Introduction: Why distribution matters.
Among the 4 Ps of Marketing, it may seem that Place may be much less ‘sexy’ than the other 3. This is because it’s easy to associate distribution with “mere” logistics and supply chain management, rather than with the customer experience.
In actual facts, managing your distribution effectively provides a real long-term competitive advantage to your company and lets you connect with your audience in a very meaningful and memorable way.
High-end fashion companies have been able to address the challenges of distribution by developing a forward integration strategy, which consists in directly managing each tier of their supply chain, from garment production to customer service and retail. This approach, despite being very costly, helps brand establishing direct relationships their customers.
This is not the only option, in reality, most fashion brands work through an established network of intermediaries, with lower investment costs but lower profit margins. It’s important to notice that both models provide benefits and limitation and in this post, we’re going to look into both distribution models, as in their own way, they’re both very effective strategies to connect with you customer.
Here’s how the article is divided:
1. How B2B Distribution Works.
2. How B2C Distribution Works.
Why Fashion Companies Opt Between a B2B or B2C format.
Fashion brands, have to start with deciding if they are looking for a wholesale (B2B) format or for a retail (B2C) format. Let’s see how fashion brands, choose between vertical distribution (company-owned) as opposed to intermediated distribution (through third-party retail).
As a rule of thumb brands which are positioned high in the fashion pyramid, such as haute couture brands or pret-a-porter brands may need to directly manage distribution in order to provide their customers with the guarantee of Total Quality Management, at the same time, lower-tier brands such as diffusion brands and work trough intermediaries as they are looking to strike a different balance with the consumer, one which is centred around a good price for quality ratio.
In any case, there is no set rule to establish the most effective and reliable form of distribution for your brand, so it may be helpful to assess all of the variables that you should consider while making this decision.
1. How B2B Distribution Works – Using Intermediaries
In B2B distribution a company works through a distributor which will be in charge of connecting the company’s products to the final consumer.
- Benefits: “sell-in“, or third-party distribution is much cheaper. To start off with, developing business relations with wholesalers does not entail for an upfront investment. Moreover, this approach objectively provides less financial risk as a newborn company may test a foreign market by using intermediation to access a variety of different POS (points of sale) before proceeding with further investment. In this case, by conducting a ‘pilot’ program through distribution intermediation, a company will also be able to collect data regarding the product’s adaptationstandardisation requirements of the new market. Understanding consumer behaviour and the right retail format is essential for any fashion firm wishing to expand abroad and through the partnership with distribution intermediaries, a lot of data can be collected to understand the target market before committing to an investment.
- Limitations: as much as we can identify distribution as the ‘final mile’ of a company’s supply chain, the store is the first point of contact with a customer, and as such a company needs to manage it effectively in order to ‘convert’ exposure and footfall into sales. Not being able to directly manage your customer’s shopping experience can prevent a brand from developing the ‘mass-prestige’ approach that allows your firm to luxury-fy commodities such as cosmetics and fragrances by selling them at premium pricing. A choice towards intermediated distributions, on the other hand, makes it harder to keep higher margins, because of the longer pipeline. Moreover, not owning the distribution channels can account for a longer time to market (TTM), making a company less reactive to faster fashion trends.
2. How B2C Distribution Works – Using Fully Owned Retail.
In B2C distribution a company will instead pursue a sell-out approach whereby a company will own and manage proprietary retail locations.
This accounts for the development of a different marketing mix, and for the creation of a whole new company department, as many more decisions need to be taken in order to pursue “vertical” distribution.
Managing retail chains requires for great managerial skills, as a shopping experience is comprised of two distinct elements, one is tangible and relates to the need to deliver a consistent brand experience the other intangible and is connected to store operations and supply chain management. Let’s see what each of them entail in more detail.
- Intangible Values – Brand Consistency and Delivery. What type of experience and atmosphere are you going to create for your customers? What kind of association will you create between the different items of your collection? These are simple questions, but they entail for a lot of strategic thinking as the development of a brand requires the delivery of a consistent image across a variety of different media. You will also need to manage the blurred line separating physical and digital ‘customer journeys‘. These types of brand experiences entail for at least one flagship store, capable of delivering all of the theatrical elements which need to be associated with your brand.
- Tangible – Store Operations and Supply Chain Challenges. These decisions are related to identifying the right locations where to place the store, understand the right layout and merchandise for display, recruit brand ambassadors, managing inventory turnover and much more. On top of this, new trends are altering in-store customer behaviour such as “showrooming” and “webrooming”. The former means that customers are likely to visit your store and then buy online, the latter means that the customers are going to conduct their research online and then purchase in-store. How are your retail locations going to address these challenges? All of these questions need to be answered persuasively, and in full alignment with your brand’s image.
Without further hesitation, we are quick to realise that in reality only large and established companies are capable of developing this type of infrastructure. Furthermore, this approach will often be conducted in an omnichannel perspective whereby retail and e-commerce dynamics will overlap. This accounts for additional challenges as a brand will need to manage their brand coherently in a variety of situations (both physically and digitally) to create a promise of value which is consistent across every touchpoint.
- Benefits. As we’ve discussed, the distribution may seem like the ‘last mile’ in your business model but in reality, it’s the first point of connection to your customers. Owning your distribution channel allows for a competitive advantage in managing your customer experience as well as your customer journey.
- Issues. The issues are connected with dealing with the costs associated with direct distribution. Fashion firms pursuing aspirational branding will need to search for retail space in some of the most expensive real estate areas in the world.
Now that we were able to identify the most relevant characteristics of both these approaches, we can move on to drawing our conclusions.
From this analysis, we can easily understand that if we only look at the operational aspects of product distribution, a B2B format will be a much better choice, as the missed ‘extra profit’ will be balanced by low investment, strategic flexibility and opportunity for market ‘exploration’.
At the same time, we need to remind ourselves that fashion companies do not simply sell products, the sell dreams. This dream factor is connected to the intangible elements belonging to a brand’s heritage. This is why most fashion brands over the last few years have pursued a vertical (directly-owned) integration strategy and focused on creating new retail concepts to entertain, educate, delight their customers to build a strong brand narratives that entice be part of a great story.
At the same time, fashion brands realised that there is no one-size-fits-all approach to distribution, and only through a good dose of trial and error fashion firms will be able to identify the distribution strategy which is better aligned with the firm’s financial capabilities and customer needs.
Here at 440 Industries we’re big fans of retail distribution and our blog is filled with interesting articles on this topic, take a look below and see if there’s anything else you may be interested in reading about!