Gennaro is the founder of FourWeekMBA, a leading source on business model innovation.
When you pick up your smart tv remote you might not even ponder it, yet that space where you hover with your fingers represents “a piece of mind” and a distribution channel.
That is what distribution is all about.
Of course, distribution comes in many forms, yet when that is integrated with your product (the button on a remote is indeed a product’s feature to easily access your Netflix subscription) and your marketing (the button is also a branding device) and indeed customer journey (you might consider the easy access to the subscription as an onboarding service).
When you find that sweet spot that is a magic place in business where you want to be.
Integrated distribution: a primer
There isn’t a single way to classify how several pieces make up the distribution puzzle, yet for the sake of this discussion, let’s assume that as in the layer above we have the product as the inner-layer, distribution as the middle layer (connecting product with marketing) and marketing as the outer layer.
Let me explain:
- Product here is intended as not only the features but also the UX and the various elements of the onboarding and retention (here the definition is blurry as these elements can also be well considered in part distribution – perhaps when the onboarding happen though a partner, like in the case of Netflix’s button on the remote – and in part marketing).
- Distribution is defined as the channels that lead to the product discovery, and improved experience and that connect product (the features and UX) and marketing (the perception users/customers have about your product).
- Marketing here is intended as control about the message you deliver to your potential customers. And my point is that when you gain control over how your potential customers experience your own product, that is thanks to a proper distribution strategy.
As a quick example, imagine that you have a store that runs entirely on top of Amazon. Or perhaps you have a media company that runs all through YouTube. While you enjoy incredibly large platforms that can bring your message and product out there, you don’t control them.
Thus, you have amplification but little control over your distribution. Indeed, if for some reason Amazon brings down your store your distribution is gone. If YouTube kills your channel, your distribution is gone.
Conversely, imagine you have built e-commerce by using a platform like WordPress, Shopify, BigCommerce, or whatever, you still rely on external channels to amplify your products. And even if amplification might be more limited, if you lose a traffic channel to your store, the store itself will still be accessible.
So, based on this consideration, let’s break down distribution into three general categories:
- Owned: You have higher control and less amplification (imagine the case you just built your brand new website, but you have zero traffic).
- Hybrid: You balance control and amplification (imagine the scenario of e-commerce built on Amazon but as an addition to an e-commerce website. Thus, you use Amazon only as an additional channel to amplify your products, but you still have your main e-commerce as a separate domain).
- Third-party/non-owned: Here you optimize for reach but you have zero control. In short, you have to adapt to the way the hosting platform markets itself if you want to sell your own product. Imagine the case where you only have e-commerce on top of Amazon, where the platform optimizes for variety and convenience. This means that Amazon will be incentivized to show as many similar products as yours, thus enabling easy price comparison and less and less differentiation. In this case, you need to play by the house’s rules (getting as many reviews as you can, bring the price down, sell as many products as possible) and you will make substantial money if you will be able to play by these rules.
In short, in owned distribution, it’s harder to build It in the short-term (you need to invest substantially before it pays off). But once in place gives you more control over the way potential customers perceive your product, thus differentiating and charging at a premium.
As it’s an expensive strategy, that is why many growth strategies start by using other people’s platforms. Think of how in the early years Google surfed AOL, PayPal surfed eBay, Airbnb surfed Craigslist and more current examples of how a company like Thras.io is surfing Amazon.
Back to the remote control now.
How did Netflix end up on your remote control?
Drawing from what we said so far, a solid distribution strategy is a sweet spot between product and marketing and it bridges them up. You gain more control over your messaging, you make your product more visible, and you add a feature to your service.
But how did Netflix perhaps manage to be on your remote control? This integration started in 2011, when Netflix announced its one-click feature to be added to various remote controls’ brands.
As the press release of the time announced:
“For members who want even more convenience when instantly watching TV shows and movies streaming from Netflix, the answer is about to be right in their hands,” said Netflix Chief Product Officer Neil Hunt.
“No more turning on the TV, going to a home screen and searching for the Netflix icon. With the Netflix one-click remote, it’s simply a matter of pushing the Netflix button to instantly watch any of the vast selection of TV shows and movies available to stream from Netflix.”
This strategy well paid off over the years, and as Netflix further highlighted at the time:
The Netflix one-click remote is the latest in a series of rapid technological advancements by Netflix to enable Netflix members to instantly watch TV shows and movies streamed by Netflix over the Internet. Today there are more than 250 Netflix ready devices on the market.
It’s hard to know the specifics of the deals between Netflix and these device makers. We can assume that wasn’t cheap at all. However, again being on a remote control meant not only to brand to millions of people but also to make Netflix easily accessible to them.
As per some accounts, these deals might have cost Netflix as much as $1 per button for each customer.
We can also go as far as understanding how much Netflix spent at the time, in 2011 when it started to build up this strategy.
Apparently, by 2011 financial statements, as Netflix rumped up its marketing expenses It also did the same for the remote control partnerships where the company recorded a “$17.4 million in domestic spending related to [Netflix] consumer electronics partners, as [Netflix] continued to expand the number of devices on which subscribers can view Netflix content.”
Therefore, in 2011 alone Netflix spent over $17 million to set up this strategy. And it worked so well that pretty much anyone in the space followed suit.
Back to the distribution strategy. What did we learn here?
Distribution as the bridge between product and marketing
While in the short term it’s fine to leverage sales as a way to kick off distribution. Over time, especially for platform business models, you want to really think through these strategies that pay off big time by bridging product and marketing. So let’s keep in mind the distribution between just sales and really generating distribution. The first will get your next client through the door. The latter will lead to building the channel that brings you potentially many other clients to the door.
But how does distribution work across various business models?
The interesting thing about business development is that while each industry has its own logic, the ways you can grow your business through it do not change as much. And the type of distribution you will pick for your business will also depend on the type of business model you’re operating in.
If you’re running a linear business, where, for instance, most of its aspects are tied to a simple physical product then funnel marketing might work for you. When you start building a digital business, where the customer-facing part of it is digital, then flywheel marketing works for you.
The sales funnel is a model used in marketing to represent an ideal, potential journey that potential customers go through before becoming actual customers. As a representation, it is also often an approximation, that helps marketing and sales teams structure their processes at scale, thus building repeatable sales and marketing tactics to convert customers.
When you are building a platform business model, then you need to think in terms of the ecosystem. So, how do you kick off the network effects to make this ecosystem grow? This is the question that you need to keep asking. And the result of it is what we can call a “business platform” or a place that combines hardware and software, to enable an ecosystem made of various key players (physical builders/manufacturers, digital builders/developers, channel partners/distributors, enterprise customers/enablers, and consumers).
That’s all about distribution!
Also published on: https://fourweekmba.com/whats-distribution/
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