Report Presentation - Distribution

8/3/2019 Report Presentation - Distribution

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5.0 DISTRIBUTION

5.1 INTRODUCTION

Product distribution is an organization or set of organizations (go-between) involved in

the process of making a product or service available for use or consumption by a consumer or

business user. In another words, distribution are activities that bring the products or services to

the end users or customers.

Distribution is also a very important component of Logistics & Supply chain

management. Distribution in supply chain management refers to the distribution of a good from

one business to another. It can be factory to supplier, supplier to retailer, or retailer to end

customer. It is defined as a chain of intermediaries; each passing the product down the chain to

the next organization, before it finally reaches the consumer or end-user. This process is known

as the 'distribution chain' or the 'channel.' Each of the elements in these chains will have their

own specific needs, which the producer must take into account, along with those of the all-

important end-user. Distribution is one of the four elements of traditional marketing mix besides

product, pricing and promotion.

Figure 5.1: Examples of distribution channels. From left: MYDIN, a major retail and groceries product

distributor in Malaysia; UPS, leading shipping and product distribution service provider and Amazon.com,

the pioneer of online shopping and distribution company.


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5.2 BASIC DISTRIBUTION CHANNELS

There are several distribution channels usually used by manufacturers or service

providing companies to distribute their products or services to the customers or end users.

Figure 5.2: Basic Distribution Channels

Figure 5.2 shows the diagram of basic distribution channels normally used in distributing

the products and goods to the customers. From the diagram, it can be seen that there are severaldistributions channels that can be used to meet the goal of the manufacturers or service providers

in achieving their distribution goals. The simplest example is by direct distribution from the

manufacturers or service providers to the end users or customers while other channels such as

using other parties such as agents or brokers, wholesalers or distributors and retailers are also

normally used.


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Distribution channels may not be restricted to physical products from producer to

consumer in certain sectors, since both direct and indirect channels may be used. Hotels, for

example, may sell their services (typically rooms) directly or through travel agents, tour

operators, airlines, tourist boards, centralized reservation systems, etc. process of transfer the

products or services from Producer to Customer or end user.

There have also been some innovations in the distribution of services. For example, there

has been an increase in franchising and in rental services - the latter offering anything from

televisions through tools. There has also been some evidence of service integration, with services

linking together, particularly in the travel and tourism sectors. For example, links now exist

between airlines, hotels and car rental services. In addition, there has been a significant increase

in retail outlets for the service sector. Outlets such as estate agencies and building society offices

are crowding out traditional grocers from major shopping areas.

Figure 5.3: Examples of distribution channels. From left: Fuel Station franchise, Electronic store distributor

or retailers, Hypermarket wholesalers or retailers


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5.3 OBJECTIVES OF DISTRIBUTION

Distribution is carried out to achieve several objectives of business. Whist, it is often said

that distribution is the way of bringing the product or services to the end users or customers,

distribution also provide several other benefits to the manufacturers or service providers such as:

5.3.1 Minimize Total Distribution Costs for a Given Service Output

The manufacturers or service providers do not have to think about sales or selling costif they are using retailers, wholesalers or agents in distributing their product which

enable them to focus more in manufacturing and improving their products or services.

In case of direct distribution, the manufacturers or service providers do not have toshare profits with the retailers, agents or distributors thus increasing the profit margin

of the products or services.

5.3.2 Determine the Market Segment and the Best Channel for Each Segment

Help the manufacturers or service providers to determine the income group who buysthe most of their products or services and how the consumers prefer the way ofobtaining their products or services

The channel decision is very important. In theory at least, there is a form of trade-off: the

cost of using intermediaries to achieve wider distribution is supposedly lower. Indeed, most

consumer goods manufacturers could never justify the cost of selling direct to their consumers,

except by mail order. Many suppliers seem to assume that once their product has been sold into

the channel, into the beginning of the distribution chain, their job is finished. Yet that distribution

chain is merely assuming a part of the supplier's responsibility; and, if they have any aspirations

to be market-oriented, their job should really be extended to managing all the processes involved

in that chain, until the product or service arrives with the end-user. The right selection of

distribution channel can determine the sustainability of the products or services in the market.


