The ways in which businesses get their products and services to customers continue to rapidly evolve. An effective distribution strategy is critical for any business looking to get its products or services to customers efficiently. With 91% of companies reporting their distribution strategy as a key factor impacting overall performance, defining the right strategy for your business has never been more important. An effective strategy considers factors like customer demographics, buying journeys, and emerging booking platforms.
In this comprehensive guide, we'll cover everything you need to know about distribution strategies.
By the end, you will know what a distribution strategy is and have the knowledge to create an optimized distribution approach to maximize reach, boost revenue, and enhance the customer experience.
What is distribution strategy?
A distribution strategy refers to the methods and channels a company uses to deliver its products or services from the point of production to the end consumer. The overarching goal is to move inventory as efficiently as possible while delivering the best possible customer experience.
Distribution strategies encompass the channels, outlets, and intermediaries utilized to physically transport goods along the supply chain. They also incorporate digital components like e-commerce platforms where transactions occur.
An effective distribution strategy aligns with a company's target audience, business model, product offerings, and growth objectives. It encompasses every touchpoint along the path to purchase - how inventory gets stored, processed, transported, tracked, and sold.
In 2022, global spend on distribution services reached over $2 trillion, highlighting the massive scale and importance of optimizing distribution operations.
Why is a distribution strategy important?
There are several key reasons why defining and optimizing your distribution strategy is essential:
- Increased efficiency and cost savings: The right distribution model minimizes unnecessary steps in the supply chain, eliminates waste, and consolidates processes for significant cost savings. Efficient routes and channels allow businesses to get products to market faster. Inventory tracking provides visibility to optimize production schedules. Shared distribution centers with partners streamline operations.
- Improved customer experience: Seamless omni-channel distribution creates a unified brand experience for customers across all touchpoints, whether online or offline. Fast, reliable fulfillment with transparent tracking improves satisfaction. Options for in-store pickup or returns enhance convenience.
- Expanded market reach & revenue growth: Unique distribution strategies help businesses access new geographical territories, demographics, and partnerships. Multi-channel distribution provides more opportunities to promote products and generate sales across different platforms. The resulting boost in market share directly translates to higher revenues.
Well-designed distribution strategies that align with customer preferences and business capabilities drive key benefits for organizations not limited to those listed above.
What's new in distribution strategies?
Several evolving factors now shape distribution strategies, including:
- Rise of e-commerce and omnichannel retail: Online shopping continues its meteoric rise, with e-commerce sales expected to reach $7.4 trillion globally by 2025, representing nearly 22% of total retail sales according to Statista.
Leading omnichannel retailers seamlessly integrate online and brick-and-mortar channels to give customers ultimate choice and convenience. Many purely digital brands also now open physical locations to create immersive branded experiences.
- Sustainability priorities: Consumers and governments alike prioritize sustainability, from eco-friendly shipping materials to reduced carbon emissions. Brands increasingly track and report on sustainability metrics while optimizing logistics for green operations.
- Advanced supply chain technology: Innovations like blockchain, AI, robotics, and self-driving vehicles enable unprecedented supply chain transparency, efficiency, and flexibility.
- Faster fulfillment: Customer expectations for rapid delivery rise by the day. Cutting-edge companies implement systems for one-day, same-day, or even one-hour shipping by leveraging distribution centers in urban areas.
Types of distribution strategies
Businesses design distribution strategies by selecting among several fundamental types:
1. Direct distribution
Selling directly to the end consumer through owned e-commerce channels. Examples include company websites, mobile apps, brick-and-mortar locations, pop-up shops, or catalog/TV sales.
This is the strategy where a customer books a hotel room directly through your hotel website. This tends to happen with loyal customers who know your hotel well and are returning.
2. Indirect distribution
Selling through third-party resellers or intermediaries. Examples include retailers, distributors, wholesalers, and online marketplaces like Amazon or restaurant delivery platforms.
This is a long distribution channel with numerous layers. There could be various third parties between the customer and your hotel. For example, a leisure traveler's distribution channel may go through a wholesaler and a tour operator, or an online travel agency and an affiliate online travel agency. A business traveler's channel may include a DHISCO switch, a global distribution system, and a corporate self-booking channel.
3. Intensive distribution
Intensive distribution focuses on high availability above all else. Products display through every possible sales channel from big box stores to independent shops. High ubiquity suits low-cost impulse purchases.
Candy bars, snacks, soft drinks, and daily newspapers commonly utilize intensive distribution at convenient locations like supermarkets, newsstands, convenience stores, and pharmacies. Hospitality examples include pamphlet racks showcasing local attractions in hotel lobbies.
4. Selective distribution
Selective distribution strikes a balance between intensive and exclusive distribution. It places goods in multiple sales venues but exercises control over specific retailers and locations to align with brand positioning.
