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Having a great idea for a product is important but having a great idea for product distribution is even more important."
- Reid Hoffman 1
Product distribution plays a large role in marketing strategy and makes up one of the 4Ps of the marketing mix. There are several ways businesses can approach distribution depending on the type of product they offer. Let's examine this idea in further detail.
Distribution channels are paths that a product goes through, from the manufacturer to the end-user.
In between, there can be intermediaries such as wholesalers, retailers, brokers, and delivery companies. The purpose of distribution channels is to ensure the timely arrival of goods and prevent delayed sales. Distribution channel decisions help to determine the types, levels, and strategies of distribution channels.
Distribution is one of the four 4Ps of the marketing mix, which affects the product's pricing, positioning, and promotional efforts:
On pricing: Local goods with direct distribution have lower costs than exported goods which are charged with additional intermediary commissions.
On positioning: Products distributed in a few outlets enjoy a more luxurious image compared to those sold in multiple outlets.
On promotional effort: Without wholesalers and distributors, businesses must market and deliver the products themselves, which could consume a lot of resources. On the other hand, outsourcing tasks to a third-party distributor allows the firm to reach a wider market with less effort.
Distribution decisions in marketing management include selecting distribution channels, delivery partners, and other third-party distributors. There may also be decisions about training programs for staff of the intermediaries. Once the distribution strategy is set, the next step is to monitor and measure the effectiveness of the distribution channel on sales.
International distribution decisions are one of the strategic decisions made by global companies. The decisions include choices of products to sell overseas, the level of difficulty in delivery, as well as the degree of control the company wants to have over the selling process.
There are three ways to distribute your products in the foreign market:
Set up international departments: Directly enter a market and have full control over local distribution. For example, Amazon set up fulfillment centers all over the world to pick, pack, ship products to the customers.
Partner with distributors: Have export companies sell your products overseas so that you don't have to worry about shipping and complex procedures. This is the easiest and fastest way to extend your product reach. For example, motorsport startup Formula E uses Deutsche Post DHL to transport race cars, batteries, charging units, and media equipment to urban areas around the world.
Sell your products online: Use the internet to sell your product over the world, however, you may still need to partner with local distributors for shipping. For example, eCommerce stores sell clothes, technology, and most consumer goods.
Sales are the exchange of goods and services for money. It is a key function that helps businesses generate profit.
Sales activities include analyzing, planning, organizing, directing, and controlling the company's sales effort.
Meanwhile, distribution decisions determine how a product can reach the customer.
Sales and distribution are closely related processes. While the sales department handles local advertising and promotion, distribution channels determine how much sales force is needed.
Distribution and sales decisions consider how distribution channels and sales force can be combined to achieve the company's objectives.
There are four types of distribution decisions:
Direct Distribution Channel, StudySmarter
With direct selling, the product goes directly from the producer to the customers.
A local bakery that sells bread to people in the neighbourhood.
It's hard for a business with a direct channel to scale quickly as the producer is the sole distributor of the product.
However, the advantage is the lower price since the company doesn't have to pay commissions for intermediaries. Also, the product's delivery may be faster.
Indirect Distribution Channel, StudySmarter
In indirect distribution channels, products are delivered by intermediaries. These intermediaries can be wholesalers, retailers, or brokers.
A canned meat producer distributes its products in a local supermarket.
This type of distribution gives the product a wider reach, but the manufacturer will have less control over the selling process. Moreover, the product will be priced higher due to the commission paid to intermediaries.
Dual distribution is the combined strategy of direct selling and selling through intermediaries to maximize product reach.
M&M chocolate can be purchased at M & M's own brand stores as well as retailers such as supermarkets, department stores, and gas stations.
Reverse channel distribution is the channel where products flow from consumers back to retailers and manufacturers. The two most common types of reverse distribution are recycling containers (eg bottles, wine glass) and product recalls (eg failed products).
Distribution channels can be split into 4 levels:
Four Levels of Distribution Channels, StudySmarter
A direct distribution channel is called the zero-level channel. Goods are delivered directly to the customers, without intermediaries. Some examples include selling in brand stores and taking orders through the hotline or the company's website. This strategy works well for perishable goods or expensive goods where the consumer point is close to the manufacturers.
One-level, two-level, and three-level channels are indirect channels . In these channels, goods travel from manufacturer to consumer through one or many levels of intermediary:
Retailers buy goods from the manufacturer and sell them to the customers. The one-level channel is often used for products such as clothing, toys, furniture, etc.
Wholesalers buy the products in bulk from the manufacturer, and sell smaller batches to the retailer who later markets it to the end-user. The two-level channel applies to durable, inexpensive goods.
Companies make use of three-level channels when there's high demand for a product throughout the country. A gents are split into stockist agents, and carrying and forwarding agents. S tockist agents keep stock on behalf of the company and sell them to wholesalers in the area. Caring and forwarding agents only provide the warehouse and shipping expertise for the order process and they work on a commission basis.
Depending on the level of penetration, are three main strategies to distribute a product in the market:
Intensive distribution is when companies distribute their products through a large number of outlets.
This works well with mass consumption goods such as milk, meat, clothes, or cosmetics. With the intensive distribution strategy, the company tries to cover as big a market as possible.
Heineken beer is sold in supermarkets, restaurants, and bars.
Selective distribution is when companies select a few outlets to distribute their products.
These outlets are chosen for their reputation and are responsible for marketing the product to the customers. The strategy is suited for specialized goods such as technology or fashion.
Sony TVs and Zara are brands that adopt the selective distribution method.
Exclusive distribution is when companies reserve the distribution to one store chain.
Products for exclusive distribution tend to be high-end or produced by reputable brands.
AT&T is the sole distributor of iPhones to the end customer. Gucci and Lamborghini also reserve exclusive distribution to one distributor.
Summarizing Distribution Strategies, StudySmarter
Distribution decisions can affect the product's price, positioning, and promotional efforts.
International distribution decisions consider the product to sell overseas, the level of difficulty in delivering product did, and the extent to which the company wants to control the selling process.
Sales and distribution are interconnected processes.
Four types of distribution are direct selling, selling through intermediaries, dual distribution and reverse distribution.
There are four levels of distribution: zero-level (direct channel), and two, three, four-level (indirect channel).
Distribution strategies can be split into intensive distribution, selective distribution, and exclusive distribution.
1. Reid Hoffman, Reid Hoffman's 10 Rules for Entrepreneurial Success, Entrepreneur. https://www.entrepreneur.com/article/219380
Distribution decisions are decisions about the type, level, and format of a distribution channel. One example of a distribution decision is that a company chooses to distribute its products through direct selling without using intermediaries (retailers, wholesalers, brokers).
Four types of distribution include direct selling, selling through intermediaries, dual distribution and reverse channel distribution. The first three types of distribution flow from the manufacturer to the end customer whereas in the last channels, goods flow from the user end to the manufacturer.
Distribution is one of the four 4Ps of the marketing mix. The decision on distribution channels can affect all other three elements of a marketing campaign, including product positioning, pricing, and promotion. It's a long-term decision that reflects the nature of the business and affects relationship-building with intermediaries and other delivery companies.
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