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5.4 COMPETITIVE ADVANTAGES OF PRODUCT DISTRIBUTION

Traditionally, competitive advantages is gained through the products itself, for examples

the certain product is more sought after by its looks and quality but now manufacturers cant rely

solely on the products or services alone as these can be copied easily by the competitors. A

product or service can also have competitive advantage in term of price with the competitors

products or services which are more expensive. However, with the increase of todays living

standard, price is not a big issue to the consumers anymore as they are willing to pay more as

long as they can have a product or service that can satisfied their needs.

Brand name can also provide the manufacturer or service provider with a competitive

advantage but this can only be true if the brand name is strong and the consumers have high faith

in the brand. In order to achieve this, the products or services that carry the brand name must

have a proven track record or history of excellent performance or lifetime among the customers.

That is why more and more marketers and manufacturers are turning and put more effort on

distribution channels as it provide them with new means of competitive advantage over their

counterparts or competitors.

Objectives may vary with product characteristics for example either the product is

perishables, bulky products, non-standard items, products requiring installation & maintenance


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5.5 ALIGNING CHANNELS WITH HOW CUSTOMERS BUYS

Manufacturers or service providers must correctly align their product distribution

channels with the customers buying behavior in order to have competitive advantage over their

competitors and meet the distribution goals and targets. This may be done through these

methods.

5.5.1 Identify Customers Channel Preferences and Buying Behaviour.

How the customer like to buy the products or services either through small retails,large stores or exclusive boutiques.

How much they buy either in small or large quantities. How often they buy the products or services (frequency of buying).

5.5.2 Tabulate Channel Selection to Key Buying Criteria

Match the consumers buying or purchasing behaviour to the most profitabledistribution channel and emphasize more on that particular channel.

5.5.3 Provide Flexible Channel Option

Keep other distribution channel option available to cater the needs of other type ofconsumer and can also act as contingency option in case there is problems with the

main distribution channel.

5.5.4 Monitor and Respond to Changes in Customer Buying Behaviour

Alert to changes in current market or economic situation such as price hike ordownturn, salary increment of the general population, festive seasons or others that

can alter the customers buying behaviour.


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5.6 DISTRIBUTION SCOPE STRATEGIES

There are several distribution channels or strategies used by the manufacturers or service

providers to distribute their products or services to the customers or consumers. The channels

selection normally based by the nature of the products or services and also the buying behaviour

of the consumers or the end users.

5.6.1 Exclusive Distribution

Exclusive distribution is a situation in which only certain dealers are authorized to sell a

specific product within a particular territory. The legality of an exclusive distribution agreement

can vary depending on the specifics of the case. In some instances, such agreements are entirely

legal, while in others, rivals may create legal challenges. If a firm can show that an exclusive

distribution agreement harms competition in some way, it may be able to argue that the

agreement is not legal.

This type of distribution agreement is usually seen with high end and luxury products. In

an example of an exclusive distribution agreement, a car manufacturer might only agree to allow

three dealers to sell its cars in a specific country. Dealers other than these three who attempted to

sell new vehicles from that manufacturer would be doing so without authorization; one

consequence of this might be that the manufacturer would refuse to honor warranties or provide

support for cars sold at unauthorized dealers.

The structure of an exclusive distribution agreement favors both the manufacturer and the

distributor or retailer. From the point of view of people moving the product to consumers, having

an exclusive contract means that consumers must come to them if they want the product. For

example, if a cell phone provider has an exclusive deal with a manufacturer of cell phones,

people who want to use cell phones made by that manufacturer must go through that cell phone

provider.


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Figure 5.4: Example of Exclusive distribution; Naza Italia was officially appointed as the exclusive distributor

for Ferrari, Maybach, Maserati and Bugatti Veyron in Malaysia. A main factor in choosing Naza Italia was

its expertise in high-quality technical products on the consumer market.

Advantages of Exclusive Distribution

Maximize control over service level/output Enhance products image & allow higher markups Promotes dealers loyalty, better forecasting, better inventory and merchandising control Restricts resellers from carrying competing brands

Disadvantages of Exclusive Distribution

Betting on one dealer in each market Only suitable for high price, high margin, low volume product

5.6.2 Intensive Distribution

Intensive distribution is a type of marketing strategy that involves placing the goods and

services offered by a company into as many markets as possible. The idea is that by making the

products readily available to as many consumers as possible, the chances of generating sales are

increased. There are a number of situations in which this approach allows consumers to easily

purchase products from any number of different outlets, ranging from supermarkets to drugstores

to the local gas station.


