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Introduction

This refers to how an organisation will distribute the product or service they are
offering to the end user. The organisation must distribute the product to the user at the
right place at the right time. Efficient and effective distribution is important if the
organisation is to meet its overall marketing objectives. If an organisation
underestimatea demand and customers cannot purchase products because of it,
profitability will be affected.
Which Distribution Channel Will They Use?
Two types of channel of distribution methods are available. Indirect distribution
involves distributing your product by the use of an intermediary for example a
manufacturer selling to a wholesaler and then on to the retailer.. Direct distribution
involves distributing direct from a manufacturer to the consumer For example Dell
Computers providing directly to its target custmers. The advantage of direct
distribution is that it gives a manufacturer complete control over their product.

Above indirect distribution (left) and direct distribution (right).

Distribution Strategies

Depending on the type of product being distributed there are three common
distribution strategies available:
1. Intensive distribution Used commonly to distribute low priced or impulse purchase
products eg chocolates, soft drinks.
2. Exclusive distribution Involves limiting distribution to a single outlet. The product
is usually highly priced, and requires the intermediary to place much detail in its sell.
An example of would be the sale of vehicles through exclusive dealers.
3. Selective Distribution A small number of retail outlets are chosen to distribute the
product. Selective distribution is common with products such as computers,
televisions household appliances, where consumers are willing to shop around and
where manufacturers want a large geographical spread.
If a manufacturer decides to adopt an exclusive or selective strategy they should select
a intermediary which has experience of handling similar products, credible and is
known by the target audience.

As you will be aware from your experiences as a consumer, producers rarely sell their goods
or services directly to the person that consumes them. Marketing channels, or place in
terms of the marketing mix, are the means by which interdependent organizations
move products or services from the producer to the person that purchases or consumes
the product. This is the basic role of distribution.
Different customers have different needs. Customers in different segments have different
needs, for example a food distributor will sell flour in different ways when it sells to a hotel as
opposed to when the sales to a wholesaler. A business customer will have different needs to
a retail customer, for example a stationary distributor will sell printer paper in bulk directly to
a large company but will sell a single ream (500 sheets) indirectly to the average
householder via his local stationery store.

Types of Channel Intermediaries.

There are many types of intermediaries including wholesalers, agents, retailers, the Internet,
licensing and franchising. The main modes of distribution will be looked at in more detail as
follows:

Channel Intermediaries Wholesalers

They break down bulk into smaller packages for resale by a retailer.

They buy from producers and resell to retailers. They take ownership or
title to goods whereas agents do not (see below).

They provide storage facilities. For example, cheese manufacturers


seldom wait for their product to mature. They sell on to a wholesaler that
will store it and eventually resell to a retailer.

Wholesalers offen reduce the physical contact cost between the producer
and consumer e.g. customer service costs, or sales force costs.

A wholesaler will often take on some of the marketing responsibilities.


Many produce their own brochures and use their own telesales operations.

Channel Intermediaries Agents

Agents are mainly used in international markets.

An agent will typically secure an order for a producer and will take a
commission. They do not tend to take title to the goods. This means that
capital is not tied up in goods. However, a stockist agent will hold
consignment stock (i.e. will store the stock, but the title will remain with
the producer. This approach is used where goods need to get into a market
soon after the order is placed e.g. foodstuffs).

Agents can be very expensive to train. They are difficult to keep control of
due to the physical distances involved. They are difficult to motivate.

Channel Intermediaries Retailers

Retailers will have a much stronger personal relationship with the


consumer.

The retailer will hold several other brands and products. A consumer will
expect to be exposed to many products.

Retailers will often offer credit to the customer e.g. electrical wholesalers,
or travel agents.

Products and services are promoted and merchandised by the retailer.

The retailer will give the final selling price to the product.

Retailers often have a strong brand themselves e.g. Ross and Wall-Mart
in the USA, and Alisuper, Modelo, and Jumbo in Portugal.

Channel Intermediaries Internet

The Internet has a geographically dispersed market.

The main benefit of the Internet is that niche products reach a wider
audience e.g.
Scottish salmon direct from an Inverness fishery.

There are low barriers to entry as set up costs are relatively small.

Use e-commerce technology (for payment, shopping software, etc)

There is a paradigm shift in commerce and consumption which benefits


distribution via the Internet

There is a huge growth in online retailing. People buy physical products from companies
such as Amazon or eBay, as well as a whole plethora of other smaller retailers marketing in
a wide variety of small niches, also known as the long thin tail of marketing. There are many
transaction related products such as theatre tickets and software upgrades that can be
bought solely online. One way of segmenting Internet users was identified by McKinsey in
2000 and is summarised here as follows:
Simplifiers experienced Internet users who seek convenience and low prices.
Surfers an innovative minority who enjoy buying niche items and experiences based upon
their own initiative.
Bargainers price sensitive surfers looking for the best price.
Connectors those new to the Internet who want to connect with others via Facebook and
Twitter, with little knowledge to go much further.
Routiners who have a small number of favourite sites which they visit often, such as online
banking for example.
Sportsters who spend most of their time looking at entertainment and sport.

