BUSINESS NEWS

JENS BERGERMANN

In distribution policy, a part of the marketing mix, it’s all about how your product moves from the production facility to the hands of the consumer. While product policy focuses on creating an attractive and functional product, and pricing policy sets the optimal price, distribution policy resembles a sophisticated logistics network that bridges the gap between supply and demand.

What is distribution policy? The main task of distribution policy is to select and manage the appropriate distribution channels so that products are available at the right time, in the right place, and in the desired quantity. This involves deciding whether to distribute directly through own sales points or indirectly through intermediaries, as well as optimizing logistics and inventory management to ensure the smooth and cost-efficient flow of goods. One of the most difficult challenges in distribution policy is finding the balance between costs and service quality. Companies must ensure that they distribute their products efficiently without driving up costs or compromising service quality.

Read on to learn more about the specific challenges in Switzerland that you need to overcome to establish a successful distribution strategy in the Swiss market.

What Are the Goals of Distribution Policy?

Distribution policy has several main goals to support a company’s success:

• Increase sales: Adjusting distribution so that products reach the target audience in a timely manner and in sufficient quantity.

• Reduce costs: Optimizing distribution processes and choosing the right channels to minimize distribution costs.

• Increase reach: Expanding geographic and demographic presence to capture a larger market share and reach more potential customers.

Other important goals of distribution policy include:

• Ensuring efficient product availability in the market

• Optimizing inventory and logistics processes

• Ensuring high service quality for customers

• Minimizing distribution costs

• Building and maintaining an effective network of distribution partners

The goals of distribution policy are closely linked to the overall strategy of the company. This means that the selection of distribution channels and the design of the distribution policy aim to support the company’s overarching objectives.

A well-thought-out distribution strategy is crucial to succeeding in demanding markets like Switzerland, where high logistics costs and complex market conditions pose additional challenges. It helps mitigate risks and maximizes opportunities for business success.

What are the tasks of distribution policy?

The tasks of distribution policy include, among others:

• Selection of distribution channels: Identifying and deciding on the optimal ways for products to reach the end customer.

• Designing logistics processes: Planning and optimizing storage, transport, and inventory management to ensure efficient product deliveries.

• Managing sales territories: Defining the geographic areas in which the company operates and organizing sales activities in these regions.

By optimizing distribution and logistics processes, unnecessary expenses can be minimized, making an effective distribution policy a key contributor to your company’s cost reduction. This includes reducing storage costs through better inventory management, consolidating deliveries to cut transport costs, and selecting cost-efficient distribution channels. Such cost control measures significantly improve the profitability of your company.

Distribution policy also significantly contributes to customer satisfaction. Reliable and timely deliveries meet customer needs, which is particularly crucial in an era of next-day delivery.

Why is distribution policy crucial for business success?

A well-thought-out distribution policy is critical to your company's success as it optimizes operations, increases cost efficiency, and maximizes customer satisfaction. By selecting the best distribution channels, your company can increase its reach and develop effective sales strategies. Mistakes in this area lead to high distribution costs, poor market presence, and dissatisfied customers, which negatively impact sales and profitability. A strong distribution network and efficient logistics ensure product availability, positive customer perception, and long-term customer loyalty. Therefore, a good distribution policy allows you to respond quickly to market changes and improve your customers’ overall experience.

How to Plan and Implement an Effective Distribution Policy?

The planning and implementation of a successful distribution policy involve several steps:

• Market condition analysis: A thorough market analysis is conducted to understand the target audience and market conditions. This includes identifying potential customers, their purchasing behavior, geographic location, the competitive landscape, and existing distribution channels.

• Setting distribution goals: Your company defines clear goals for the distribution policy, such as achieving a certain market coverage, maximizing customer proximity, or improving supply chain efficiency.

• Choosing distribution channels: Based on the market analysis and established goals, you choose the appropriate distribution channels. These may include direct channels like company-owned stores or online sales platforms, or indirect channels like retail stores, wholesalers, or distributors.