Selective distribution works well for mid-range fashion apparel labels only carried by department stores also selling similar moderately-priced merchandise. Boutique hotels may choose selective strategies partnering with independent and niche travel agencies resonating with their unique value proposition over mass-market players.
5. Exclusive distribution
Exclusive distribution strictly limits sales channels, typically to a single outlet. The severe constraints on product access enhance perceptions of prestige and reinforce premium pricing.
Ultra-high-end fashion houses only sell the latest designer collections through their flagship boutiques in fashion capitals around the world. Small luxury hotels may choose to exclusively sell suites and villas solely through their on-site reservation team to provide white-glove service.
6. Hybrid distribution
Many leading companies employ hybrid distribution encompassing multiple strategies to serve diverse target customer groups.
A luggage brand may use exclusive distribution for its luxury bespoke line only available in its stores. The mid-tier line appeals through national chains and independent luggage shops reflecting a selective model. Entry-level products are displayed via intensive distribution in big box retailers maximizing market reach.
7. Dual distribution
Dual distribution combines direct and wholesale approaches. Companies build retailer partnerships while also operating their brick-and-mortar locations and e-commerce storefronts.
Athletic shoemaker On Running opened its first On Experience Shop in 2021 and continues expanding its corporate retail presence. At the same time, they expanded U.S. wholesaler coverage by over 25% to extend availability. Dual distribution allows direct-to-consumer brand control while leveraging wholesaler infrastructure.
8. Omnichannel distribution
Omnichannel distribution seamlessly blends online and offline routes to put the right products where customers want them.
Beauty giant Sephora provides a prime example spanning over 2,700 retail locations, e-commerce storefronts, social shopping integrations, mobile app features, and in-store digital experiences. Regardless of channel, customers access the same selection with consistent promotions as part of their top-ranked loyalty program. Sephora also leverages distribution for sustainability through eco-packaging and fair labor certification initiatives.
9. Reverse distribution
While less common, reverse distribution continues growing as companies accept product returns, recycling, and refurbishment channels.
Outdoor apparel maker Patagonia operates the largest garment repair facility in North America. Customers can mail back damaged products from anywhere for free repairs extending useful product life, thus reducing environmental impacts.
Key distribution strategy components
With the landscape evolving, best-in-class distribution strategies now incorporate:
- Omnichannel presence
- Hyperlocal delivery options
- Heavy focus on sustainability
- High-tech supply chain innovations
- Premium customer experience
Let's explore each area more deeply.
1. Omnichannel presence
Leading companies meet customers everywhere they shop, both online and offline. Key omnichannel components include:
- E-commerce website and mobile apps
- Owned brick-and-mortar locations
- External brick-and-mortar partners
- Social commerce integrations
They unite these channels through shared inventory, universal pricing, omnichannel promotions, and top-notch post-purchase customer service.
Starbucks demonstrates omnichannel excellence across pickup, delivery, brick-and-mortar, and drive-thru options. Customers place orders online for in-store pickup or delivery and earn Stars loyalty points they can redeem across channels.
2. Hyperlocal delivery
On-demand delivery gains immense traction, with a full 50% of customers expecting 2-hour shipping availability according to a Walker Sands study.
Leaders now offer customers multiple ultra-fast delivery options, enabled by hyperlocal infrastructure:
- Micro-fulfillment centers in urban areas
- Dark stores solely for digital order fulfillment
- Partnerships with on-demand and gig delivery companies
- Utilization of smart lockers and in-store pickup
- Autonomous robots and vehicles for last-mile transportation
For example, Target recently announced plans to expand the number of sortation centers dedicated to online order fulfillment. By siting facilities closer to population centers, routine purchases can rapidly reach local customers.
3. Sustainable distribution
With sustainability driving consumer purchasing, manufacturers must minimize environmental impacts at every link along distribution channels.
- Optimizing modes and routes cuts carbon emissions from transportation. Electric vehicles increasingly transfer goods between hubs.
- Packaging materials shift toward renewables like plant fibers in place of plastics. Containers make use of recycled materials.
- Facilities implement eco-friendly waste, water, and energy systems. Solar panels, for example, power warehouses and fulfillment centers.
- Companies track and share data on sustainability KPIs with consumers and governments seeking quantitative insights.
- UK food delivery service Deliveroo details strong sustainable distribution commitments like becoming the first carbon-neutral delivery company globally.
4. Advanced supply chain technology
Technology unlocks game-changing supply chain advancements:
- Internet of Things (IoT) sensors enable real-time visibility into inventory levels, product locations, and transportation conditions to optimize planning.
- Artificial intelligence predicts spikes in demand to align production, inventory, and delivery capacity.
- Blockchain establishes trusted, transparent records of exchanges across end-to-end distribution.
