What's Distribution? - FourWeekMBA

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.

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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

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:

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.

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!

Case Studies

Books and Publications: Traditional bookstores like Barnes & Noble and digital platforms like Amazon Kindle have provided authors and publishers with distribution channels. With the rise of self-publishing, platforms like Smashwords and CreateSpace have also emerged, allowing authors to distribute their work more widely.
Music Industry: Previously, artists relied on record deals to get their music into stores. Now, with digital platforms like Spotify, Apple Music, and SoundCloud, artists can reach their fans directly. Distribution platforms like DistroKid and TuneCore allow independent artists to upload their music to various streaming sites.
Fashion and Retail: Brands traditionally relied on physical stores for distribution. However, with the rise of e-commerce, platforms like Shopify and Magento allow brands to set up online shops. Moreover, platforms like ASOS Marketplace or Amazon Fashion offer additional distribution channels.
Software and Apps: Developers use platforms like Apple’s App Store, Google Play Store, or Microsoft Store to distribute their apps to millions of users. For software, platforms like Microsoft Azure Marketplace or even direct downloads from the company’s website are common distribution methods.
Movies and Entertainment: While cinema releases are still prevalent, platforms like Netflix, Amazon Prime, and Hulu have revolutionized the way movies and TV shows are distributed. Moreover, YouTube and Vimeo offer platforms for independent filmmakers to distribute their work.
Food and Grocery: Supermarkets and local stores were the traditional distribution channels. Now, with the advent of online grocery shopping, platforms like Instacart, Amazon Fresh, or direct-to-consumer services from brands have changed the distribution landscape.
Automobiles: While dealerships remain the primary distribution channel, direct-to-consumer models, as employed by Tesla, challenge the traditional distribution strategy. Online platforms also allow for pre-orders and customization before purchase.
Education and Online Courses: Institutions traditionally provided education in physical locations. The rise of e-learning platforms like Coursera, Udemy, and Khan Academy has created new distribution channels for educators and subject matter experts.
Fitness and Health: While gyms and health clubs were the traditional venues for fitness enthusiasts, the rise of platforms like Peloton, which offers live streaming of workout classes, or apps like MyFitnessPal for diet and exercise tracking, have created new distribution avenues.
Banking and Finance: Traditional banks with physical branches are now complemented by online-only banks or fintech apps that offer banking services, changing the distribution strategy in the financial sector.

Key Insights

The Role of Distribution: Distribution plays a crucial role in making a product or service easily accessible and reaching potential customers. It serves as a bridge between the product and marketing, controlling the customer journey and perception of the product.
Integrated Distribution Model: In an integrated distribution model, the product is the inner layer, distribution is the middle layer (connecting product with marketing), and marketing is the outer layer. The product includes features, user experience (UX), onboarding, and retention elements. Distribution involves channels that lead to product discovery and improved experiences, connecting product and marketing. Marketing controls the message delivered to potential customers.
Types of Distribution: Distribution can be classified into three general categories based on control and amplification:
1. Owned: Higher control and less amplification, such as having your own e-commerce website.
2. Hybrid: Balance between control and amplification, combining owned channels with third-party platforms, like having an e-commerce website and using Amazon as an additional channel.
3. Third-party/non-owned: Optimized for reach but with zero control, relying solely on external platforms, like selling exclusively on Amazon.
Example: Netflix’s Distribution Strategy: Netflix integrated its distribution strategy by partnering with various remote control brands to add a one-click feature that instantly accesses Netflix content. This strategy paid off as it made Netflix easily accessible to millions of people, increasing brand visibility and customer convenience.
The Cost of Distribution: While owned distribution may require substantial investment upfront, it provides more control over customer perception, allowing for differentiation and premium pricing. In contrast, leveraging third-party platforms can provide immediate amplification but less control over the distribution channel.
Distribution and Business Models: The choice of distribution strategy may vary depending on the type of business model. Linear businesses with physical products may benefit from funnel marketing, while digital businesses with a digital customer-facing component may find success with flywheel marketing.
Sales Funnel Model: The sales funnel is a marketing model that represents the ideal customer journey from potential customer to actual customer. It helps structure sales and marketing processes to convert customers effectively.