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With intensive distribution, the focus is not necessarily on targeting specific consumer

demographics for the purpose of deciding where to distribute those products. While a company

may in fact have a core or target consumer base in mind, the business will also make it a point to

sell its products in venues that are frequented by consumers other than that target audience. For

example, a soda manufacturer may currently be focusing on older teens and younger adults as its

primary market thrust, but will continue to distribute the soda products to outlets that are not

necessarily destinations of that targeted demographic. This means that in addition to selling

sodas at convenience stores, malls, and supermarkets, there is a good chance those same sodas

will be found at retirement resorts, golf courses, and other locations that are traditionally visited

by consumers outside that key demographic.

Figure 5.5: Examples of Intensive Distribution Products: From left (clockwise): Fast moving items in

newsstand i.e newspapers, magazines, stationeries; soft drinks; ice creams; photo processing shops and non-

prescriptive medicines


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Advantages of Intensive Distribution

Better market coverage than exclusive distribution. More control and less cost than intensive distribution. Concentrate effort on few product outlets. Selected firms capable of carrying full product line and provide the required service.

Disadvantages of Intensive Distribution

May not cover the market adequately Difficult to select dealers (retailers) that can match your requirement and goals Impulse buying

5.6.3 Selective Distribution

Selective distribution is a retail strategy that involves making a product or group of

products available only in certain markets. This is the opposite of open distribution, where a

product line is distributed to as many markets as possible. There are several reasons for

employing this approach, including the potential for limiting competition and

minimizing distribution costs so that net profits are higher.

The process of selective distribution focuses on identifying specific markets where a

companys products are highly likely to be favored by consumers in the area, while

avoidingdistribution to areas where there is less of a chance of gaining a significantmarket share.

Often, this situation comes about because a number of similar products are already available

through certain markets, and the level of competition is higher. By choosing to distribute goods
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through handpicked retailers within certain geographic regions, it is possible to avoid some of

this competition, while still tapping into the demand for products of that type.

One approach to selective distribution that some businesses take is to contract with a

limited number of retailers who will sell the products in their stores. For example, a company

making a specific brand of cologne may choose to only allow their product to be sold at a couple

of high-end department stores, and withhold distribution to supermarkets, drugstores, and

discount retailers. The idea is that by focusing on consumers who are more likely to shop at one

or more of the high-end stores, the product begins to be seen as somewhat prestigious, and will

command a higher price per unit.

Along with the selection of retailers, a company may choose to limit distribution of its

products to specific geographical areas. This is sometimes the case where there is a strong

demand for a given product, but very few opportunities to purchase the product locally. In this

scenario, the manufacturer may identify specific retailers with stores in those geographical areas

and make arrangements for those products to be carried on their shelves. The retailers benefit

from being able to offer a product that is not widely available in the area, while the manufacturer

stands to increase sales by having little to no competition from similar products within that area.

It is important to draw a distinction between exclusive

distribution and selective distribution. An exclusive model would involve the identification of a


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single retailer to offer the product within a particular market, and would also call for the retailer

to not carry competing brands. This is not often the best approach for the manufacturer or the

retailer, in that it limits options to reach consumers. A selective distribution model does not

prevent retailers from selling at least one similar product, and does not limit the manufacturer

from working with other retailers in the area to carry the product line. Under normal

circumstances, the selective approach is much more likely to maximize profits in a given market

than the exclusive approach.

Figure 5.6: Examples of Selective Distribution products: Top from left: Cosmetics, electronic appliances.

Bottom from left: Luxurious shoes, fuel stations, fast food restaurants

Advantages of Selective Distribution

Better market coverage than exclusive distribution More control and less cost than intensive distribution Concentrate effort on few product outlets Selected firms capable of carrying full product line and provide the required service


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Disadvantages of Selective Distribution

May not cover the market adequately Difficult to select dealers (retailers) that can match your requirement and goals Impulse buying

5.6.4 Competitive Channels

In the early stages of the firm's development, a single strategy may be used, which later

branch into a hybrid channel. When a number of distribution strategies are combined, such as the

use of an internet platform to ship products directly to consumers, in addition to retail stores, the

manufacturer is employing a hybrid channel strategy. For example, the computer manufacturer

Dell employed this type of strategy when it began to distribute select models through the

discount warehouse retailer, while continuing to fulfill the majority of its product orders directly.

