Chapter Eleven

Introduction to Distribution

Distribution is king. If you can’t see, hear, smell or touch your product, it doesn’t exist.
In this chapter, we will address customer access and distribution of your product or service. The fourth P, the place where you sell your product and it distribution to that place. One of the sections of your marketing plan should describe how your company intends to distribute the products to the final customers. The various distribution channels differ in costs, customer relationships, complexity and the resources required to operate the channel. You have to make sure the distribution channels you select match and reinforce the goals and objectives of your marketing plan. The best promotion or marketing, however, won’t get the product bought if it is being sold or distributed in the wrong place. For example, a company that makes snow skis that has its flagship store in St Thomas probably won’t move many products because the demand isn’t there. The distribution channel should be matched against its buyers.
Getting your product in front of customers requires relationships with wholesalers and retailers, not to mention significant investments in logistics. Indeed, the companies who controlled distribution were/are often the most profitable of all. To understand how these relationships have been altered read Ben Thompson's article on Selling Feelings.
If distribution is not a term that makes you think high technology, then you need to watch this video.

 

Amazon provides distribution in a wholesaler role and as a marketplace for small merchants. Amazon takes a commission for every marketplace sale—a 6% cut for personal computers, for instance, to as high as 15% for mobile phones and musical instruments—and charges larger sellers a monthly membership fee. They offer direct–to–buyer sales, used books, and rentals. Their website provides product search capabilities.
In 1999 college student Shawn Fanning invented Napster, a computer application that allowed users to swap music over the Internet. In 2001 Napster was dealt a potentially fatal blow when the 9th US Circuit Court of Appeals in San Francisco ruled that the company was violating copyright laws and orders it to stop distributing copyrighted music. This direct channel of distribution is the shortest and purest form of distribution channel; it has become increasingly common since the advent of the Internet. Napster exposed the possibilities of those who have a product dealing directly with those who want a product.
In 2003, Apple launched the iTunes Music Store, a revolutionary online music store that lets customers quickly find, purchase and download the music they want for just 99 cents per song, without subscription fees. The iTunes Music Store offered groundbreaking personal use rights, including burning songs onto an unlimited number of CDs for personal use, listening to songs on an unlimited number of iPods, playing songs on up to three Macintosh computers, and using songs in any application on the Mac. Apple now sells through their Apple retail stores, Apple.com website, and the iTunes store. Music, apps, books, magazines, newspapers and software are sold and delivered by download from Apple servers. Payment is managed by iTunes.
Distribution can provide increasing returns to scale. Large brands like Coca-Cola, distributed by every single outlet in the state of Michigan, might get a disproportionate return to market share just because they are everywhere. Distribution decisions can be long-lived and difficult to modify. If you build a physical distribution channel it's going to cost you some money and you really have to be sure about the return you can get.
Distribution opportunities are often overlooked, there can be tremendous value unlocked in terms of new business ideas, new services, and new products. Think about the ways that you can change the nature of a distribution channel by taking a hard good and turning it into a virtual good. The news delivery business, paper delivered to your drive-way or mailbox, has undergone major changes to the delivery of their product. Craigslist decimated the “want ads” section. Newspapers and magazines are struggling to develop a new distribution method for the news that will accommodate advertising.
The movie and television industry is also undergoing distribution changes. When a movie can only be watched in a theater, that's a very different distribution channel than being able to stream a movie onto a mobile phone. So, anytime a good is a hard good and can be changed into a virtual good through an innovation in distribution it can really change the nature of markets.
Netflix has become the leading supplier of movies online. The Movie distribution business has evolved from theater viewing to 8 track tapes and DVD's distributed by Blockbuster to streaming movies. Theater viewing has survived by providing an exhilarating experience on a large screen with surround sound.
Adobe Software, the supplier of software applications used in graphic design, converted to a subscription payment strategy. Their software is located on Adobe's cloud and users pay a monthly amount. For this service, Adobe provides leading-edge software updated regularly with new features. They have eliminated the need to burn their software to disk, package it, and display it on retail shelves.
Example image of Moo's cards
Moo.com helps their customer's design Business Cards, Luxe by MOO Tailored Collection, Letterpress Business Cards, Limited Edition Greeting Cards, MiniCards, Flyers, Postcards, Notecards, Gift Cards, Stickers, Letterheads, and Accessories. The customer designs his or her item on the Moo.com site. They also offer the customer “Order any Business Cards (excluding Super and Square) before 2 PM EST, and you can have them on your doorstep the very next day.”
product flow from producer to customer
So here are the five things that have to happen. So first of all, the physical product has to move from the supplier all the way down to the end user. Secondly, sometimes there's a flow of title of ownership. And there's a flow of payment. Somehow the end user has to send the payment to the supplier. And then, of course, there is information and promotional flows as well. In the channel of distribution, there are players who are responsible for the flow of both goods and information.
Product flow from your bathroom to Amazon to you Limited Time Offer: Get Dash Button for $4.99 and receive $4.99 off your first purchase using Dash Button Limited release for Prime members - while supplies last. Just press and never run out! (a Prime membership is $99 a year)

 

One of the key enablers to some of the advances in distribution methods are new payment methods. For the dash process, Amazon handles the receipt of payment. The press of the button and Amazon transfers the payment request to your bank. You get an order notification email prior to the item shipping where you can see the price and still have a chance to cancel the order.
The square card reader is the perfect tool for the small business. Square card reader
The same thing also applies to services. Think about the process whereby in the old days you might want to book a hotel if you were going to New York City for a vacation. You might have to call a travel agency or even go to the hotel website and find out if the product is available or call somebody. Now, of course, that's been disrupted by apps; such as Airbnb. You can just go onto an app, you can see all of the available homes or rooms in New York City, where you can stay for one night, at whatever the rate is for a single night, and you book directly on your mobile phone.
Airbnb sites in St Croix
One of the new uses of apps on mobile devices is to connect users with suppliers. Similar to the idea introduced by Napster, both Uber, and Airbnb seamlessly connect users with suppliers. One provides transportation and the other provides a nights lodging. Both of these services provide both the user and supplier with the opportunity to rate their experience. The enabler has been the ability to provide the distribution of knowledge, what is available now and in the future, and ease of payments.
Squarespace merchants upon sign-up with Stripe get instant approval and they immediately are able to accept payments from all major credit cards and have the money deposited directly into their bank account. Stripe charges a low rate of 2.9% + 30¢ per successful transaction. Squarespace Commerce imposes no additional transaction fees. Merchants Create tax and shipping charges that apply at checkout. They can make flexible coupons that can be redeemed for all orders, orders that meet a certain minimum, or specific products. Using Squarespace and Stripe analytics to gain insights that help you grow your business. Track revenue, orders, conversion rate, and more from a single dashboard and learn which traffic sources and products drive the most sales to your online store. Take a tour here: Squarespace Store A painless method to get started selling online.
Distribution used to be the hardest thing to get right. It was one of the ingredients that differentiated the product. But now that distribution is free or almost free, the time and money saved must instead be invested in getting even closer to customers and more finely attuned to exactly why they are spending their money on you.
For a look into the future of distribution and logistics, I recommend this article by Nicolas Debock published on Medium: Transportation-and-Logistics-the-next-Platform
For a look at using blockchain to aid the harvest and payment for coffee read this interesting article on best360. bext360