzzle, yet for the sake of this discussion, let’s assume that as in the layer above we have the product as the inner-layer, distribution as the middle layer (connecting product with marketing) and marketing as the outer layer. 

Let me explain: 

  • Product here is intended as not only the features but also the UX and the various elements of the onboarding and retention (here the definition is blurry as these elements can also be well considered in part distribution – perhaps when the onboarding happen through a partner, like in the case of Netflix’s button on the remote – and in part marketing).   
  • Distribution is defined as the channels that lead to the product discovery, and improved experience and that connect product (the features and UX) and marketing (the perception users/customers have about your product). 
  • Marketing here is intended as control about the message you deliver to your potential customers. And my point is that when you gain control over how your potential customers experience your own product, that is thanks to a proper distribution strategy

As a quick example, imagine that you have a store that runs entirely on top of Amazon. Or perhaps you have a media company that runs all through YouTube. While you enjoy incredibly large platforms that can bring your message and product out there, you don’t control them. 

Thus, you have amplification but little control over your distribution. Indeed, if for some reason Amazon brings down your store your distribution is gone. If YouTube kills your channel, your distribution is gone. 

Conversely, imagine you have built e-commerce by using a platform like WordPress, Shopify, BigCommerce, or whatever, you still rely on external channels to amplify your products. And even if amplification might be more limited, if you lose a traffic channel to your store, the store itself will still be accessible. 

So, based on this consideration, let’s break down distribution into three general categories: 

By Gennaro Cuofano – FourWeekMBA
  • Owned: You have higher control and less amplification (imagine the case you just built your brand new website, but you have zero traffic). 
  • Hybrid: You balance control and amplification (imagine the scenario of e-commerce built on Amazon but as an addition to an e-commerce website. Thus, you use Amazon only as an additional channel to amplify your products, but you still have your main e-commerce as a separate domain). 
  • Third-party/non-owned: Here you optimize for reach but you have zero control. In short, you have to adapt to the way the hosting platform markets itself if you want to sell your own product. Imagine the case where you only have e-commerce on top of Amazon, where the platform optimizes for variety and convenience. This means that Amazon will be incentivized to show as many similar products as yours, thus enabling easy price comparison and less and less differentiation. In this case, you need to play by the house’s rules (getting as many reviews as you can, bring the price down, sell as many products as possible) and you will make substantial money if you will be able to play by these rules. 

In short, in owned distribution, it’s harder to build It in the short-term (you need to invest substantially before it pays off). But once in place gives you more control over the way potential customers perceive your product, thus differentiating and charging at a premium.

As it’s an expensive strategy, that is why many growth strategies start by using other people’s platforms. Think of how in the early years Google surfed AOL, PayPal surfed eBay, Airbnb surfed Craigslist and more current examples of how a company like Thras.io is surfing Amazon. 

Back to the remote control now. 

How did Netflix end up on your remote control?

Drawing from what we said so far, a solid distribution strategy is a sweet spot between product and marketing and it bridges them up. You gain more control over your messaging, you make your product more visible, and you add a feature to your service. 

But how did Netflix perhaps manage to be on your remote control? This integration started in 2011, when Netflix announced its one-click feature to be added to various remote controls’ brands. 

As the press release of the time announced:

“For members who want even more convenience when instantly watching TV shows and movies streaming from Netflix, the answer is about to be right in their hands,” said Netflix Chief Product Officer Neil Hunt.  “No more turning on the TV, going to a home screen and searching for the Netflix icon.  With the Netflix one-click remote, it’s simply a matter of pushing the Netflix button to instantly watch any of the vast selection of TV shows and movies available to stream from Netflix.”

This strategy well paid off over the years, and as Netflix further highlighted at the time: 

The Netflix one-click remote is the latest in a series of rapid technological advancements by Netflix to enable Netflix members to instantly watch TV shows and movies streamed by Netflix over the Internet.  Today there are more than 250 Netflix ready devices on the market.

It’s hard to know the specifics of the deals between Netflix and these device makers. We can assume that wasn’t cheap at all. However, again being on a remote control meant not only to brand to millions of people but also to make Netflix easily accessible to them.

As per some accounts, these deals might have cost Netflix as much as $1 per button for each customer. 

We can also go as far as understanding how much Netflix spent at the time, in 2011 when it started to build up this strategy

Apparently, by 2011 financial statements, as Netflix rumped up its marketing expenses It also did the same for the remote control partnerships where the company recorded a  “$17.4 million in domestic spending related to [Netflix] consumer electronics partners, as [Netflix] continued to expand the number of devices on which subscribers can view Netflix content.”

