Why Distribution Strategy is Important For Product Managers


“Poor distribution - not product - is the number one cause of failure”. - Peter Thiel 


In my 6D’s model of the product development lifecycle, the Distribute phase comes after you have released the product. The key objective in this phase is to execute a distribution strategy so that your potential customers can find and use your just-launched product. As a product manager, you are not required to build the distribution strategy, but you need to understand it. Understanding the product distribution strategy justifies the investment in building the product. Before I explain my perspective, let’s first understand what a distribution strategy is.

A distribution strategy is also known as the go-to-market strategy, and the simple way to think about it is to use this formula created by a Stanford professor, Jim Latten.


Distribution = Ecosystem Participants + Incentives


The equation means that a distribution strategy is to find a place (ecosystem) where there is a large audience (participants) and give the place good incentives to promote your product to them.


The first thing that comes to mind when I think about distribution is digital advertising on platforms such as Google or Facebook. Google has over 5 billion searches per day and Facebook has billions of users. You can promote your product on these platforms by paying a fee. In this case, money is an obvious incentive here. But there are non-financial incentives you can use in your distribution strategy. For example, Dropbox gave additional data storage to users who share a dropbox link in their Twitter or Facebook account. Similarly, when Hotmail first started, they attached “Get your free email at Hotmail” at the end of every email the Hotmail users sent.


Any marketers will tell you that a great marketing strategy is not to target everyone in an ecosystem because not everyone shares the same needs. The goal is to identify the market segments, which is defined as groups of people who share one or more common characteristics who can benefit from your product. These market segments allow marketers to create more targeted and effective marketing messages to convert ecosystem participants into customers.


But what does this have to do with product management?


Three words: Product-Market Fit.


Product-Market Fit means being in a good market where there is a good demand for your product. As Dan Olson, the author of The Lean Product Playbook, says “the one thing that product managers are responsible for is achieving product-market fit.” And how product managers accomplish this is by talking to the customers in the Discover phase and validating their product assumptions.


Distribution strategy validates Product-Market Fit

Product managers are like investment managers. If you haven’t identified a common problem from the customers (market segment) and the ecosystems (distribution channels) to market your product, you can’t gather enough data to justify your investment in the product. In other words, you have no way to prove there is a market and a demand for it. Therefore, a product without proven market segments and distribution channels means you haven’t achieved product-market fit. Your distribution strategy helps you get to product market fit faster. 


Design product around distribution early on

Another reason why understanding the distribution strategy is important is that product managers need to design their products around the most powerful advocates for distribution early on. Distribution should not be an afterthought. Earlier, we learned that a distribution strategy requires financial or non-financial incentives. Money is the obvious financial incentive, but there are successful products built around non-financial incentives. These products are designed to create a strong network effect using viral marketing. 


Take Dropbox, for example (again). Its product team built a ridiculously simple way for users to invite others to join Dropbox when they launched their beta product. Users can share their referral link on different ecosystems (e.g. Email, Facebook, Twitter) with a few clicks, and the incentive was additional storage space - free of charge - for every new user you bring in using your referral link. Dropbox was certainly not the only file-sharing service at its time. But with a well-thought out distribution strategy and design product features around it, the product has proved there is a product-market fit and quickly scaled its growth. And ultimately, left the competitions in the dust.


Conclusion

In my experience, after launching different products in the consumer space, my firm belief is that in order for a product to have a breakthrough success, marketing and product teams need to work hand in hand together. Product managers need to understand the different types of distribution strategies and marketers need to understand which product feature supports their growth. I don’t consider myself a marketer, but my understanding of the customer personas and pain points certainly help marketers craft better segments and messages. And there’s nothing that gives me more of an adrenaline rush than watching my product usage increase.