• Defining distribution strategies: Specific strategies are developed to effectively distribute products or services through the chosen channels. This includes determining pricing structures, discounts, inventory policies, transport and logistics solutions, and collaborating with supply chain partners.

• Implementing the distribution policy: Once strategies are defined, the distribution policy is put into practice. This involves setting up distribution structures, training sales personnel, and introducing systems to monitor and control distribution.

• Monitoring and control: The implementation of the distribution policy is regularly monitored and controlled to ensure that goals are met and adjustments can be made if necessary. This may involve analyzing sales data, customer feedback, and performance metrics of distribution channels.

If your company is looking to enter the Swiss market, be sure to consider the specific conditions, as Switzerland is not part of the European Union. A distribution partner can offer valuable support if you lack detailed knowledge of Swiss and EU regulations. SURS is a distribution partner for Switzerland and provides comprehensive expertise and support to strengthen your presence in the Swiss market.

How is distribution policy implemented?

The implementation of distribution policy involves several steps. First, based on the market analysis, goals are set such as gaining market share, increasing sales, or expanding market coverage. The choice of distribution channels is based on these goals and insights from the market analysis.

You can choose between direct and indirect sales channels: Direct sales occur through company-owned stores, e-commerce platforms, or catalog sales. Indirect channels use retailers, wholesalers, distributors, or agents who handle sales to end customers. The decision depends on product type, target market, cost structure, control needs, and competitive environment.

After selecting the distribution channels, contract negotiations and setting up distribution structures follow. Here, you set terms such as pricing, delivery conditions, marketing support, and sales targets, train your partners about your products, company policies, and sales strategies, and implement technological systems like order and inventory management or reporting tools.

After implementation, monitoring and continuous adjustments to your distribution strategy begin. Performance metrics like sales, inventory management, customer satisfaction, and market share are monitored to evaluate success and make adjustments as needed to address challenges and maximize efficiency.

For logistical challenges during the implementation of the distribution policy, the following strategic measures can help effectively manage them:

1. Efficient supply chain planning: Selection of suitable, reliable logistics providers and suppliers, optimizing storage locations, and setting efficient transport routes to avoid capacity bottlenecks or seasonal fluctuations.

2. Optimization of transport and storage: Choosing efficient modes of transport, route optimization, using multi-modal transport solutions, and implementing just-in-time deliveries, cross-docking, and optimized storage space utilization to reduce costs, shorten delivery times, and improve availability.

3. Use of technology: Integrating advanced technologies like inventory management software, transport management systems, and ERP systems for more precise planning and control of logistics processes.

How to Choose the Right Distribution Channels?

Choosing the right distribution channels for a company's distribution strategy depends on several factors, including:

1. Product Characteristics

• Type of Product: Determines whether the product should be sold through direct or indirect distribution channels. For example, complex technical products are better suited for direct sales with supporting consultations.

• Product Complexity: The more complex the product, the more important personal consultation or training through direct channels may be.

• Standardization: Standardized products can often be more efficiently sold through indirect distribution channels, while customized solutions may require a direct sales approach.

2. Target Audience

• Customer Type: Certain customer groups prefer online stores, while business customers often prefer direct contact or specialized dealers.

• Geographic Location of Customers: International markets may require specialized distributors or exporters.

3. Competitive Environment

• Competitive Strategy: The positioning within the competitive environment can determine whether a company adopts an aggressive direct sales approach or relies on a network of distributors and retailers.

• Competitor Availability and Performance: Observing competitors' distribution channels and practices can help decide which channels are best suited to gain a competitive edge.

What are direct and indirect sales channels?

Direct and indirect sales channels are two fundamental approaches for marketing and selling products or services. The choice between direct and indirect sales channels depends on the specific characteristics of the product, target audiences, the company's financial resources, and strategic goals. Often, a combination of both approaches is used to maximize the advantages of both models and minimize the disadvantages.

Direct sales channels refer to selling products or services directly to end customers without intermediaries or brokers. Indirect sales channels use intermediaries, retailers, distributors, or other agents to sell products to end customers. Here are some advantages and disadvantages:

Comparison of direct vs. indirect sales channels:

What types of distribution systems exist?

