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  • Daniela Ferreira

CHALLENGES OF DISTRIBUTING A BRAND

Updated: Oct 8

DISTRIBUTION CHANNEL - about CHANNEL and about DISTRIBUTION


Increasing sales is a constant challenge to be achieved by most brands. This current moment has required many companies to reinvent themselves and find alternatives to maintain positive sales. The search for new markets and the diversification of channels appears as a natural perspective to maintain or expand sales and reach new consumers. But how do distribution channels work and how to choose the most suitable for your company?



Distribution channels are the way in which brands bring their products to their consumers. Through distribution partners, brands can position themselves in the best way on the market. Therefore, it is necessary to know all the channels, understand them to choose well among the various options.


So we have three pillars in this distribution journey: the brands, that are the starting point; the distribution channels, that are the means; and consumers who are the point of arrival and goal. We need to understand the universe that surrounds each element to make choices for distribution channels that allow products to reach the target market in the fastest, safest and cheapest way.


The definition of distribution channels depends on the brand's market strategy, the company's objectives, the characteristics of the business and the product positioning.


If on the one hand we have the brand and on the other hand the product, we can easily notice that the distribution channels involve physical movement of goods and logistics and these are sensitive factors to consider in this process. So we need to understand the channels, their characteristics and also the types of distribution and thus understand whether we are using the best channels or whether there are opportunities to develop new channels.


Distribution channels can be organized into types, formats and they can even be operated at different levels. Let's get to know each system that involves a channel and the forms of distribution.


ABOUT CHANNEL



TYPES OF DISTRIBUTION CHANNELS


There are predominantly two types of distribution channels; the direct channel and the indirect channel. Basically what differentiates these channels is the number of intermediaries between the company and the final consumer.


DIRECT CHANNEL


In the direct channel, the industry has the responsibility to deliver the goods directly to its customers without any intermediary. It is a recommended channel for products with low validity, which need to reach the final consumer quickly. It is also a cheaper channel for reducing the costs involved with intermediaries along the distribution chain. Examples are direct sales via catalog, own e-commerce and door to door sales.


INDUSTRY >>> CONSUMER



INDIRECT CHANNEL


The indirect distribution channel is characterized by the presence of one or more intermediaries between the company of the final consumer. In this type of channel, the industry sells its products through its partners, which can be distributors, wholesalers or retailers. This channel involves more intermediaries and may have a slower and somewhat more expensive distribution to remunerate everyone involved in the chain. Examples are sales via retailer, wholesaler, distributor or sales representative.


INDUSTRY> Retailer> CONSUMER

INDUSTRY> Wholesaler> Retailer> CONSUMER

INDUSTRY> Distributor> Wholesaler> Retailer> CONSUMER



ABOUT DISTRIBUTION




TYPES OF DISTRIBUTION CHANNELS


There are predominantly two types of distribution channels; the direct channel and the indirect channel. Basically what differentiates these channels is the number of intermediaries between the company and the final consumer.


DIRECT CHANNEL


In the direct channel, the industry has the responsibility to deliver the goods directly to its customers without any intermediary. It is a recommended channel for products with low validity, which need to reach the final consumer quickly. It is also a cheaper channel for reducing the costs involved with intermediaries along the distribution chain. Examples are direct sales via catalog, own e-commerce and door to door sales.


INDUSTRY >>> CONSUMER



FORMS OF DISTRIBUTION


In indirect distribution channels, the relationship between the parties involved is interdependent and success depends on the good work of all the team. Indirect channels can still be characterized by two types of distribution system according to the characteristics of each business.


  • Exclusive Distribution - These channels are more appropriate for businesses that need greater loyalty and control by the brand. There will be a representative who is responsible for taking the products to the exclusive points of sale. In this format, the company and the intermediary agree on exclusive sales and offer differentiated exposure, exclusive assistance and sales services. They are indicated for products with higher added value, with reduced volumes and positioned for specific audiences. They are characteristic of franchise models.


  • Intensive Distribution - The objective in this format is to take the product to as many people as possible; and consequently placing the product in the greatest number of points of sale. These products also demand a wide variety of channels to facilitate the flow of large volumes. The sale of these products can be made either by sales representatives, by the manufacturer themselves or via wholesalers and distributors. They are common models for products of high consumption and low added value, with large volumes and that need massive distribution.


  • Selective Distribution - They are a mixture of Exclusive and Intensive models. In this format, the strategy is to value the product. The company selects intermediaries with specific characteristics that are positioned to reach the target consumers of the brand. This modality is common for premium or niche products.



DISTRIBUTION CHANNEL STRATEGY


The correct definition of distribution channels must be a fundamental part of a brand's marketing planning and strategy. It is important to understand some aspects that involve the main related elements: company, consumer and intermediaries. There are no better channels than others, but more or less adequate to the needs of each company. Commercial costs and expectations will also have to be considered for decision making.


Evaluating the brand profile and positioning are relevant to commercial success. Each channel will have positive and negative points and a careful analysis is needed to consider which one works best for each business.


The ideal channel should facilitate the arrival of products to consumers and offer a good positioning for the brand. However, the choice of the best channel will not always be the cheapest, but it is necessary to ensure that the product will reach the consumer in the best way and will be perceived as a good value offer by the target market. Price and competitor analysis must also be considered to ensure commercial success.


COMPANY MOTIVATION



According to Kotler, we must always consider three aspects or reasons, when analyzing distribution channels: economy, control and adaptation. The definition of the initial motivation will be decisive in choosing the best distribution channel strategy. Each motivation will lead to a few different channel strategies.


