Do you want to start a distribution business? If YES, here is everything you must know about the distribution business model plus examples of successful companies.
Being in business is tough, hence the need to choose a business model that you can run your business on. The truth is that you can hardly make success out of your business if you don’t build and operate your business on an existing model that suits your business.
A quick tip is to look around you and find out the type of business model the company you are patterning your business after is operating. With that, you would have eliminated the time and resources wasted in trial and error approach. You will just settle down to your business with little or no stress.
Distribution Business Model – Everything You Need to Know
But on the average, one of the business models that an investor who is looking towards starting a business in the United States of America should consider adopting is the distribution business model. One good thing about the distribution model is that you don’t necessarily need to manufacture products of your own, you can comfortably engage in the distribution of the products of a company or several companies at the same time.
If you are making plans to start a distribution business or you are already running a distribution business but your need to know more about the business model and some of the leading companies that are already operating this business model, then you will find this article highly useful.
Table of Content
What is a Distribution Business Model?
Distribution business model is a business model that facilitates that distribution of goods and services from the producers / manufacturers to the end users / consumers; it is a business model that ensures that products and services reach target customers in the most direct and cost-efficient manner. If it is services, distribution is predominantly concerned with access.
In the actual sense, the distribution model is a concept that is relatively simple and straightforward. In practice, distribution business model may involve a diverse range of activities and disciplines including: detailed logistics, transportation, warehousing, storage, inventory management as well as channel management including selection of channel members and rewarding distributors.
3 Strategies Adopted by Operators of Distribution Business Model
The strategy adopted by a company operating on the distribution business model to a large extent depends on a number of factors such as the type of products to be distributed, especially perishability; the market served; the geographic scope of operations and the organizations’ overall mission and vision. With that, you will be able to pattern your business to suit the distribution business model.
In the case of intensive distribution approach, the marketer relies on chain stores to reach broad markets in a cost – efficient manner. Basically, we have three strategies that operators of distribution model adopt and they are;
- Mass Distribution
Mass distribution which is also known as intensive distribution is a distribution strategy that is used basically for products that are produced or manufactured for a mass market, the marketer will seek out intermediaries that appeal to a broad market base.
It is common to find industrial giants who are into mass production of products adopt this distribution strategy to get their goods or services to every nooks and crannies of their target market location.
For example, it is only but natural for a company like Coca Cola that adopts mass distribution strategy to distribute cum retail their products. Little wonder there is hardly any location in the United States of America or in major cities all across the world that you won’t find Coca Cola products.
2. Selective Distribution
Selective distribution strategy is a distribution strategy that enables the manufacturer of a product or services to restrict the number of outlets retailing their products. Despite the fact that there are some drawbacks to this distribution strategy, but you can’t rule out the fact that it has loads of benefits.
Some of the benefits includes the ability to control your distribution chains, train your distributors to be able to better market your products and buy into the organization’s overall business goal or the big picture why the products is on sale.
For example, the manufacturers of some luxury cars might restrict the distribution and sale of their products to only selected and accredited distributors who are trained and have been able to prove their worth in the business.
3. Exclusive distribution
Exclusive distribution strategy is a distribution strategy where the manufacturer of a product or services chooses to deal with one intermediary or one type of intermediary. Just like selective distribution strategy, exclusive distribution strategy has a handful of drawbacks, but it has its own advantages especially if you are into the production of goods that are not meant for the general public.
One major advantage of an exclusive distribution strategy is that the manufacturer retains greater control over the distribution process.
In exclusive distribution strategy, the distributor is expected to work closely with the manufacturer and add value to the product through service level, after sales care or client support services. The most common type of exclusive arrangement is an agreement between a supplier and a retailer granting the retailer exclusive rights within a specific geographic area to carry the supplier’s product.
Distribution Channels and Intermediaries
In practice, distribution of goods and services are carried out via a marketing channel which can be referred to as a distribution channel. A marketing channel is made up of the people, organizations, and activities that are necessary to transfer the ownership of goods from the point of production to the point of consumption or the end user.
It is the process by which products or services get to the end-user, the consumer. This is usually accomplished through merchant retailers or wholesalers or, in the international context, by importers. Please note that in certain specialist markets, agents or brokers may become involved in the marketing channel.
Distinctive Intermediaries Involved in the Distribution Business Model
A wholesaler is a merchant intermediary who sells primarily to retailers, other merchants, or industrial, institutional, and commercial users mainly for resale or business use. Wholesalers essentially sell in large quantities and it is rare to find them selling directly to end users or consumers.