Distribution systems encompass different methods of marketing and selling products or services to end consumers. Here are the most common types of distribution systems, their advantages and disadvantages, and the optimal scenarios for their use:

1. Direct Sales

In direct sales, the company sells its products directly to end customers without intermediaries or retailers.

Advantages:

• High control: The company has direct control over the sales process, brand presentation, and customer service.

• Direct customer feedback: Direct interactions provide valuable feedback for product improvement and customer satisfaction.

• Higher margins: The elimination of intermediary margins can lead to higher profit margins.

Disadvantages:

• Higher costs: Direct sales often require higher investments in sales staff, stores, warehousing, and logistics.

• Limited reach: The company must build a nationwide market presence, which requires time and resources.

Optimal for: Companies with unique or complex products that require intensive customer service, as well as those who want to retain full control over their market presence.

2. Wholesale

Wholesalers buy products in large quantities from manufacturers and then sell them to retailers or other bulk buyers.

Advantages:

• Economies of scale: Wholesalers can buy products in bulk and use economies of scale to offer better prices.

• Market coverage: They allow manufacturers to quickly and efficiently distribute products to a wide range of retailers.

Disadvantages:

• Less Control: Manufacturers have less control over the sales process and the presentation of their brand.

• Margins: Manufacturers must share part of their profit margin with the wholesaler.

Best for: Manufacturers seeking broad market coverage and economies of scale without having to manage retail relationships directly.

3. Retail

Retailers purchase products from wholesalers or directly from manufacturers and then sell them to end consumers.

Advantages:

• Close to the End Customer: Retailers have direct access to end consumers and can better understand their specific needs.

• Customer Experience: They provide a physical store experience and personalized customer service.

Disadvantages:

• Dependence on Suppliers: Retailers rely on product availability and delivery times from their suppliers.

• Competition: Intense competition with other retailers.

Best for: Businesses aiming for a strong retail presence and direct contact with end consumers.

4. Multichannel Systems

Multichannel systems combine various sales channels, such as direct sales, wholesale, and retail, to achieve broader market presence.

Advantages:

• Maximizing Market Presence: Using multiple channels allows companies to target different customer groups more effectively.

• Risk Diversification: Reduces the risk associated with depending on a single sales channel.

Disadvantages:

• Complexity: Managing multiple channels requires careful coordination and resource allocation.

• Cost: It may lead to higher costs for sales, warehousing, and logistics.

Best for: Companies with a wide product range and the ability to serve different market segments effectively, as well as companies seeking to maximize their market coverage.

How to design distribution channels efficiently?

To efficiently design your distribution channels, you should analyze the following questions:

1. Who are our target customers, and what are their needs?

2. What is our customers' purchasing behavior?

3. Which geographic markets do we want to serve?

4. What are our competitors doing?

5. What resources do we have available?

6. How important is direct customer interaction to us?

7. What legal and regulatory aspects must be considered?

To maximize efficiency and profitability, distribution channels should be continuously monitored and adjusted. Key aspects include:

• Performance measurement through clear KPIs such as revenue growth, customer satisfaction, and cost-efficiency ratios

• Regular analysis of KPIs to identify trends and issues

• Customer feedback and market research to adjust to changing customer needs

• Competitive analysis to identify best practices

• Use of technologies such as CRM systems and analytics platforms for real-time monitoring and analysis

What Factors Influence the Choice of Distribution Channels?

The choice of distribution channels depends on product features such as shelf life and standardization. Perishable products require fast delivery via retail or specialized delivery services, while standardized products can be efficiently sold through mass distribution channels like large retail chains or online stores. Customized products often require specialized distribution channels. For example, fresh food is distributed through supermarkets, and electronics are sold through online stores. High-end products like watches are best sold through exclusive watch shops and online stores to maintain the brand image.

Factors influencing the choice of distribution channels:

1. Product features

2. Customer segments and needs

3. Competitive environment

4. Cost and profitability of distribution channels

What market and customer factors play a role?

