Distribution

Follow-up to McDonalds: Video

Read the article on Distribution and answer the the questions at the end of the article.

A distribution channel is a chain of businesses or intermediaries through which a good or service passes until it reaches the final buyer or the end consumer. Distribution channels can include wholesalers, retailers, distributors, and even the Internet.

Indirect Distribution
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
Direct distribution involves distributing direct from the manufacturer to the consumer For example Dell Computers providing directly to its target customers. The advantage of direct distribution is that it gives a manufacturer complete control over their product.

Place and Distribution Intermediaries Defined
Manufacturer: Person, group or firm that makes the product.
Wholesaler: The party that buys large quantities of a product from manufacturers and sells it to retailers. Wholesalers sell goods to other businesses, they do not sell directly to consumers.
Retailers: The organisation that sells products directly to consumers and end users. As they are selling to consumers for personal use, the goods are usually sold in small quantities.

Levels of Distribution channels
Zero level channel – Where the distribution happens from company to end customer.
One level channel – Distribution happens with a single agent in between. Example – From manufacturer to E-commerce companies. And from E-commerce to customer.
Two Level channel – Distribution happens with 2 business entities in between. Example – Goods flowing from manufacturer to Distributor >> Distributor to Retailer >> And Retailer to customer.
Three level channel – Distribution happening with 3 business entities in between. Example – Goods flowing from Manufacturer to C&F >> C&F to Distributor >> Distributor to Retailer >> And Retailer to customer.

PLACE – AN INTRODUCTION
Through the use of the right place, a company can increase sales and maintain these over a longer period of time. In turn, this would mean a greater share of the market and increased revenues and profits.
Correct placement is a vital activity that is focused on reaching the right target audience at the right time. It focuses on where the business is located, where the target market is placed, how best to connect these two, how to store goods in the interim and how to eventually transport them.

MAKING CHANNEL DECISIONS
Setting Goals and Direction
The first step to deciding the best distribution channel to use, a company needs to:
Analyze the customer and understand their needs
Discuss and finalize channel objectives
Work out distribution tasks and processes.
Some key questions to ask in finalizing these three areas include:
Where do users seek to purchase the product?
If is a physical store, is it a supermarket or a specialist store? Is it an online store? What is the access available to the right distribution channels?
What are competitors doing? Are they successful? Can best practices be used in making channel decisions?

Selecting Distribution Strategies

Intensive Distribution – This strategy may be used to distribute lower prices products that may be impulse purchases. Items are stocked at a large number of outlets and may include things such as mints, gum or candy as well as basic supplies and necessities.
Selective Distribution – In this strategy, a product may be sold at a selective number or outlets. These may include items such as computers or household appliances that are costly but need to be somewhat widely available to allow a consumer to compare.
Exclusive Distribution – A higher priced item may be sold at a single outlet. This is exclusive distribution. Cars may be an example of this type of strategy.

Assessing Benefits of Distribution Channels
While making channel decisions, a company may need to weigh the benefits of a partner with the associated costs. Some potential benefits to look out for include:
Specialists – Since intermediaries are experts at what they do, they can perform the task better and more cost effectively than a company itself.
Quick Exchange time – Being specialists and using established processes, intermediaries are able to ensure deliveries faster and on time.
Variety for the Consumers – By selling through retailers, consumers are able to choose between a varieties of products without having to visit multiple stores belonging to each individual producer.
Small Quantities – Intermediaries allow the cost of transportation to be divided and this in turn allows consumers to buy small quantities of a product rather than having to make bulk purchases. This is possible when a wholesaler buys in bulk, stores the product in a warehouse and then provides the product to retailers located close by at lower transportation costs.
Sales Creation – Since retailers and wholesalers have their own stakes in the product, they may have their own advertising or promotions efforts that help generate sales.
Payment Options – Retailers may create payment plans and options for customers allowing easier purchases.
Information – The distribution channel can provide valuable information on the product and its acceptability, allowing product development as well as an idea of emerging consumer trends and behaviors.

Assessing Possible Channel Costs
With the benefits in mind, here are some costs that a producer may have to weigh in order to make channel decisions
Lost Revenue – Because intermediaries need to be either paid for their services or allowed to resell at a higher price, the company may lose out on revenue. Pricing needs to stay consistent, so the company will have to reduce its profit margin to give a cut to the intermediary.
Lost Communication Control – Along with revenue, the message being received by the consumer is also in the hands of the intermediary. There is a danger of wrong information being communicated to the customer regarding product features and benefits which can lead to dissatisfaction.
Lost Product Importance – When a product is handed over to an intermediary, how much importance it gets is now out of the company’s hand. The intermediary may have incentives to push another product first at the expense of others.

IMPACT OF MARKETING MIX ON PLACE
No element of the marketing mix works in isolation. Information from each of them acts as input to the others. This is why when shaping a distribution strategy, input needs to be taken from all other elements of the mix and any considerations need to be addressed or incorporated. Product, price and promotion may have the following impacts on the distribution strategy.

Impact of Product Issues
The type of product being manufactured is often the deciding factor in distribution decisions. A delicate or perishable product will need special arrangements while sturdy or durable products will not require such delicate handling.
Impact of Pricing Issues
An assessment of the right price for a product is made by the marketing team. This is the price at which the customer will be willing to make the purchase. This price will often help decide the type of distribution channel. If this price does not allow a high margin, then a company may choose to use less intermediaries in its channel to ensure that everyone gets their cut at a reasonable cost to the manufacturer.
Impact of Promotion Issues
The nature of the product also has an impact on the type of promotions required to sell it. These promotion decisions will in turn directly affect the distribution decisions. Disposable goods or those of everyday use do not require too many special channels. But for a car, there needs to be extensive salesperson and user interaction. For this type of product, a specialist channel may be needed.

Questions: After reading...do you understand distribution?

Define and give an example of distribution in your own words.
What are the benefits of selling direct to consumer?
What are the negatives of selling your product through a retailer?
Why would car manufacturers want to sell their product through selective retailers?
Think of an example of a company that uses a zero level channel, in other words goes from manufacturer directly to the customer.
Explain the different channels of distribution Apple has for its I Phone products.
If you have a low margin on your product, why would it not be a good idea to sell your product through a retailer? 
List the three types of distribution that East Coast Lifestyle uses.