What to Look Out for

Over extending yourself Dealers resentment Control problems

Modification Towards Competitive Channels When the Following Occurs

Consumer markets and buying habits Customer needs Competitors perspectives Relative importance of outlet types Manufacturers financial strength Sales volume level of existing products, and The marketing mix


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5.6.5 Online Distribution (E-Commerce/Internet Shopping)

Electronic commerce, or e-commerce, refers to economic activity that occurs online. E-

commerce includes all types of business activity, such as retail shopping, banking, investing and

rentals. Even small businesses that provide personal services, such as hair and nail salons, can

benefit from e-commerce by providing a website for the sale of related health and beauty

products that normally are available only to their local customers.

Although e-commerce once required an expensive interface and personal security

certificate, this is no longer the case. Virtual storefronts are offered by a variety of hosting

services and large Internet presences that offer simple solutions to vendors who have little or no

online experience. Tools for running successful e-commerce websites are built into the hosting

servers, eliminating the need for the individual merchant to redesign the wheel. These tools

include benefits such as virtual shopping carts, inventory and sales logs and the ability to accept

a variety of payment options, including secure credit card transactions.

Early e-commerce was stunted by security fears, but improved technology has made

millions of people worldwide feel comfortable buying online. Seeing the vast potential in online

commerce, most credit card companies helped allay fears by guaranteeing that cardholders

would not be held responsible for fraudulent charges as a result of online shopping. All of these

factors have helped e-commerce become a booming industry.

The popularity of online commerce is understandable, considering the time and hassle

involved in running from store to store, searching for an item. It not only takes valuable time and

energy, but using transportation usually costs money. Shopping online whenever the mood

strikes, even in the middle of the night has many advantages. Not only is it convenient to shop at

a myriad of vendors from the comfort of a computer chair, its also a snap to find the best deal by

allowing certain shopping sites to sift through all of the sellers.


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E-commerce also has other advantages. Employee overhead is virtually nonexistent, and

the cost of operating a website usually is nominal, especially when compared with the cost of

storefront property. To top it off, most transactions are handled by software processes, never

requiring a real person until the item is ready to be packed and shipped. This translates into real

savings to the customer. As a result, physical businesses often cannot compete with their online

counterparts, although consumers do have to watch for inflated shipping fees that might negate

the savings of buying online.

Figure 5.7: E-commerce or Internet Shopping has become a norm in todays world with the higher access to

the internet and the growing numbers of internet shopping providing companies like e-bay, GSC Cinemas

etc.


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5.6.6 M-Commerce (Mobile Commerce)

M-commerce is a term that is used to refer to the growing practice of conducting

financial and promotional activities with the use of a wireless handheld device. The term m-

commerce is short for mobile commerce, and recognizes that the transactions may be conducted

using cell phones, personal digital assistants and other hand held devices that have operate with

Internet access. While still in its infancy, the concept of m-commerce has been refined in recent

years and is beginning to become more popular.

One of the basic examples of m-commerce has to do with receiving sales promotions via

the hand held device. The most common application would involve the service provider sending

text messages to the subscriber that promote new product offerings, free trials on additional

services, or other types of promotional campaigns. The subscriber is not charged a fee for the

text message, and often can respond with a return text message without incurring any type of fee.

Several major cellular services off subscribers to opt into this type of m-commerce, or be

excluded from receiving the messages.

Offers that are received through the use of m-commerce may be accepted and paid for

using the hand held device. For example, if a customer chooses to respond to an offer, there are

usually several payment options available. The most common option is adding a charge to the

monthly invoice for services rendered. However, many companies that engage in m-commerce

also offer the option of paying for the item by the use of a credit card that is linked to the SIM

card on the hand held device.

Currently, the use of m-commerce is more prominent in Europe and Asia. However, with

the launch of enhanced services with cell phones and other mobile devices, the concept is

beginning to become more common in North and South America as well. Currently, m-

commerce is growing in Canada and the United States on a steady basis, while Brazil is leading

South America in embracing this enhanced technology.


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Figure 5.8: Mobile Commerce or M-Commerce has become popular with the introduction of smart phones

and its M-Commerce applications and with rapid participations of the retails companies and the financial

institutions

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