An agent is a distinctive intermediary who is authorized to legally act for a principal in order to transact business on their behalf or facilitate exchange of good and services as instructed by the principal. Unlike merchant wholesalers and retailers, agents do not take title to goods, but simply put buyers and sellers together. Agents are typically paid via commissions by the principal. For example, real estate agents are paid a commission of around 5 – 15 percent for accommodation leased, rented out or sold.
A jobber is a unique type of wholesaler who is known to operate on a small scale and sells only to retailers or institutions. Jobber, in merchandising, can be synonymous with “wholesaler” or “distributor” or “broker” or “middleman.”
A business which buys goods and bulk products from importers, other wholesalers, or manufacturers, and then sells to retailers, was historically called a jobbing house. For example, rack jobbers are small independent wholesalers who operate from a truck, supplying convenience stores with snack foods and drinks on a regular basis.
If you operate a distribution model, then you should learn how to Manage your distribution channels. Operating a distribution business model requires that the organization’s marketing department and logistic team to design the most suitable channels for the products and services produced by the organization, then select appropriate channel members or intermediaries.
An organization may need to train staff of intermediaries and motivate the intermediary to sell the firm’s products. The organization is expected to monitor the channel’s performance over time and from time to time improvise on how to continuously improve the channel to boost performance in the market place.
This is highly necessary because competition is expected to grow in your line of business. In the bid to continue to improve your performance in the market place, you are expected to continue to motivate players in your distribution channels to deliver.
There are several ways a company that is operating the distribution business model can motivate intermediaries working in their distribution value chain to deliver. You can leverage on making use of positive actions, such as offering higher margins to the intermediary, special deals, premiums and allowances for advertising or display of products, free trainings and competitive credit facility in terms of releasing goods and getting back your money later.
On the other hand, negative actions may be necessary, such as threatening to cut back on margin, or hold back delivery of products or services. Please note that caution must be applied when considering negative actions because these may fall foul of regulations and can contribute to a public backlash and a public relations disaster.
It is expected that conflict of interest may arise amongst players in your distribution channels hence you need to know how to handle it;
The truth is that conflict of interest may likely arise amongst your distribution channel and this can happen when one intermediary’s actions prevent another intermediary from achieving their objectives.
Vertical channel conflict occurs between the levels within a channel, and horizontal channel conflict occurs between intermediaries at the same level within a channel. Channel conflict is a perennial problem. There is a possibility that an influential channel member may monopolize and coordinate the interests of the channel for personal gain.
Lastly, in order to continue to push your products to end users and consumers, you must place premiums on your customer – customer value;
If you are in business, aside from the quality of your products and services, the value you place on your customer is one major factor that will help you to continue to sell your product or services to them. The truth is that if you have a good product and bad customer services; not placing value on your customer, it won’t be too long before you to lose your customer and experience depletion in your income.
This is one of the chief reasons why most organizations spend more to establish customer service; a medium through which they can receive complaints and feedback from their clients. The essence of distributing a product is for it to get to end users and consumers and if they feel that they are not treated well; they are likely going to look for alternative product or service providers.
50 Successful Companies Operating the Distribution Business Model
- Anchor Distributors
- Barnes & Noble
- Diamond Comic Distributors (comics)
- Capital City Distribution (comics, acquired by Diamond)
- Greenleaf Book Group, distributor and hybrid publisher
- Heroes World Distribution, now owned by Marvel Comics
- Two Rivers (formerly Perseus Distribution)
- Small Press Distribution
- Baker & Taylor, United Kingdom
- W. Grainger
- HD Supply
- Motion Industries
- The Fastenal Company
- MRC Global Corp.
- MSC Industrial Supply
- Applied Industrial Technologies
- NOW Inc. (DistributionNOW)
- Wurth – Americas
- Vallen Distribution
- Interline Brands
- Edgen Murray
- Wolseley Industrial Group
- Kaman Distribution Group
- W. Webb
- DXP Enterprises
- ERIKS North America 21. Global Industrial
- The United Distribution Group
- Bearing Distributors Inc. (BDI)
- Turtle & Hughes
- BlackHawk Industrial
- Gas And Supply Co.
- DGI Supply
- FCX Performance
- SBP Holdings Inc.
- R S Hughes Co.
- OTP Industrial Solutions
- Lawson Products
- AWC Inc.
- Dillon Supply Company / Descours et Cabaud
- Ryan Herco Flow Solutions
- Kimball Midwest
- Walt Disney Studios Motion Pictures
- Warner Bros.
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