Top 5 Common Distribution Strategy Mistakes to Avoid
Selecting the right place to sell your products is crucial for a successful growth strategy. However, selecting the right mix of product, channel and market is no easy task. Working with fast moving consumer goods (FMCG) organisations around the world, we often find that those responsible for understanding channel trends and setting distribution strategies face the same challenges, resulting in common mistakes. Euromonitor International highlights the common top 5 pitfalls we see businesses encounter below:
1. Don’t assume e-commerce is the way forward across the board
Yes, e-commerce is a growing channel in many countries, across many industries. Is it the right opportunity in every situation? Not necessarily. Slow growth in drivers like smartphone adoption or roadway infrastructure development can stunt growth in certain markets. And even in those with high internet retailing growth, there needs to be careful consideration of questions such as:
- Is e-commerce growing at the expense of other channels important to my sales?
- Is it the right approach for every category?
- What are the growth drivers impacting the channel and what can I do to leverage them/safeguard against changes in them?
2. Don’t assume what has happened in the past will happen in the future
Making assumptions based on past trends is a common mistake we see when companies look to forecast channels for its business. The issue with this approach is that you’re assuming the cause and effect between variables will remain unchanged and that current conditions may remain static moving forward. There are multiple variables to consider when developing a forecast model and rarely is the relationship between them static. This approach also ignores qualitative outliers that may shape forecasts, e.g. illicit trade, currency fluctuation and increased broadband coverage.
3. Don’t assume your sources and partners give you the full retailing and macro-economic picture
Clients often tell us they forecast channel performance using a combination of three things: internal sales figures, what local sales teams/distributors are telling them and syndicated panel data. While these may help provide some directional insight, it’s important to ask:
- How do we ensure we’re looking at the entire competitive and distribution landscape?
- How can we pressure test what we’re hearing from partners/teams that may have vested interests?
- How do we account for differences in definition/coverage/methodology across syndicated sources to ensure sources are standardised
4. Don’t forget to use channel trends to inform other areas of the business, like product development
Once you do have solid channel forecasts, what else are you doing with them? Many organisations use these solely to inform downstream distribution, but what about upstream development? If your channel forecast model tells you that convenience stores are the right choice for growth, and that a key driver in this growth is the possession of cars, shouldn’t this be used to help inform the product and packaging development to increase your chances of success? Or say m-commerce is your best bet for growth – would developing an app to interact directly with consumers help shorten that path to purchase?
5. Don’t approach your board with an overly simple/complex strategy
If you present senior directors with a strategic distribution plan built using too simple an approach (see #2), this may not provide them with the confidence to move forward.
On the flip-side, if you attempt to triangulate sources and present a complex dataset combining market size, channel and economic driver forecasts, this may fall flat as well. Your goal is to have a clear strategy that is developed using an evidence-based approach – the best way to do this with visual tools that take sophisticated model outputs and paints a simple picture of what will happen, where and why.
Many people assume that a sophisticated channel forecast model requires working with a management consulting firm and/or spending their entire budget, but that’s not true.
Euromonitor Consulting partners with clients around the world and across industries to help them anticipate changes in category sales by retail channel, identify associated growth drivers and work out the future size of prize in channels. We can provide the tools to strengthen your distribution strategy. Contact us today to see how we can help.