How to Increase Market Share through Distribution

Welcome to another edition of “The Commercial Champion”

In this article we’ll cover:

• Why distribution strategy and execution matter to increasing sales and growing market share
• Introduce the “Driving Market Share through Distribution” Canvas; a strategic tool to help you strategize and ideate on the key distribution drivers to grow your business in a competitive environment
• How you can use the canvas to map strategic actions and design how to increase sales and market share through distribution

Why Distribution (Seriously) Matters to Increasing Sales and Market Share

In today’s competitive landscape, distribution is not just a logistical concern but a strategic one. Numerous surveys and studies emphasize that executives and commercial leaders identify distribution as a significant driver of sales and market share growth. For example, Ataman, Heerde & Mela, found that distribution has a substantially larger relative effect on brand sales over the long run than advertising (nearly 6x more) and even higher compared to discounting (nearly 13x more). The reason is straightforward: being available, visible and accessible with the right products at the right place, at the right time, in front of the right shoppers, often determines whether a consumer picks your product over a competitor's. The key is ensuring that your product not only exists in the consumer's mind but also within their (digital) arm's reach.

For brands, distribution is more than just getting a product into a store or supercharging digital sales channels; a strategically crafted distribution strategy is a robust mechanism to drive sales and grow share. It's about ensuring that the product is visible, accessible, and available in a way that maximizes its attractiveness to consumers. Doing distribution well actively shapes consumer perception of your brand and strengthens channel partner relationships.

At the same time, scaling distribution effectively allows for economies of scale, allowing you to be more competitive and hence acting further as a barrier to entry for your competitors. A well-diversified distribution channel strategy mitigates risks by reducing dependency on a single distributor, retailer, product, and even target end-consumers. It allows for regular market feedback, opening the path to disruptive product and business model innovation and ensures products to be fresh and available through regular replenishment. Without the right distribution, even the most captivating marketing messages will be ineffective. Through these and many other mechanisms, which we will address in our framework below, distribution directly and indirectly drives sales and market share and is the vehicle that carries your brand into the hearts and minds of consumers.

Identifying Distribution Gaps

An important initial step before we investigate how to increase market share through distribution, is to understand where you stand today and identify the distribution gaps. Here a data-driven approach is key. There are several well-known and often-used agencies (e.g. Nielsen and IRI) who provide data and metrics on distribution.

Leveraging this data, one effective way to depict and pinpoint gaps in your distribution is through a so-called “Concentration Curve” (see figure below); this is a graphical depiction to identify the gap between a company’s actual distribution coverage and the category’s top-performing stores. It allows you to view what percentage of stores are responsible for what percentage of category sales. It shows the “perfect” distribution growth path (green line) in which your products would be present in the highest sales stores, and the “least perfect” growth path (red line), where your products are always in the lowest-grossing stores. Most brands will be somewhere in between. You can calculate the gap more precisely through the “Distribution Effectiveness” measure, which tells you what percentage of the total available opportunities you have seized in a given number of stores your brand is in.

Knowing where you stand on distribution is one thing. Having a good picture of where you want to get to and how you want to get there to increase sales and market share is what we’ll address next.

The “Driving Market Share through Distribution” Canvas

Using the "Driving Market Share through Distribution" Canvas depicted below, companies across the value chain can achieve a stronghold in the market through executing a well-designed Distribution Strategy by:

1. Understanding and mapping where you are on the “Market Share / Distribution Grid” and where you want to get to over the next period – see left-hand side of Canvas
2. Mapping and prioritizing the different strategic actions to increase sales and share through improving distribution by combining what we call Enablers and Optimizers – see right-hand side of Canvas

The Market Share / Distribution Grid: understand where you are and where you want to get to

The basis of the grid on the left-hand side in the canvas is a so-called Velocity Graph (see Ailawadi & Farris (2020) if you want to learn more on this in the references). These graphs come in different variants, with either Sales or Market Share on the vertical axis and some measure of Distribution on the horizontal axis. Beyond the scope of this article to address in detail, but depending on the metrics used, the shape of the curve provides very valuable insights into the category and brand dynamics.

However, for our purposes here, it allows for a conversation on where a brand or product is currently (“Segment Today”) and where you would like to be in a specific timeframe, say 12 months (“Segment Target”). Your brand’s position in the grid will be dependent on many different variables you would have identified when looking into the distribution gaps as well as where in the Product Lifecycle you are (i.e. Introduction, Growth, Maturity, Decline). As an example, if your new brand / product is in the Introduction phase, being located in the segment “Low Distribution, Low Market Share” might need different considerations and strategic actions versus them being in a more mature phase. ?

Once you know where you are and where you’re targeting to be (see for example above), it’s time to plan how to get there. To better strategize and execute an effective distribution strategy and plan, there are what we call “enablers” and “optimizers” to guide businesses. These can be found on the right side of the Canvas and are discussed next.

