1.3.4 Distribution Flashcards
Distribution channel
The route a product takes from producer to consumer is called the
distribution channel.
Intermediaries
between the producer and the
consumer in a distribution channel, such as retailers.
A wholesaler typically
buys and stores large quantities of several producers’ goods and then breaks into the bulk deliveries to supply retailers with smaller quantities.
Wholesaler suitability
For small retailers with limited order quantities, the use of wholesalers makes economic sense.
What factors should be taken into account in choosing the best distribution channel?
Nature of the product (perishable?), The market, The business, Legal issues
The business
Size and scope – e.g. can it afford an in-house sales force?
Marketing objectives – revenue or profit maximisation?
Does it have established distribution network or does it need to extend its distribution option
How much control does it want over distribution? The longer the channel, the less control is available
Legal issues
Are there limitations on sale?
What are the risks if an intermediary sells the product to an inappropriate customer?
The market
Is it geographically spread?
Does it involve selling overseas (see further below)
The extent and nature of the competition – which distribution channels and intermediaries do competitors use?
Place meaning
Place defines both the physical location where a product is
available as well as the distribution channel it has travelled
through to get from the manufacturer to the customer
Main objective of distribution
To make products available in the right place at the right time in the right quantities
Example of a distribution channel
Producer>wholesaler>retailer>customer
Distribution channels serve more than one purpose
Provide a link between production and consumption
• Help gather market information
• Communicate promotional offers
• Find and communicate with prospective buyers
• Physical distribution - transporting and storing
• Financing – other parties finance the stock
• Risk taking – other parties take some risk
Main Types of Intermediary in Distribution Channels
Retailer, wholesaler, distributor, agent
Key Advantages of Retail Distribution
Convenience for customers • Often UK-wide reach to customers • Retailer chooses the final price • Retailer handles the financial transaction • Retailer holds the stock • After-sales support (e.g. returns)
Wholesalers “break bulk”
– Buy in large quantities from producers
– Break into smaller quantities to sell to retailers
Wholesaler advantages
– Reduce the producer’s transport costs (fewer journeys to
the wholesaler rather than many journeys to retailers)
– Retailers can order in smaller amounts from wholesalers
Example
PRODUCER: Newspaper Publisher – e.g. The Sun, The Times – who send bulk print runs of newspapers to large depots run by wholesalers
WHOLESALER: (e.g. John Menzies) packs newspapers into bundles for retailers (e.g. newsagents)
Retailer (e.g. newsagent; petrol station) displays newspaper in store and delivers to homes
Customer = newspaper buyer
Distributors
Distribute (sell on) products and serve as a local sales point
• Usually specialise in a particular industry
– Examples – building supplies, electrical components, industrial clothing
• Offer products from many producers = greater choice
• Different from agents in that a distributor holds stock
Agents
Specialist type of distributor
• Does not hold stock
• Tend to operate in tertiary sector (services)
– Travel
– Insurance – Publishing
• Earn commission based on sales achieved
Direct Distribution
Channel where a producer and consumer deal directly with each other without the involvement of an intermediary
Indirect Distribution
Involves the use of intermediaries between the producer and consumer
Direct channels examples
Direct mailing
– E-commerce
– Telemarketing (telephone selling)
Possible Reasons to Use Indirect Distribution Channels
Geography- customers may live too far away to be reached directly or spread widely
• Consolidation of small orders into large ones
• Better use of resources elsewhere
• Lack of retailing expertise
• Segmentation - different segments of the markets can be best reached by different distribution channels
The product
Perishable/fragile? – Technical/complex? – Customised
– Type of product – e.g. convenience, shopping, speciality
–Desired imageforthe product
What is Multi-Channel Distribution?
Multi-channel distribution involves a business using more than one type of distribution channel
Benefits of multi-channel distribution
Allows more target market segments to be reached, Customers increasingly expect products to be available via more than one channel, Enables higher revenues – e.g. if retail outlets have no stock, but customer can buy online.
Drawbacks of multi-channel distribution
Potential for channel “conflict” –e.g. competing with retailers by also selling direct, can be complex to manage, Danger that pricing strategy becomes confused (in the eyes of customers). You’ll need to set aside a budget for marketing and advertising. You could be spreading yourself and resources too thin. Employees could get overwhelmed and start making costly mistakes. Cannibalization of sales: Opening an online store could eat into your in-store experience
Some Key Changes in Distribution to Reflect Social Trends
Sale of services via mobile devices, particularly media content, Widespread adoption of e- commerce by households reducing high street retail sales,
What is distribution strongly influenced by
the Nature of the Target Market Segment. How can a business ensure that its products reach existing and potential customers?
• How and where do customers prefer to buy the product?
• How important are factors such as stock availability, price, speed?
What Is Market Cannibalization?
Market cannibalization is a loss in sales caused by a company’s introduction of a new product that displaces one of its own older products. The cannibalization of existing products leads to no increase in the company’s market share despite sales growth for the new product.