Economy - when the strategy definition involves choosing or reviewing the current channels in order to reduce costs and improve profitability. It is important to understand that every channel will generate a volume of sales and costs, and comparing this result will be essential to also evaluate the effort involved in relation to the desired result.


Control - in this situation, the reason for channel analysis intends to control or understand some aspect related to the product, the market or the consumer. As these objectives it is possible to evaluate and review, being able to act closer or more distant from consumers.


Adaptation - In the face of a change in the company or in the market, it may be necessary to review the channel used to improve sales performance. In this situation, sales bonuses or incentives may be offered to bring better results or even to revise a commercial territory

strategy. This condition applies if it is a new brand or if it is operating in a new segment.


TARGET CONSUMER PROFILE



The choice of a channel should consider where your target consumers are so that you can understand the distance, in addition to the ease or difficulty of accessing them. This leads to an understanding of the concept of distance and breadth of each channel to choose.


Distancing - here it is necessary to consider the distance between the company and its target consumers and the amount of intermediaries needed to reach the objective. The greater the distance, the more work it will be to manage the channel and also the more costs involved, making it necessary for the company to have scope to support so many intermediaries and guarantee competitive prices at the end.


Amplitude - distribution channels can be comprehensive or more restrictive. They can have greater capillarity, penetration in a specific segment and achieve wide distribution. However, some segments may have more restrictive channels, such as specialized ones; and if you are still in a very competitive market, these channels may have limited brand diversification by competing companies, thus making distribution more challenging.


INTERMEDIARIES OF EXCELLENCE


Most companies do not have the capacity or knowledge to handle the direct sale of their products. So this task becomes the responsibility of distributing partners, who competently assume essential roles such as marketing logistics and customer relations.


In addition to choosing the channel, it is important to assess the intermediary's market potential, reputation and performance with other brands. We cannot forget the logistical aspect; which contemplates the physical distribution of the product itself and also the marketing aspect that involves the commercial side and services involved in the point of sale.


Distribution partners need to have a good knowledge of the market and the product. They are the channels responsible for providing knowledge about the product, guaranteeing quality, proposing complementary offers, managing after sales and logistics.


The role of intermediaries is fundamental to add value to the chain, leading the product to the final consumer. But they can also slow down distribution, or slow it down, if they don't commit to sales challenges. It is also an important task for intermediaries to gather information about consumers and product perceptions that can help in the development and better positioning of the brand.


THE NEW DISTRIBUTOR IN THE NEW SCENARIO


In the current scenario, partnership and cooperation are key attitudes to overcome the pandemic. With the great commercial changes resulting from this very challenging moment, the passive distributor model that only buys the product and resells it will disappear. This moment, in addition to changing the forms of interaction and work, is also impacting the generation of new businesses and generating financial losses in the most diverse sectors of the economy.


The world economy, due to the pandemic, is experiencing the most difficult moment since the Great Depression of 1929. According to a recent report by the IMF - International Monetary Fund, the world economy will register the worst performance in 2020. The organization predicts that global GDP - Gross Domestic Product is expected to decline 3%.


In this scenario, the new distribution model requires a lot of harmony between brands and intermediaries, in order to find alternatives together and solve market demands. In order to maintain the commercial competitiveness of companies, it will be necessary to be creative and play with both the industry and the intermediaries. The latter has an even more relevant role, as it becomes a trusted agent to help brands strengthen and anticipate problems and create opportunities.


Finding a brand that adds value to a distributor's portfolio is essential. A star product capable of leveraging sales and bringing differentiation to a distributor's portfolio can have great commercial value. But what is more important, especially now, in this relationship so that it lasts and can be positive for the brand and intermediaries.


THE NEW RETAIL AND DIGITAL SALE



Specialized retail has undergone major changes with reduced flow, limited customers and insecurities in collective living. In the cosmetic segment, however, hypermarkets were “favored” by the pandemic, with growth in their hygiene and personal care sector.


Private labels tend to become stronger in response to this situation and more and more the industry needs to reinvent itself to survive. Large distribution groups have long tried to attract consumers to their own brands. According to data from Nielsen, in the last 20 years, the adhesion of the Portuguese to their own brands has gone from 5% to 30%, and the products can cost about 30% less; which further extends the advantage of these players over other competing brands in their own channels.


The lockdown of this moment intensified digital sales and led to a transformation in the way of consuming. Adaptation to this new reality is necessary and each company must consider the best way to be followed. Remembering that diversifying channels is safer than replacing at this moment. At the present time, companies that had channel diversification already in place suffered lesser effects of the pandemic.


Despite the rush of brands to join the digital channel, it is important to have a strategy to manage it. However, many companies can underestimate the challenges of managing their own ecommerce directly. Although it seems simple or cheaper; these digital sales involve logistical organization and good communication and marketing investment with consumers, such as campaigns and after-sales research.


The perfect match between product and distribution involves the correct choice of the distribution channel strategy and the profile of the intermediaries. A good partner, as we understand, presupposes some aspects such as good relationship with the market, commercial force and customer penetration. A good product needs quality, competitive price and marketing strategy and communication.


The choice of distribution channels must be an important strategy. Measuring the results of each channel, aligning the objectives, analyzing the ideal sales volume and consumption potential are fundamental. Undoubtedly, we are experiencing a moment of collaborative management; with professionals from different fields working together and designing new solutions to generate sales and reduce costs. It is a time to take controlled risks and face changes because in crises there is always an opportunity for growth.


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