Mastering Modern Distribution Channels: A Digital Technology Expert‘s Guide

In today‘s rapidly evolving business landscape, the way companies distribute their products and services is undergoing a profound transformation. As a digital technology expert and consultant, I‘ve had a front row seat to the disruptive changes reshaping traditional distribution models and ushering in a new era of innovation and possibility.

With the rise of e-commerce, mobile apps, on-demand delivery, and direct-to-consumer brands, the old boundaries between physical and digital commerce are crumbling. Advances in artificial intelligence, robotics, virtual and augmented reality, and social media are enabling entirely new channels and modes of distribution that were unimaginable just a few years ago.

In this in-depth guide, I‘ll share my perspective on the state of distribution strategy and provide an actionable framework for choosing, executing and optimizing a cutting-edge, omnichannel approach. We‘ll dive deep into the data, demystify the buzzwords, and learn from the most innovative brands leading the way. By the end, you‘ll have the knowledge and tools needed to modernize your go-to-market game plan and turn distribution into a true source of competitive advantage.

Distribution by the Numbers

To understand where distribution is headed, it helps to take stock of the key trends and shifts that are already underway. Let‘s look at some telling statistics:

• Global e-commerce sales surpassed $4.2 trillion in 2020 and are expected to reach $6.5 trillion by 2023, according to eMarketer. For comparison, total global retail sales were around $24 trillion in 2020.

• In the US, e-commerce‘s share of total retail sales jumped from 11% to over 14% in 2020 as the pandemic drove a massive shift to online shopping. This rate of e-commerce penetration wasn‘t previously expected until 2022. (Census Bureau)

• Amazon accounted for a staggering 51.2% of the total growth in US online retail sales in 2020. An estimated 40% of US e-commerce sales flowed through Amazon‘s marketplace last year. (Digital Commerce 360)

• 81% of US consumers reported shopping across multiple channels in 2020, with 28% saying they shopped online and in-store during the same trip. (Harvard Business Review)

• Experts predict the global instant delivery market will surge from $25 billion in 2018 to $200 billion by 2025, a 700% increase. (Motley Fool)

• Social commerce sales in the US are projected to rise by 35% to over $36 billion this year. 55% of US consumers have made a purchase through social media. (eMarketer)

These data points paint a clear picture: digital distribution channels are rapidly gaining share from legacy brick-and-mortar retail. E-commerce and mobile commerce have moved from the margins firmly into the mainstream.

At the same time, customer expectations for speed, convenience and flexibility are skyrocketing. People want to be able to discover, buy and receive products however, wherever and whenever they choose – whether it‘s in a store or showroom, on a brand‘s website or app, through a marketplace, via voice command to a smart speaker, using a mobile wallet in a social media app, or any combination thereof.

The imperative for brands is to weave their offerings through all these touchpoints in a seamless "omnichannel" customer experience. Meeting sky-high demands for instant gratification and immersive engagement across both physical and digital channels is no longer optional for staying competitive.

The 5 Key Types of Modern Distribution Channels

With that context in mind, let‘s take a closer look at the main distribution models used by today‘s most successful brands, and the pros and cons of each:

1. Direct-to-Consumer (DTC)

DTC means a brand selling its products directly to end customers without any intermediaries like retailers or marketplaces. The rise of e-commerce and digital marketing has made it far more feasible for brands to cost-effectively reach and sell to customers on their own.

DTC distribution offers several major advantages:

• Higher profit margins due to cutting out the middlemen
• Full control over branding, pricing, merchandising and customer experience
• Direct access to rich customer data for personalization and ongoing optimization
• Ability to rapidly experiment, iterate and launch new products
• Streamlined supply chain and inventory management

Many of the most disruptive and fast-growing consumer brands of the last decade have taken a DTC-first approach. Notable examples include Warby Parker, Casper, Dollar Shave Club, Allbirds, Glossier, and Everlane.

However, DTC distribution also has some challenges and limitations:

• Can be difficult and expensive to build initial brand awareness and customer acquisition without the reach of existing retail channels
• Managing your own e-commerce infrastructure and customer service is complex
• Potential missed sales from customers who prefer to shop in physical stores or on their favorite marketplace

While digitally-native brands used to pursue an online-only DTC model, many are now embracing omnichannel selling across both owned and partner channels. For example, Casper now sells its mattresses through Target stores and on Amazon in addition to its DTC site. Allbirds has been opening brick-and-mortar retail locations to complement its online storefront.

The key is to thoughtfully expand into new channels that align with your brand while still maintaining the unique value proposition and customer relationship benefits of DTC.

2. Online Marketplaces

Massive e-commerce platforms like Amazon, Walmart.com, eBay, Alibaba and others have become a dominant force in retail distribution over the past decade. These marketplaces bring together vast selections from first and third party sellers, offering customers the ultimate in convenience and choice.

Selling through online marketplaces offers brands several potential benefits:

• Instant access to a huge base of active shoppers without the costs of attracting your own traffic
• Outsourced e-commerce technology, payment processing, fulfillment and customer service
• Opportunities to boost visibility through advertising and special promotions
• Wealth of market and customer data to inform your overall strategy

Amazon‘s US marketplace sales have been growing north of 40% annually and now make up 60% of the company‘s total retail revenue. Over 2 million third party sellers do business on the platform. Alibaba‘s Tmall and Taobao marketplaces accounted for 56% of all retail e-commerce sales in China. So if you‘re not actively participating in these channels, you may be missing a massive revenue opportunity.