- Autonomous warehouse robots pick, pack, and sort items faster and more accurately.
- Machine learning optimizes delivery routes and models projected arrival times.
Fashion label Guess incorporates RFID sensors into clothing tags to continuously track goods flowing through its highly automated distribution centers.
5. Premium customer experiences
With expanded access to products, customer experience now determines buyer loyalty. Elements include:
- User-friendly e-commerce sites and apps offering intuitive navigation, rich product information like 3D images, virtual try-on tools, and easy checkout
- In-store experiences that entertain or educate while allowing customers to personally test products
- Top-notch post-purchase customer service and streamlined returns processes
- Value-added services like alteration support and virtual interior design consultations
- Loyalty programs providing personalized recommendations and perks
Athletic footwear retailer GOAT provides premier user experiences online and in person. Their mobile app and website simplify browsing massive product selection and ordering high-demand sneaker styles. Brick-and-mortar GOAT Select stores in top markets also allow customers to see hot releases up close while checking out other exclusive adult and kids' apparel.
Here are some secrets to help you decode customer delight.
Hotel distribution strategy elements
While distribution strategies apply across industries, hotels possess some unique considerations given the experiential nature of the product.
Key elements of hotel distribution include:
Direct bookings: Travelers who book directly through hotel websites and loyalty apps typically offer higher lifetime value thanks to valuable first-party guest data capture, opportunities for personalized marketing, and excluded third-party commissions.
Global distribution systems: Large Global Distribution Systems (GDSs) like Sabre, Travelport, and Amadeus provide listings visible to millions of travel agents. Given its substantial subscriber base, GDS's presence remains essential for capturing bookings.
Online travel agencies: Expedia, Booking.com, TripAdvisor, and scores of other OTAs steer massive transaction volumes to hoteliers. However, commission fees ranging from 15-30% significantly erode net revenue. Large hotels increasingly encourage direct bookings over OTA usage to improve profit per stay.
Metasearch engines: Metasearch sites like Trivago, Kayak, and TripAdvisor's hotel search function allow users to view rates across multiple booking sites. The model earns metasearch companies' pay-per-click fees from hotels and OTAs. While beneficial for shoppers, metasearch further dilutes commissions.
Select alternative accommodations platforms: To expand market reach, some hotel brands list rooms on daily rental platforms like Airbnb that enable access to leisure and long-staying travelers. They may promote a limited inventory of apartment-style suites not cannibalizing traditional room bookings.
Optimizing hotel distribution requires balancing channels to capture high-value bookings while minimizing customer acquisition costs. An omnichannel presence creates multiple booking avenues while incentives encourage direct reservations.
Sustainable lodging distribution: Hotel distribution strategies also now address sustainability values held by modern travelers. Initiatives include:
- Partnerships with eco-conscious rideshare services, tour providers, and attraction vendors
- Promotion of location walkability, public transit access, and on-site electric vehicle charging
- Messaging on internal sustainability practices like water and energy conservation, waste reduction, and community engagement
Who are the actors of distribution strategy?
There can be many actors within a hotel distribution strategy. These include your hotel website for direct bookings, global distribution systems, and online travel agents and metasearch. The size of the distribution channel and number of actors involved can vary with the type of strategy.
Hotel distribution helps you create a method for selling hotel rooms, which you determine by analyzing costs of each distribution channel for selling hotel rooms. Finding the right distribution channels and choosing the most cost-effective ones at high-demand times will help you determine when to sell rooms and through which channels to improve profits. Nonetheless, cost is not the only factor. You may also consider the type of hotel, your customer base and where your base tends to book hotel rooms.
The innovator's edge in kospitality distribution
True innovation combines digital capabilities with human insight. As omnichannel models evolve, hospitality leaders should remain fixated on understanding customer needs and desires to provide meaningful value.
Those who leverage technology to forge emotional connections, deliver personalization, and ignite passion for their brands will surely thrive in the years ahead.
Future success goes to bold organizations that reimagine distribution with the guest at the center.
Stay ahead of the curve
Distribution channels and technologies will continue advancing exponentially in the coming years. Companies must actively track emergent innovations while doubling down on digital capabilities and sustainable practices customers increasingly demand.
To stay ahead of the curve, ask yourself these key questions:
- How can technology be intelligently integrated across channels to enable seamless guest experiences?
- Where are potential friction points in getting offerings to patrons in hospitality settings?
- How can partnerships enhance market exposure and order fulfillment speed?
- What smart logistic adjustments ensure reliable, environmentally sound delivery?
- How might virtual and augmented reality enhance guest connections in their journey?
When you start to answer these questions in relation to your hospitality business you will uncover some opportunities to get ahead of the curve by enhancing your distribution strategy and increasing your revenue.