Market and customer factors play a critical role in the choice of distribution channels. The specific market requirements, such as fast delivery in the food industry or seasonal strategies in fashion, determine the distribution methods. Customer preferences, like the growing preference for online shopping or personalized advice, also influence the choice between e-commerce, retail, or direct sales. Properly adjusting these factors ultimately maximizes the efficiency and profitability of your distribution strategy.

How Is the Distribution Policy Linked to the Marketing Policy?

The distribution strategy determines how products reach customers, supports the achievement of marketing goals through improved market presence, customer satisfaction, and increased sales. By effectively aligning both areas of policy, your company can gain competitive advantages, strengthen brand positioning, and maximize the overall efficiency of your business operations.

How does the distribution policy contribute to market penetration?

The distribution policy contributes to market penetration by opening new markets and maximizing the reach of products or services. This is achieved by selecting appropriate distribution channels to reach new geographic regions or customer segments. A wide range of distribution channels, such as retail, wholesale, direct sales, or e-commerce, enables your company to target different customer groups and position products in various market segments. Efficient distribution channels improve market supply and make it easier to access target customers, leading to higher sales and market share growth.

What Modern Distribution Strategies Are Important Today?

Modern distribution strategies are essential today to meet changing customer needs and technological developments:

1. Importance of Online Presence: In modern distribution strategies, online presence plays a central role. Companies use e-commerce platforms to sell products directly to end customers. A strong online presence improves accessibility, enables global market opportunities, and provides customers with a convenient shopping experience around the clock.

2. Complementing or Replacing Traditional Channels with E-Commerce: E-commerce complements traditional distribution channels like physical retail stores by creating additional sales channels and increasing reach. It can also partially replace traditional channels, especially in areas where customers increasingly prefer online shopping, such as electronics, clothing, or books.

3. Integration of Online and Offline Strategies: Many companies follow an omnichannel strategy that seamlessly integrates both online and offline channels. Customers can research and buy products online, but also have the option to pick them up in-store or vice versa.

4. Personalization and Customer Experience: E-commerce allows your business to implement personalized marketing strategies and respond to customers' individual purchasing behavior. This helps increase customer satisfaction and loyalty.

Overall, e-commerce is revolutionizing the way products reach end consumers by improving flexibility, reach, and efficiency. If your business wants to succeed in modern distribution strategies, you must strategically expand your online presence and actively drive the integration of online and offline sales channels.

How Is Digital Technology Changing Distribution Strategies?

Digital technologies such as artificial intelligence (AI) and data analytics have fundamentally changed distribution strategies. They improve efficiency through precise inventory management and stock control. AI enables personalized customer engagement and tailored offers, which strengthens customer loyalty. Real-time tracking and IoT-based sensors improve transparency along the supply chain. By analyzing sales data, companies optimize their distribution channels and respond faster to market changes. These technologies are crucial for your business to remain competitive and provide an outstanding customer experience.

How Is the Success of Distribution Strategies Measured?

The success of distribution strategies is measured by several key metrics:

• Sales Volume: This is a fundamental metric that indicates how much of a product was sold within a specific period. An increase in sales volume shows that the distribution strategies are effective and successfully meet customer demand.

• Customer Satisfaction: This is often measured through surveys, customer feedback, and reviews. High customer satisfaction indicates that customers are happy with the product offering, availability, and delivery, signaling a well-functioning distribution strategy.

• Revenue and Profit: The revenue and profit generated by distribution channels are also important metrics. Rising revenue and profit suggest that the distribution strategies are profitable and contributing to business success.

These three metrics help your business measure the efficiency of distribution channels, as well as assess and continuously optimize the performance of your distribution strategies:

1. Cost-Efficiency Ratio: Shows the efficiency of resource utilization

2. Processing Times: Measures the speed of order fulfillment

3. Inventory Management: Includes optimizing stock levels for minimal cost and maximum availability

What Challenges and Opportunities Exist in Distribution Strategies?