Activating the “Enablers”

“Enablers” are the tangible resources which businesses have direct control over and can be used to achieve your strategic distribution goals. Think of these as the actionable levers and tools in your arsenal that can be fine-tuned to align with the strategic objectives of the business, adapt to changes in the market, capitalize on new opportunities, or address challenges. Let's delve deeper into these critical levers which can be employed in a distribution strategy:

• Products, Channels, and Markets: central to any distribution strategy, this enabler focuses on what is being offered (products), where it's offered (channels), and to whom (market segments)
• People & Partnerships: well-trained and engaged employees ensure smooth operations and impactful customer interactions. Strategic partnerships then can amplify distribution capabilities, leverage market influence and relationships for mutual benefits, and tap into new opportunities
• Supply Chain & Logistics: the backbone of distribution, an efficient supply chain ensures products are available when and where customers want to buy or consume them. By refining logistics and optimizing the supply chain, businesses can reduce costs, effectively manage inventory, speed up delivery, and enhance overall customer satisfaction.
• Promotions and Channel Incentives: these are ways to increase sales velocity, drive trial, incentivize both customers and channel partners and strengthen brand loyalty. They can also motivate partners and channels to prioritize and push your brand
• Data, Insights & Technology: In today's digital age, informed decision-making and tech-driven transformations are game-changers. Harnessing data-driven insights can offer a clearer understanding of market trends, consumer behaviors, and operational bottlenecks. Meanwhile, leveraging technology can automate, optimize, and revolutionize the distribution process.

Recognizing and harnessing these enablers can be the difference between a faltering distribution strategy and a robust, dynamic one that consistently propels sales and enhances market share.

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Leveraging the “Optimizers”:

These optimizers act as pivotal gears in the machinery of distribution. When appropriately adjusted and aligned with the enablers, they can significantly boost a brand's market share and sales.

• Improve Breadth: this is about improving the “quantity” of the Enablers discussed above; it allows for expanding horizontally and deepening penetration, i.e. doing more of the same to achieve higher coverage
• Improve Depth: this is about improvements in the “quality” of the Enablers and about introducing variety and innovation to captures new value with target consumer segments
• Improve Frequency: this is about improving the "speed" and “velocity rates” by changing the recurrence, regularity, and the turns of the distribution Enablers

Bringing it together: the interplay between Enablers and Optimizers

The power is in strategically combining these Enablers and Optimizers. As discussed earlier, knowing where you stand and what drives your distribution gaps, will then help you ideate on the right combinations and execute on the right strategic priorities. For illustration purposes, here are a few straightforward examples on how you can combine the Enablers with the three Optimizers:

• Products, Channels, and Markets: distribute your existing products in new channels across all parts of the country (breadth); offer limited editions and new variants to capture value from target consumers (depth); change innovation and new product development processes to launch new products at faster rates (frequency)
• People & Partnerships: allocate more sales reps to the same number of stores or sign sub-distributors to cover more territory (breadth); provide extensive training program to improve skillsets of existing sales professionals and distributor partners on managing key accounts or how to do flawless quality sales calls (depth); increase nr. of sales calls per store for each sales rep (frequency)
• Supply Chain & Logistics: Expand distribution and logistics capabilities to cover a wider geographical area (more trucks, warehouses etc) (breadth); invest in specialized logistics, e.g. IoT sensors in new refrigerated trucks for cold storage items (depth); increase speed of deliveries and restocking to enable same or next-day deliveries (frequency)
• Promotions: offer the exact same promotions, but in more stores (breadth); change “10% off” promotions to “25% off” ones (depth); change quarterly promotions to monthly ones (frequency)
• Data, Insights & Technology: gather and analyze data from multiple inventory-related data sources to gain a comprehensive view of stock levels across all touchpoints (breadth); build a more advanced tech infrastructure to be able to leverage advanced analytics to enable predictive analytics on a larger number of inventory metrics (depth); employ real-time tracking systems to monitor stock levels and reduce out-of-stocks hourly across offline and online channels instead of weekly batch processing of inventory data (frequency)

A tip when using the Canvas is to use different post-it colors to segment. For example, green for Offline and purple for Digital / Online.

Typically, in workshops with clients, strong common themes in the strategies emerge. These often lead to the realization that business and operating models need to change to allow for distribution opportunities to drive significant market share gains. These changes then should align with the organization's long-term vision and mission, instead of giving in to short-term tactical or ad-hoc actions. For example, if you’re a Luxury brand and deliberately operate a Exclusive Distribution Strategy aimed at a niche, planning to switch to a Intensive (i.e. Mass) Distribution Strategy would be off mission and strategy (again not to mention your business and operating model will need to adjust as well).

It is important to realize that in practice the strategic actions you map in the Enablers / Optimizer matrix, will be highly dependent on each other. They do not stand on themselves and need to be part of a deliberate attempt to operationalize the strategies into tangible activities and initiatives. For example, if you choose to expand your existing products into new markets through new channels, you will need to adjust other Enablers/Optimizers as well, such as increase your sales force size, sign new distributor partnerships, improve greenfield logistics capabilities, invest in data infrastructure, build digital marketing capabilities etc.

Conclusion

The world of distribution is a vast, intricate weave of strategies, insights, and actions. Mastering this blend of Enablers and Optimizers is crucial for ensuring that products consistently find their way into consumers’ hands. As we tread further into this era of omnichannel retail, digital interfaces and multifaceted consumer touchpoints, the brands that holistically embrace both offline and online distribution paradigms are the ones poised for sustained growth and market leadership. For Commercial Champions the journey to market leadership begins and thrives on the backbone of robust distribution.

Thanks for reading.

Bulent Kotan

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The Commercial Champion is a newsletter dedicated to enhancing your strategic commercial acumen, develop some serious sales, marketing and operational skills and transform the way your mind operates.?

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References

1.?Ataman, Heerde, Mela, The Long-Term Effect of Marketing Strategy on Brand Sales, Journal of Marketing Research, 2010

2. Ailawadi & Farris, Getting Multi-channel Distribution Right, Wiley, p. 180-192, 2020

3.?Wilbur & Farris, Distribution and Market Share, Journal of Retailing, 2013