However, distributing through marketplaces is not without its drawbacks:

• Brutal price competition that can damage your brand and compress your margins
• High commissions and fees that further eat into profits (typically 15%+ of each sale)
• Risk of being delisted if you violate a platform‘s complex and ever-changing policies
• Lack of control over your product listings and how they appear alongside competitors
• Challenges building long-term customer relationships since the marketplace owns the experience

To mitigate these risks, I recommend using marketplaces as part of a balanced multi-channel strategy that still includes a strong DTC presence. Focus on your most differentiated and profitable products, and consider developing exclusive bundles or variants just for marketplaces. Invest in enhanced brand content and advertising to showcase your unique value proposition. And look for ways to connect with marketplace customers and bring them into your own loyalty program and communication channels over time.

3. Retail & Wholesale

Despite the meteoric growth of e-commerce, the vast majority of consumer spending still happens in physical stores. According to the US Census Bureau, brick-and-mortar sales accounted for over 85% of total retail sales in 2020.

Distributing through retail partners offers some compelling benefits for brands:

• Tapping into partners‘ large, loyal customer bases and high-traffic store locations
• Opportunities for compelling visual merchandising and hands-on product demonstrations
• Potential cost savings on inventory storage, shipping and fulfillment
• Credibility and brand exposure benefits of being sold by a trusted retailer

For mass consumer brands, securing desirable shelf space and promotion with the big box leaders like Walmart, Target, Costco and Kroger remains a major key to driving sales volume and household penetration. Even many formerly online-only DTC brands are now inking deals with select retail partners to expand their reach.

Selling wholesale does introduce more complexity and potential channel conflicts to manage:

• Pressure to offer significant discounts or incentives to secure orders from powerful retailers
• Loss of control over the final pricing, placement and presentation of your products
• Risks of over-distribution and gray market selling that cheapen your brand
• Challenges accessing sell-through data and connecting directly with end customers

That‘s why it‘s critical to be highly strategic and selective in your retail partnerships. Look for retailers whose customer base and shopping experience aligns with your brand identity and values. Maintain strong relationships and open communication with your buyers. Invest in the latest digital tools for managing your shelf space, promotion planning and inventory across all your retail doors.

4. B2B Distribution

Business-to-business companies have some unique distribution challenges and opportunities. B2B sales cycles tend to be longer and more complex, with more stakeholders and purchasing processes involved. The products tend to have greater customization and integration requirements. And the end customers are focused on ROI more than brand image or impulse buys.

Some of the most important B2B distribution channels include:

• Distributors/Wholesalers: Aggregating demand from many downstream business customers
• Value-Added Resellers: Bundling your products with related services and support
• System Integrators: Combining your products into a complete solution for a customer‘s needs
• Dealer Networks: Authorized local providers that sell, install and service your offerings
• Inside & Field Sales Teams: Professional seller that engage customers directly

In recent years, many B2B companies have been investing in e-commerce and digital self-service capabilities to streamline ordering and customer support. According to McKinsey, B2B companies now see digital interactions as 2-3x more important than traditional sales interactions.

The pandemic dramatically accelerated this shift, forcing even industries like manufacturing and wholesale to embrace remote selling and online fulfillment. Going forward, a strong omnichannel approach will be critical for B2B brands – making it easy for customers to learn about, configure, purchase, implement and get support for products across in-person, online, mobile and marketplace touchpoints.

5. Emerging & Experimental Channels

Beyond the core distribution models, the pace of innovation in commerce keeps accelerating. Early adopters are testing a range of cutting-edge new channels to get in front of customers and capture sales.

A few of the most exciting emerging distribution opportunities on my radar:

Social Commerce: The intersection of social media and shopping is a huge area of growth. Platforms like Facebook, Instagram, Pinterest, Snapchat and TikTok are rapidly adding e-commerce features like shoppable posts, livestream selling and native checkout. Social-first brands are popping up in every category to ride this wave.

Voice Commerce: With the explosion of smart speakers and voice assistants, more and more consumers are turning to verbal commands to search for products, compare prices, and make purchases. Leaders like Amazon and Walmart are enabling voice ordering from their apps. And Google recently introduced a "retail response API" that lets brands provide real-time availability and pricing data when shoppers ask about their products on Google Assistant.

Live Selling: Real-time livestreamed video selling is already a massive phenomenon in China, generating hundreds of billions in annual sales. Now the trend is starting to catch on in the US with both standalone apps like NTWRK and Whatnot as well as livestream integrations from the big players like Amazon, Facebook and TikTok. This is the modern evolution of QVC and the Home Shopping Network brought to anyone with a smartphone.

Subscription Commerce: The subscription e-commerce market has more than doubled in the last five years. According to McKinsey, 15% of US shoppers have subscribed to an e-commerce service in the past year. Leaders here include category-focused plays like Ipsy and Birchbox, alongside giants like Amazon Subscribe & Save and Walmart Beauty Box. This recurring revenue channel has compelling CLV and retention benefits when done right.

Bringing It All Together

As you can see, the distribution landscape has never been more dynamic or full of possibilities. For brands, the key is to think strategically and avoid blindly following the herd or spreading yourself too thin.

Here‘s my five-step approach to building a killer distribution strategy:

1. Segment your target customers and map their buying journeys
2. Define your priority distribution channels and associated economics
3. Design differentiated, channel-specific product offerings and marketing
4. Hire the right talent internally and externally to support each channel
5. Implement robust data and analytics to measure omnichannel performance

Remember, there‘s no one-size-fits-all answer. The right mix will depend on your specific industry, competitive position, growth stage and internal capabilities. But with a little creativity and a lot of customer obsession, I believe any brand can design a distribution strategy that‘s truly a source of defensible advantage.

The one non-negotiable is to put the customer at the center. Don‘t get so enamored with the specific technologies or platforms that you lose sight of how it all rolls up to a cohesive experience in the mind of your buyers.

At the end of the day, that‘s what will win their loyalty across any and every channel you choose.