Distribution (business)

What is distribution?

Distribution is fundamentally concerned with ensuring the most direct and cost efficient manner. In the case of services, distribution is principally concerned with access. ^[1] Although distribution as a concept is relatively simple, in practice distribution management may involve detailed logistics, transportation, warehousing, storage and distribution.

Distribution strategies

Prior to designing a distribution system, the planner needs to determine what the distribution channel is to achieve in broad terms. The overall approach to distributing products or services depends on a number of factors including the type of product, especially perishability; the market served; the scope of operations and the firm’s overall mission and vision. The process of setting up a broad statement of objectives and objectives is a strategic decision.

Strategically, there are three approaches to distribution: ^[2]

• Mass distribution
• Selective distribution
• Exclusive distribution

Intensive distribution: (also known as mass distribution ) When products are destined for a mass market, the marketer will seek out intermediaries that appeal to a broad market base. For example, supermarkets, convenience stores, vending machines, cafeterias and others. The choice of distribution is cost-effective.

Selective distribution: A manufacturer may choose to restrict the number of outlets handling a product. For example, a manufacturer of high quality products and services. Dr. Scholl Orthopedic Sandals, for example, only sells their products through pharmacies because this type of intermediary supports the desire for therapeutic positioning of the product. Some of the prestige brands of cosmetics and skincare, such as Estee Lauder, Jurlique and Clinique, insist that sales staff are trained to use the product range. The manufacturer will only allow them to be trained.

Exclusive distribution: In an exclusive distribution approach, a manufacturer chooses to deal with one intermediary or one type of intermediary. The advantage of an exclusive approach is the manufacturer retains greater control over the distribution process. In exclusive arrangements, the distributor is expected to work with the manufacturer and adds value to the product, after sales care or customer support services. The most common type of exclusive arrangement is the provision of a product. ^[3]

Summary of strategic approaches to distribution

Push vs pull strategy

In consumer markets, another key strategic level decision is to use a push or pull strategy. In a push strategy , the marketer uses intensive advertising and incentives aimed at distributors, especially retailers and wholesalers, with the expectation that they will stock the product or brand, and that consumers will buy it when they see it in stores. In contrast, in a pull strategy , the marketer promotes the product directly to consumers or to the product or brand, thereby pulling it through the distribution channel. ^[6]The choice of a push or pull strategy has important implications for advertising and promotion. In the future, it is expected that the market media will be more extensive, and that it will be more extensive use of consumer-oriented media such as newspapers, magazines, television and radio.

Channels and intermediaries

Distribution of products takes place in markets, in stores or in webshops. Channels are sets of interdependent organizers (called intermediaries or distributors) involved in making the product available for consumption to end-user. ^[4] This is the most accomplished througn merchant retailers or wholesalers, or in international context by importers. In certain specialist markets, agents or brokers may become involved in distribution channel.

Typical intermediaries involved in distribution include:

Wholesaler: A merchant intermediary who sells chiefly to retailers, other merchants, or industrial, institutional, and commercial users mainly for resale or business use. Wholesalers typically sell in large quantities. (Wholesalers, by definition, do not deal directly with the public). ^[7]

Retailer: A merchant intermediary who sells live to the public. There are many different types of retailers – from hypermarkets and supermarkets to small, independent stores.

Agent: An intermediary who is authorized to act for a principal in order to facilitate exchange. Unlike merchant wholesalers and retailers, agents do not take title to goods. Agents are typically paid via commissions by the principal. For example, travel agents are paid a commission of 15% for each booking made with an airline or hotel operator.

Jobber: A jobber is a special type of wholesaler, typically one who operates on a small scale and sells only to retailers or institutions. For example, rack jobbers are small independent wholesalers who operate from a truck, supplying convenience stores with snack foods and drinks on a regular basis. ^[8]

Channel design

A firm can design any number of channels they want to reach customers efficiently and effectively. Channels can be distinguished by the number of intermediaries between producer and consumer. ^[4] If there are no intermediaries then this is known as a zero-level distribution system or direct marketing . A level one (sometimes called one-tier ) channel has a single intermediary. A level two (alternatively a two-tier) channel has two intermediaries, and so on. This flow is typically represented as being to the consumer, but can be used other types of intermediaries. In practice, distribution systems for perishable goods tend to be shorter – direct or single intermediary, because of the need to reduce the time of a product in transit or in storage. In other cases, distribution systems can be quite complex involving many levels and different types of intermediaries.

Channel mix

In practice, many organizations use a mix of different channels; a direct sales force can call on larger customers and prospects. In addition, online retailing or e-commerce is leading to disintermediation . Retailing via smartphone or m-commerce is also a growth area.

Managing channels

The firm’s marketing department needs to design the most suitable channels for the firm’s products, then select appropriate channel members or intermediaries. An organization may need to train intermediaries and motivate the intermediary to sell the firm’s products. The firm should monitor the channel’s performance and improve performance.

Channel motivation

To motivate intermediaries to the firm can use positive actions, such as offering higher margins to the intermediary, special deals, premiums and allowances for advertising or display. ^[4] On the other hand, a negative action may be necessary, such as threatening to cut back on the margin, or hold back delivery of product. Care must be exercised when these actions are negative and have a negative impact on public relations.

Channel conflict

Channel conflict can arise when one intermediary’s actions prevent another intermediate of their objectives. ^[4] Vertical channel conflict occurs between the levels within the channel and the horizontal channel conflicts between the intermediaries at the same level within a channel.

Trends in distribution

Channel switching

Channel-switching (not to be confused with zapping or channel surfing on TV) is the action of consumers switching to a different purchasing environment (or distribution channel) to purchase goods, such as switching from brick-and-mortar stores to online catalogs, or the internet. ^[9] A number of factors to increase in channel switching behavior; the growth of e-commerce, the globalization of markets, the advent of Category killers(such as Officeworks and Kids’ R Us). For instance, in Australia and New Zealand, the following is a relaxation of laws prohibiting the use of pharmaceuticals and their use in the treatment of pharmaceuticals. remedy. ^[10]

For the consumer, channel switching offers a more diverse shopping experience. However, marketers need to be alert to channel switching because of its potential to erode market share. Evidence of channel switching can be disruptive forces are at play, and that consumer behavior is undergoing fundamental changes. A consumer may be prompted to switch channels when the product is available, or when it is more convenient to use a different channel (eg online or one- stop shopping). ^[11] As a hedge against the market share losses due to switching behavior, some retailers engage in multi-channel retailing. ^[12]

See also

References