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Factors affecting Distribution Strategy with examples of Nike and Tesla

 

Sales or marketing strategy’s objective is the development of effectual distribution strategies. Lots of factors govern the development of a distribution strategy. Factors must be taken into consideration while formulating a suitable distribution strategy

1. Locational Demand

It is the distribution of demand in several geographical locations or areas. The magnitude or nature of a distribution network is heavily influenced by the dispersion of demand.

Demand patterns vary from place to place every once in a while. Whereas some locations might showcase a high demand for a product, other locations might showcase a lower demand for the same. The distribution network has to continuously adapt to the changing demand patterns.

Example: Speedily changing markets need more efficient and frequent distribution systems to be developed. But in locations where the brand is diminishing, logistics may be retracted.

2. Product Characteristics

Product Characteristics

This refers to the product’s characteristics like volume, value, weight, type, etc. The cost and the planning of the distribution network are affected by the product characteristics. Some consumer products and most industrial products are high-volume, heavyweight items.

Stocks of such products are replenished less frequently. FMCG products are lightweight, small, and require frequent replenishment due to their high turnover rates.

FMCG products are sold more frequently as compared to consumer durables. Hence, FMCG and industrial products have different distribution strategies.

3. Pricing Policy

The profit or cost element in a product is it’s pricing policy. Frequent replenishment of stock is not required if the company acquires a good margin through its premium pricing policies.

Pricing Policy

Hence distribution and logistics must be worked out on the basis of the product type. In this strategy, the logistics cost of distribution is passed on to the buyers.

4. Speed and Efficiency

Speed and Efficiency

The speed of replenishment or delivery, accuracy, and order filling speed is referred to as speed and efficiency. These indicate customer service classifications that relate to serving the consumer’s needs at the right time and place.

Levels of customer service include warehousing, inventory of finished goods, and cost of transport. Hence the service speed, cost, and efficiency must be compatible with the resulting customer satisfaction.

5. Distribution Costs

It is a percentage or proportion of sales that form the total cost of distribution. For the marketing department, it is a budgetary factor. Distribution spending requires periodic planning and reviews.

The distribution cost for high-value products like machinery and laptops could be 10% or less. In the case of FMCG products, mainly for food products, 25%-30% may be the distribution cost.

Hence, elements of distribution cost must be examined individually for the costs to be minimum. The areas, as mentioned earlier, are what the company’s distribution strategy depends on. A suitable distribution strategy can only be formulated for a company after taking all the above aspects into consideration.

Example – Tesla

Example – Tesla

Tesla’s approach towards work is different from other traditional automakers. They entirely skip franchises with the help of direct sales. This provides them with better control over the customer’s buying experience.

Tesla continues that they cannot rely on third-party dealerships to adequately explain to their customers the upper hand that their cars have over conventional vehicles with an internal combustion engine. It is because of this approach towards business that Tesla faced many dealership disputes in multiple U.S. states because of the local laws.

It also has its own stores and galleries in 34 other countries. They own all the stores and sell to the customers directly via the internet and also in non-US stores.

Example – Nike

Example – Nike

Nike has discontinued its collaboration with a number of major retail partners in the United States. With the aim to reach customers as much as possible, Nike has been speeding up its direct sales strategy.

Nike announced the Triple Double Strategy (2X), their growth plan, in 2017. The company made a promise to double its “cadence and impact of innovation,” double its speed to market and double its “direct connections” with consumers.

Nike has siphoned sales to its own website and network of stores by reducing the number of retailers selling their products. And this move of directly reaching the customers is a part of this “Consumer Direct Offence”

Direct-to-consumer (DTC) growth accounted for 33% of Nike’s revenue in FY20, up 3% from FY19. So currently Nike has been focusing on online sales (Nike Digital) and on its own shops instead of the wholesale channel.