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.
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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.
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 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.
Frequently Asked Questions
What Is The Wholesale Distribution Business Model?
The wholesale distribution is a means of buying products from manufacturers or suppliers in large quantities and sell them at wholesale prices to customers, which are often commercial establishments, business professionals, or retail stores.
What Is The Business Model Of FMCG Distribution?
The business model of FMCG distribution is a process where by manufacturers often distribute or sell the goods to wholesalers, who sell it to the retailers, who in turn sell it to the consumers.
What Does A Product Distribution Strategy Look Like?
A distribution strategy is actually a method of disseminating goods or services to the final consumers.
How Do Product Distribution Models Affect Product Management?
In product distribution and order fulfillment, keeping internal costs down and product prices reasonable leads to higher profits and customer satisfaction. In terms of distribution, the greatest impact of production price comes from the distribution channel.
How Do You Start A Wholesale Distribution Business?
The following guidelines are how to start a whole distribution business;
- Get the competent and right people employed
- Build long-term relationships
- Speed up order fulfillment
- Make proper sales territory management a priority
- Get your inventory under control
- Provide all the necessary equipment your sales reps need to operate with
- Differentiate on customer service and not just the price
- Maintain and control control your cash flow
What Are Common Product Distribution Models?
The following are the common production models;
- Direct sales to customers with an assisted sales process
- Direct sales to the customers with an automated purchase process
- Resale distribution through select authorized dealers
- Resale distribution open to all re-sellers
Can The Distributor Get A Monthly Fee For The Leg Work Of Bringing In New Retailers?
No! A distributor doesn’t earn monthly salary, distributor’s markup is when the distributors raise the selling price of their products in order to cover their own costs and make a profit. And the distributor markup is generally 20%, but depending on the industry, the markup could be as low as 5% or as high as 40%.
How To Start a Fashion Jewelry Distribution Business?
The following are ideas are to be considered;
- Choose a jewelry manufacturer from whom you can take products to drop-ship
- Invest quality time to search for the right suppliers
- Start selling the jewelry in your preferred marketplace
What Are The Pros And Cons Of Wholesale Distribution?
The following are the cons;
- No direct interaction with customers
- Huge capital and more space are required
- Wholesale business has less profit margin than retail business
The following are the pros;
- Wholesale business does not require more marketing costs
- There is no tough competition to face, like retailers do
- Selling skill is not required
- There is a fixed profit margin.
- Wholesalers get more discount and allowance from distributors because of large scale purchase
10. Where Can You Find Distributors For Wholesale?
- Online wholesale directories
- On trade shows, either locally or internationally
- In the supplier databases
- Online searches for vendors
- Browse forums and online groups
- Research your competitors’ methods
- Subscribe to relevant publications
- In a wholesale vendor company, service, or website that offers suppliers goods for sale
How Important Is Distribution To The Marketing Mix?
Distribution is so vital, it is one of the best mix among marketing mixes. Participants in the distribution channel help producers in the production of new goods.
How Can You Start A Business Without Money?
- Engage in crowdfund
- Get a credit line
- Find an Accelerator
- Make a good use of current resources in new ways
- Get involve in creative funding sources are everywhere
- Use services to generate cash flow and fund a product-based business
Should you Sell Directly To Customers Or Through Resale Partners?
Distributing goods through resale partners has several advantages. For instance, it makes the goods or product cost less than when it is gotten directly from a distributor. The resales partners provide a cost-effective option for products that already have a strong brand presence, and also have the ability to sell your products with multiple re-sellers without exclusive rights restraints.
What Does It Take To Start A Pharmacy Wholesale Distribution Business?
To start a pharmacy wholesale distribution business, consider the following tips;
- Establish your brand
- Design and write a successful business plan
- Choose the necessary right equipment
- Employ a competent business consultant and determine your niche
How Do You Select The Right Distribution Strategy For Your Business?
To select the right distribution strategy for your business, consider the following guideline;
- Define your desired channel
- Fix your channel pricing strategy
- Look-out for channel Partners and also design Your Channel Plan
- Evaluate if you should consider adding a new distribution Channel
What Are Some Technologies That Aid In Distribution?
The following are some technologies that aid in distribution;
- Warehouse Management
- Suggested Purchasing
- Mobile Order Entry
- CRM/Marketing Automation
What Are The Different Channels Of Distribution?
The different channel of distribution are;
- Sales Teams
- Social media
What Are The Different Types Of Distribution Strategies?
These are different types of distribution strategies;
- Intensive Distribution
- Exclusive Distribution
- Direct Distribution
- Indirect Distribution
- Selective Distribution
What Marketing Campaigns And Strategies Will Drive Volume For Your Distribution Partners?
- Personalize your marketing messages
- Let data drive your creative
- Invest in original research
- Update your content
- Enlarge your guest blogging opportunities
- Create and use more video over-again
- Try ex-plainer videos
- Educate with your content
What Are Some Common Distribution Software Features?
The following are some common distribution software features;
- Inventory Control
- Financial Oversight
- Management Order
- Supplier Management
What Are The Three Types Of Distribution Channels?
The three types of distribution channels are;
- Intensive Distribution
- Selective Distribution
- Exclusive Distribution
What Is The Difference Between Direct And Indirect Distribution Channels?
The clear difference between direct and indirect distribution channel is that direct channel grants the customer access to purchase goods directly from the manufacturer, while an indirect channel distribute the products through other distribution channels to reach the consumer.
What Are Good Books For Wholesale Distribution Business?
The good book for wholesale distribution business are;
- Start your own wholesale distribution business
- Wholesale Distribution Business
- The Business of Media Distribution
- The Manager’s Guide
- The Handbook of Logistics
How Many Types Of Distribution Channels Are There?
There are three major distribution channels which are; wholesalers, retailers and final consumer (direct-to-consumer) sales.
What Are Some Of The Different Distribution Channels?
Some different distribution channels are;
- Direct-to-consumer sales
What Sales Support Strategies Will Drive Velocity And Conversion In Your Channel Partners’ Sales Cycles?
The following are some sales strategies to drive velocity in channel partner sales cycle;
- Create solid agreement between channel sales and marketing
- Go Beyond Partner Locators to Create Customer Connections
- Use partner segmentation to drive higher engagement and better results
- Translate a better channel visibility and also report into better outcomes
- Create a better partner contact lists with trust
- Create an account based marketing
- Get a partner digital transformation for essential purpose
How Do You Assess The Right Mix For Your Distribution Strategy?
The following ideas are to be considered to assess the right mix for distribution strategy;
- Standardize product information
- Choose the right distribution channels
- Combine marketing and sales work
- Apply business strategy
- Cultivate a good network of distribution partners
- Balance the number and type of distribution channels
How Can You Differentiate Your Value Proposition And Improve The Overall Economics For Your Distribution Partners?
- Establish the advantages of your product and service
- Communicate the value of these benefits
- Pinpoint some challenges a consumer may face
- Relate the problem to the value provided by your product or service
- State some concrete reasons why you should be the chosen provider of this product and service
29. Which Marketing Channels Are Right For You?
- Direct selling
- Dual distribution
- Reverse channels
- Selling through intermediaries
30. What Is Back-ordering In Materials Management?
Back-ordering is a means of granting customers an access to place their orders, even when there is no sufficient stock at the moment. A business usually implements this back-ordering with abrupt sales increase, to make sure products are sold faster rather than been stocked. This is of great advantage to any company and also a problem if you don’t have the tactics to manage it.