Which of the above best represent you and your buyer behaviour when you are online?

Licensing and franchising


Some businesses are hothouses of ideas and innovation but they may lack expertise in
terms of business and finance. In these situations licensing or franchising are an ideal
option.
Licensing is essentially a contract which allows another business to manufacture or provide
a service which conforms to your licence. Licensing is useful if the business wishes to
quickly move into foreign countries, if manufacturing in a local market is too expensive then
manufacturing could be undertaken overseas under licence, if shipping costs are too
expensive or perhaps a market overseas would prefer a locally branded item. In return the
licensee will get fees, will be able to penetrate a wide range of overseas markets, generally
can control quality and production levels, and ultimately will be able to introduce new
models as they arise.
Franchising is similar to licensing but tends to be used where there is a brand name or a
particular format that a company owns. There are lots of familiar examples of franchising
including KFC and many familiar high street and mall names marketing everything from
hamburgers to jewellery. Try to identify some franchises the next time that you go for a day
out shopping.

Changing roles of logistics


Place also includes logistics. Logistics historically were largely about the physical
distribution of goods from manufacturer to consumer by road and rail, sea and air. Logistics
has undergone many changes since the 1970s. The cargo container was developed which
reduced the amount of times the products needed loading on and off vehicles, and in and
out of warehouses. More recently goods are loaded onto the container at the factory and
products stay in the container until they are unloaded in at their final desination.
Supply chain management is now a focal discipline which takes logistics to the next level.
Distribution is a central strategic management topic, and involves logistics professionals
with highly technical information technology, resources and software.

The logistics manager integrates all elements of physical distribution and will optimise the
flow of services and goods. There is a large amount of planning and organising in terms of
the whole process, which includes selecting other agents and suppliers who are integrated
into the process. Often logistics will integrate forwards with the supply chain of a large
customer. An example of current thinking on logistics would include Just In Time
Management (JIT) where components are delivered directly to manufacturing sites as the
producers need them on the assembly line.
Let us consider the nature of distribution by looking at a very simple example of how it
works in relation to our everyday experiences.
A basic example would be a tin of vegetable soup. The entire chain would begin with the
seeds that the farmer sews and then plants. The farmer would sell the vegetables to the
soup manufacturer, who would create soup from a recipe and then package the soup in a
tin, and then bulk pack tins into a box and then those same boxes onto a pallet. The pallets
would be driven by lorry or some other vehicle to a wholesaler. Independent retailers whilst
visiting the wholesaler would break down a pallet and take a box of tinned soup. The retailer
would return to his or her store and open the boxes of soup and place individual items onto
a shelf next to similar products. The purchaser or customer would enter the store and buy a
series of products including tinned soup. Having paid for the products the customer returned
home and cooked soup for his or her family. The family eats the soup and they are the final
consumers, as opposed to customers. This is an example of a very basic marketing channel
in operation.

The case is that a manufacturer will attempt to maximise the accessibility of his product to
as many consumers as possible. A prime example of this is Coca-Cola and their attempt to
put a bottle of Coke within the arms reach of every consumer. For Coca-Cola this means a
number of channels of distribution including manufacturing, transportation, bottling,
wholesaling, retailing, vending machines and any other form of distribution you can think of.
Coca-Cola maximises its accessibility.

(A marketing channel is) . . . a set of interdependent organisations that help


make a product or service available for use or consumption by the consumer or
business user.
Kotler et al (2010)
A channel of distribution comprises a set of institutions which perform all of the
activities utilised to move a product and its title from production to
consumption.
Bucklin Theory of Distribution Channel Structure (1966)
The Bucklin definition above albeit more than 50 years old still represents the basic concept
of place in the marketing mix.
Place has a number of names. Place is also known as channel, distribution or intermediary.
It is the mechanism through which goods and/or services are moved from the manufacturer/
service provider to the user or consumer. So lets take a look at some basic distribution or
channel decisions, and how we decide on the best distribution channel for our product or
service.

There are six basic channel decisions:

Do we use direct or indirect channels? (e.g. direct to a consumer,


indirect via a wholesaler).

Single or multiple channels.

Cumulative length of the multiple channels.

Types of intermediary (see later).

Number of intermediaries at each level (e.g. How many retailers in


southern Spain?).

Which companies as intermediaries to avoid intrachannel conflict (i.e.


infighting between local distributors).