Lecture # 11 Distribution

DISTRIBUTION

Newport institute communication & economics Karachi

Channels of distribution

• A set of institutions which perform all the activities utilized to move a product and its title from production to consumption.

• All the organizations through which a product must pass between its point of production and consumption

Lecture # 11 - Distribution

Functions of a distribution channel

• To provide a link between production & consumption

• Promotion – to communicate an offer• Contact – to find and communicate with

prospective buyers• Matching – adjusting the offer to fit buyer’s needs• Negotiation – reaching an agreement• Physical distribution – transporting & storing• Risk taking – assuming some of the commercial

risks


Mqrketing-Channel Terminologies• Broker - An intermediary whose job is to bring together buyers and

sellers, and who does not carry inventory, get involved in financing, or assume risk

• Facilitator - An intermediary who assists in the distribution process but neither takes title to goods nor negotiates purchases or sales

• Manufacturer’s Representative - A company that represents and sells the goods of several manufacturers. Hired by companies instead of or in addition to an internal sales force

• Merchant - An intermediary who buys, takes title to, and resells merchandise

• Retailer - A business enterprise that sells goods or services directly to the final consumer for his or her personal, non-business use

• (Sales) Agent - An intermediary who searches for customers and negotiates on a producer’s behalf but does not take title to the goods

• Wholesaler (Distributor) - A business enterprise that sells goods or services to those who buy for resale or business use


Channel strategy decisions

• Channel length – direct or indirect• Choice of intermediary• Multiple or single channels• How to move the goods through

the channel?• Control over the channel


Channel length or structure

• Choice of direct (short) or indirect (long) channels

- Direct channel – producer &

consumer interact directly without the

involvement of an intermediary

- Indirect channel – Involves intermediaries

between producer & consumer

• Channel length refers to the no. of intermediaries involved


Why intermediaries ?

• Geography – Consumers maybe too dispersed

• Consolidation of small orders into large ones

• Lack of retailing know-how• Segmentation – different segments of the

market being reached by different distribution


Long/Indirect Short/Direct

Manufacturer Manufacturer Manufacturer Manufacturer

Agent Wholesaler Retailer Consumer

Wholesaler Retailer Consumer

Retailer Consumer

Consumer


Short or Long ?

• Short distribution channel:- Higher distribution costs- Gives producer greater control over

marketing of products

• Long distribution channels:- Reduced costs- Reduces the producers control over

marketing of products


Factors affecting choice of distribution channel

• Nature of the product:- Perishable/fragile- Technical/complex- Customized- Type of product e.g. Convenience, shopping


Factors affecting choice of distribution channel

• Market- Geographically spread market?- The extent of competition

• Company- Size- Nature- Does it have established network?

• Legal issues - Are there any limitations on sale?


Short channels are used for…

• Industrial products• Expensive and complex goods• Customized products• Services• Products sold in geographically concentrated

market• Products bought infrequently by smaller no. of

consumers


Long channels are used for…

• Consumer goods• Inexpensive and simple goods• Standardized products• Goods sold in dispersed markets• Goods sold frequently and to many consumers


Decision 2: Choice of intermediaries

• Intermediaries must be chosen carefully • Choice of intermediary should be related

to the product & other aspects of marketing mix

• Intermediaries to offer appropriate customer services for expensive & technically complex goods

• Choice of intermediary (particularly retail outlet) affects product’s image


Criteria for selection of intermediaries

• Operational criteria:- Knowledge of market- Appropriate premises &

equipment- Customer convenience - Product knowledge- Payment system- Sales force structure

• Strategic criteria:- Plans for growth &

expansion- Capacity- Quality assurance

procedures- Willingness as a

partner- Level of loyalty & co-

operation- Innovativeness


Decision 3: Single or multiple channels

• Single channel: Reliance upon a single channel of distribution & a single set of channel members to distribute the product

• Multiple channels: Distributing the product via a variety of channels, some direct and some indirect.


Multi channel strategies

• Advantages:- Different markets can be targeted more

accurately

- Spreads risk

- Greater control of the market

• Disadvantages:- Intermediaries might feel threatened- Promotion more difficul


Decision 4: How to move goods through the channels

• A problem facing the distributor is how to encourage intermediaries to stock the product and actively promote it

• Two strategies commonly used either separately or in unison:- Push strategy

- Pull strategy


Moving goods through the channel

• Pushing:- Involves sales

promotion directed at channel members

- Emphasis on Sales promotion particularly, trade promotion

• Pulling:- Emphasis on

advertising to persuade the user to buy the product


Decision 5: The degree of market exposure

• Determination of required market coverage • Three broad strategies can be applied:

- Intensive distribution- Selective distribution- Exclusive distribution


Intensive distribution• Saturation coverage – covering all/maximum no.

of available outlets• Target outlets in as many geographical area as

possible• Limited support for the dealer• Used for:

- Inexpensive fast moving consumer convenience goods

- Goods purchased on impulse

- Goods purchased by high no. of purchasers


Selective distribution

• Limited no. of outlets

• Medium no. of consumers

• Medium level of control over distributors

• Retailers may require specialist knowledge

• Used for:- Shopping goods - Medium priced goods- Goods purchased occasionally


Exclusive distribution

• A single outlet is targeted in a geographic area

• Stringent control of the dealer

• Used for

- Specialized/niche products- High priced products- High involvement & planned purchase


Market coverageIntensive Selective Exclusive

No. of outlets Maximum Many Few

Outlets/region Many Few One

Price Low Medium High

Type of product Convenience Shopping Speciality

No. of potential buyers

High Medium Low

Purchase frequency

Often Occassionally

Seldom

Planning reqd. of buyer

Low Medium High

Example Sweets Car Rolex


Lecture # 11 Distribution

Documents

factors affecting choice

goods purchased

single channel

sells goods

business enterprise

takes title

exclusive distribution

market