In distribution strategies, your company faces various challenges, including:

• Global Supply Chain Issues: Disruptions such as shortages of raw materials, transportation problems, and trade restrictions can lead to delays and cost increases.

• Competitive Pressure: Intense competition from global rivals offering efficient distribution networks and low prices forces companies to improve efficiency and differentiate themselves.

• Rapid Technological Change: The need to keep up with new technologies (e.g., e-commerce platforms, digital marketing) presents a constant challenge.

To address challenges in distribution policy, your company must diversify its supply chains and identify alternative suppliers to avoid shortages of raw materials and transportation issues. Efficiency improvements through automation and process optimization can help manage the competitive pressure from global rivals who offer efficient distribution networks and low prices. Additionally, it is important to continuously invest in employee training and adaptation to technological change to stay on top of new technologies like e-commerce platforms and digital marketing, securing competitive advantages.

For retailers outside of Switzerland, there are several challenges when exporting to the Swiss market and vice versa:

1. Customs and Trade Agreements: Although Switzerland is not an EU member, it is part of the European Economic Area (EEA). Therefore, companies outside Switzerland must comply with customs duties and import restrictions, particularly if they are not benefiting from trade agreements like the Switzerland-EU Free Trade Agreement.

2. Taxes and VAT: Switzerland has specific VAT that foreign companies must consider when importing goods into Switzerland. Retailers outside Switzerland need to familiarize themselves with local tax regulations and may need to appoint a tax representative in Switzerland.

3. Logistics and Warehousing: Efficient warehousing and logistics are crucial for optimizing delivery times and costs. Due to Switzerland's geographic location, logistical challenges may arise that make timely and cost-efficient delivery more difficult.

4. Regulatory Requirements: Retailers must comply with local regulations and standards for products, packaging, and labeling to obtain approval for the Swiss market. This often requires additional investments in adapting products to local requirements.

To overcome these challenges, it is advisable for companies outside Switzerland to form strategic partnerships with local distributors or logistics companies. Careful planning and preparation, including compliance with customs and tax regulations, is critical to ensuring smooth operations and successfully leveraging market opportunities in Switzerland. This way, the sales and distribution on Swiss marketplaces can be expanded into a successful business.

What Opportunities Does Modern Distribution Policy Offer?

In modern distribution policy, numerous opportunities open up for your company:

1. Accessing New Markets: Through globalization, your company can expand its reach to new geographic markets. This allows you to tap into new customer segments and increase sales potential.

2. Utilizing Innovative Sales Channels: Digital technologies like e-commerce and mobile platforms provide innovative sales avenues. You can sell your products directly through online stores or use platforms to expand your presence without opening physical retail stores.

3. Efficient Logistics and Delivery: Advances in logistics technology enable faster and more cost-efficient deliveries. This improves the customer experience and strengthens competitiveness.

4. Personalized Customer Engagement: By using data analytics and AI, your company can develop personalized marketing strategies and targeted offers to strengthen customer loyalty and increase satisfaction.

5. Agility and Flexibility: Modern distribution strategies allow for quick adaptation to changing market conditions and business model adjustments. This enables faster market introduction of new products and services.

Conclusion on Distribution Policy

Distribution policy is crucial for success in the global market. Through efficient logistics, the use of digital technologies, and adaptation to local challenges like customs duties and taxes, your company can access new markets and strengthen its competitive position. Innovativeness in choosing distribution channels and the ability to adapt quickly are key to sustainable success and customer satisfaction.

FAQs

How does direct sales differ from indirect sales?

Direct sales occur directly from the company to the end customer, without intermediaries. In contrast, indirect sales involve distribution partners such as retailers or distributors to sell products.

What are the main goals of distribution policy?

The main goals of distribution policy are to optimize product availability, minimize distribution costs, and maximize market coverage for efficient and successful product distribution.

What criteria are crucial when choosing distribution channels?

When choosing distribution channels, factors such as market demand, target audience preferences, the type and complexity of the product, geographic reach, cost structure, and legal and logistical requirements need to be considered.

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