Therefore, in 2011 alone Netflix spent over $17 million to set up this strategy. And it worked so well that pretty much anyone in the space followed suit.

Back to the distribution strategy. What did we learn here? 

Distribution as the bridge between product and marketing

While in the short term it’s fine to leverage sales as a way to kick off distribution. Over time, especially for platform business models, you want to really think through these strategies that pay off big time by bridging product and marketing. So let’s keep in mind the distribution between just sales and really generating distribution. The first will get your next client through the door. The latter will lead to building the channel that brings you potentially many other clients to the door.

But how does distribution work across various business models? 

The interesting thing about business development is that while each industry has its own logic, the ways you can grow your business through it do not change as much. And the type of distribution you will pick for your business will also depend on the type of business model you’re operating in. 

By Gennaro Cuofano – FourWeekMBA

If you’re running a linear business, where, for instance, most of its aspects are tied to a simple physical product then funnel marketing might work for you. When you start building a digital business, where the customer-facing part of it is digital, then flywheel marketing works for you. 

Below the main difference: 

sales-funnel
The sales funnel is a model used in marketing to represent an ideal, potential journey that potential customers go through before becoming actual customers. As a representation, it is also often an approximation, that helps marketing and sales teams structure their processes at scale, thus building repeatable sales and marketing tactics to convert customers.

When you are building a platform business model, then you need to think in terms of the ecosystem. So, how do you kick off the network effects to make this ecosystem grow? This is the question that you need to keep asking. And the result of it is what we can call a “business platform” or a place that combines hardware and software, to enable an ecosystem made of various key players (physical builders/manufacturers, digital builders/developers, channel partners/distributors, enterprise customers/enablers, and consumers).

That’s all about distribution!

Read Next: Netflix Business Model, Distribution Channels, Marketing vs. Sales, Business Development,

Connected Business Concepts To Distribution

B2B2C Business Model

b2b2c-business-model
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.

Account-Based Marketing

account-based-marketing
Account-based marketing (ABM) is a strategy where the marketing and sales departments come together to create personalized buying experiences for high-value accounts. Account-based marketing is a business-to-business (B2B) approach in which marketing and sales teams work together to target high-value accounts and turn them into customers.

Retail Business Model

retail-business-model
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

Wholesale Business Model

wholesale-business-model
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Direct-to-Consumer Business Model

direct-to-consumer
Direct-to-consumer (D2C) is a business model where companies sell their products directly to the consumer without the assistance of a third-party wholesaler or retailer. In this way, the company can cut through intermediaries and increase its margins. However, to be successful the direct-to-consumers company needs to build its own distribution, which in the short term can be more expensive. Yet in the long-term creates a competitive advantage.

Marketplace Business Models

marketplace-business-models
marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

E-Commerce Business Models

e-commerce-business-models
We can classify e-commerce businesses in several ways. General classifications look at three primary categories:
– B2B or business-to-business, where therefore a business sells to another company.
– B2C or business-to-consumer, where a business sells to a final consumer.
– C2C or consumer-to-consume, or more peer-to-peer where consumers sell to each other.

Marketing vs. Sale

marketing-vs-sales
The more you move from consumers to enterprise clients, the more you’ll need a sales force able to manage complex sales. As a rule of thumb, a more expensive product, in B2B or Enterprise, will require an organizational structure around sales. An inexpensive product to be offered to consumers will leverage on marketing.

What’s Distribution?

whats-distribution
Distribution represents the set of tactics, deals, and strategies that enable a company to make a product and service easily reachable and reached by its potential customers. It also serves as the bridge between product and marketing to create a controlled journey of how potential customers perceive a product before buying it.

VBDE Framework

vbde-framework
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.

Dropshipping Business Model

dropshipping-business-model
Dropshipping is a retail business model where the dropshipper externalizes the manufacturing and logistics and focuses only on distribution and customer acquisition. Therefore, the dropshipper collects final customers’ sales orders, sending them over to third-party suppliers, who ship directly to those customers. In this way, through dropshipping, it is possible to run a business without operational costs and logistics management.

VTDF Framework

competitor-analysis
It’s possible to identify the key players that overlap with a company’s business model with a competitor analysis. This overlapping can be analyzed in terms of key customers, technologies, distribution, and financial models. When all those elements are analyzed, it is possible to map all the facets of competition for a tech business model to understand better where a business stands in the marketplace and its possible future developments.

Digital Strategy Mix

distribution-strategy
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.

Business Development

business-development
Business development comprises a set of strategies and actions to grow a business via a mixture of sales, marketing, and distribution. While marketing usually relies on automation to reach a wider audience, sales typically leverage on a one-to-one approach. The business development’s role is that of generating distribution.

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