Distribution Network Strategy using GIS

Setting up a physical distribution network is a strategic and resource intensive decision. One of the key success mantras for large corporations has been “Being present at right place at the right time”. This was achieved largely through an optimal channel strategy which maximized the RoI on every dollar spent towards setting up the distribution network.

But what happens if it is not optimal! Obviously, you miss out on key target customers if you are not able to reach them out. Moreover, if you are present at wrong places, you are not able to recover the cost of setting up the channel; this could carry huge monetary implications for businesses with large stores e.g. automotive showrooms, hypermarkets, etc. There are many other implications of setting up a shop at wrong place viz. mismatch with desired brand positioning, operational inefficiency, reduced customer experience, etc.

So, how to plan the most optimal network strategy? Though, the specifics of answer to this core question would vary from business to business and across geographies, however, there are a few common guidelines that can help business in general. These guidelines have been devised basis the previous research work that was carried out for a large business conglomerate with multiple business lines. The research was a mix of Secondary research, Primary qualitative & quantitative research, and GIS mapping. The primary research was conducted with an objective to understand consumer expectations and drawing the catchment areas for existing distribution points. GIS was used to map all the key locations in the country including Client’s distribution points, Competition’s distribution points, Malls, Public transport points, Upcoming projects, Major new developments, etc.

Based on findings of the research, the top 3 guidelines are summarized below:

1. Identify the emerging geographical clusters
With rise in urbanization (esp. in developing countries), the cities are expanding rapidly. The areas that were considered to be outskirts at few years back are now very well the center of these cities. Thus, new markets are emerging in these growth hubs and existing channel might not suffice. If setting up a new shop / distribution point involves significant investment, it is critical that such growth hubs are identified well in advance so the investment is appropriately made and the shop is ready by the time population growth reaches critical mass. This is bound to offer a great first-mover advantage to brands that are already established both in terms of cost of investment and brand visibility.

2. Map your competition
Consumers like to compare offerings from multiple sellers and prefer to do so at a common place. Traditionally, consumers fulfilled this need by visiting ‘bazaars’ (local markets) and now the digital consumers do it so by hooking up to online marketplaces. Thus, the importance of being among peers cannot be understated if you want to get into consideration set of buyers. Thus, if you are an automotive showroom, ensure that you are present in a geographical cluster where other brands (of your competitive spectrum) are present

3. Identify the hot spots
Even though, marketers feel that they have wide channel coverage that should be adequate for market reach, it is essential to understand the same through consumer lens. When consumers look for a product, it is seldom in isolation. The consumers would prefer to spend their time and energy in reaching out those channels which can provide them maximum value. This value could be in terms of meeting multiple needs, overall cost of reaching there (time + money + hassle). Thus, marketers need to look beyond their immediate competition and try to add value to consumers. For example, an automotive service center needs a larger ecosystem of other entities in its vicinity to be popular. Consumers would want to meet their complete need of a car repair including spare parts shop, tires shop, batteries, mechanics, etc. Thus, it is essential to identify the hot spots where the competition is underrepresented but there is market opportunity based on overall ecosystem.

These generic guidelines need to be part of every discussion, document and decision of the network expansion plan. At higher level, they might sound extremely obvious, but it is easy to miss them out when actual decision on a new geographical location is made. Other real estate related considerations become key drivers and larger strategic goals take a backseat!