In the highly competitive consumer packaged goods (CPG) industry, it’s not enough to simply deliver products to customers—companies must do so in the most efficient and effective way possible to achieve repeat business. The key to achieving this lies in the implementation of a well-crafted distribution strategy that aligns with a company’s overall business objectives. 

A distribution strategy involves determining the most appropriate distribution channels, partners, and processes for reaching customers, as well as setting objectives and targets that are consistent with the broader business strategy. 

A distribution strategy also requires a deep understanding of the target market, identifying the best channels to reach customers – such as direct, indirect, or hybrid channels, developing strategies for each channel, evaluating and selecting distribution partners, and implementing and executing the distribution plan.

Distribution Channels: Direct, Indirect, and Hybrid 

Distribution channels within CPG can be broadly classified into three types: direct, indirect, and hybrid channels. Direct channels involve the manufacturer selling products directly to consumers through their own retail stores or e-commerce platforms. Indirect channels involve intermediaries such as wholesalers, distributors, and retailers, who purchase products from manufacturers and sell them to consumers. Hybrid channels involve a combination of both direct and indirect channels.

Factors that influence the choice of distribution channels include product type, target market, competition, and the manufacturer’s resources and capabilities. Each distribution channel has its own advantages and disadvantages. For example, direct channels offer greater control over the sales process and customer experience, while indirect channels provide wider distribution and reach.

What Makes Up a Distribution Strategy?

Several factors make up a CPG distribution strategy, some of the most common being:

• Product type: The type of CPG product being sold can determine the most effective distribution channels to use
• Target market: Understanding the target market’s preferences, behaviors, and purchasing habits can help determine the best distribution channels to use
• Competition: Analyzing the competition and its distribution strategies can help determine the optimal distribution channels to use and how to differentiate from them
• Channel mix: Determining the optimal mix of direct and indirect channels to reach customers can help ensure efficient and effective distribution
• Partner selection: Selecting the right distribution partners, such as wholesalers, distributors, and retailers, is crucial for ensuring that products are distributed to customers effectively
• Performance metrics: Setting key performance metrics, such as sales volume, revenue, and customer satisfaction, and regularly measuring and analyzing performance is important for optimizing distribution strategies

Creating an Effective Distribution Strategy in CPG

To create an effective distribution strategy, CPG companies need to focus on 5 key areas:

1. Identify target consumers – understand their needs, preferences, and behaviors. 
2. Define the product assortment – determine which products are suitable for each channel based on factors such as customer demand, market trends, and competition.
3. Develop distribution objectives and goals– should focus on metrics such as sales growth, market share, and customer satisfaction.
4. Build distribution strategies for each channel–  develop unique strategies for each channel to maximize product exposure, availability, and sales.
5. Evaluate and select distribution partners – assess their capabilities, reputation, and compatibility with the company’s values and goals

Now it’s time to implement and execute on the well-defined distribution strategy. It’s only when CPG companies have a comprehensive understanding of their distribution channels that they can increase their sales, improve customer satisfaction, and enhance their overall business performance.

Additionally, they should also regularly measure and optimize their distribution performance, both internally and externally, to ensure that their products reach their intended customers.

Measuring and Optimizing Distribution Performance

Measuring distribution performance is crucial for identifying areas of improvement and optimizing distribution strategies. 

Key metrics for measuring distribution performance include sales volume, revenue, distribution reach, customer satisfaction, and inventory management. Analyzing performance metrics involves identifying trends, strengths, and weaknesses, and using this information to improve distribution strategies. Optimizing distribution strategies involves making adjustments to the distribution mix, partner selection, and execution processes based on performance metrics.

Examples of successful distribution strategies in CPG include companies such as Procter & Gamble, Unilever, and Nestle, which have adopted a hybrid distribution model that includes both direct and indirect channels. They have also invested in technology and logistics to optimize their distribution processes and ensure that products are delivered to customers quickly and efficiently.

Some CPGs have experienced unsuccessful distribution strategies based on various factors. These factors may include a lack of knowledge about their target customers, the selection of unsuitable distribution channels, or inadequate evaluations when choosing distribution partners. One example of this is Kodak, which failed to adjust to digital technology and relied too heavily on traditional distribution channels. As a result, Kodak’s market share decreased over time.

The Bedrock Solution 

A well-executed distribution strategy is crucial for achieving success in the CPG world. To achieve this, CPG companies need detailed insight into their distribution channels. They should also regularly measure and optimize their distribution performance. This involves regularly evaluating their distribution channels and analyzing sales data to identify areas for improvement. By doing so, CPG companies can refine their distribution strategies and make necessary adjustments to maximize their product’s availability, visibility, and sales. 

As the industry continues to evolve, CPG companies must stay on top of emerging trends and technologies to remain competitive and meet the changing needs of their customers.

Bedrock Analytics helps CPG brands build a strong distribution strategy by providing them with insights and data-driven recommendations based on syndicated data and retail data. 

By harmonizing disparate data sources, Bedrock converts CPG sales data into dynamic selling stories that sales and marketing managers can utilize to enhance their retail sales performance. The insights gained from these stories can help CPG companies sell more of their products to retailers, ensure that their products remain on retail shelves, and optimize their product categories to meet customer demand. 

Bedrock’s platform utilizes AI and machine learning to equip CPGs with data-driven insights to make faster and smarter decisions about which distribution channels to target. Book a demo today to see how.