Channels of Distribution
Channels of Distribution
A major part of the place decision is selecting the channel of distribution = the route a good takes from original source to its final customer.
Channels of Distribution Think of an apple you recently
ate. What route did it take to get to you?
It started out in an orchard owned by an apple farmer. The farmer sold the apples to an apple buyer. Apple buyer buys apples from all the farmers in the area.
Apple buyer then sells apples to your local grocery store. You then go to the grocery store and buy the apple.
Channel of Distribution
General Channel
Producer Apple Farmer
Roberto’s Apple
Orchard
Channels of Distribution You could have bought the apple directly from the farmer but you live far away from any apple farms. Producer = farmer Wholesaler = Apple Buyer Retailer = Grocery Store Consumer = You = person who eats apple
Channels of Distribution
Most common is from raw materials to final consumer
A channel of distribution is also called a supply chain. Each segment is the supplier of the following segment.
Channels of Distribution
How do channel members add value to the product?
By being experts at what they do. The apple farmer is expert at producing bushels of apples. The grocery store is expert at selling produce.
Channels of Distribution
Choosing the best channel of distribution is critical to the success of the product
Intermediaries are the people or businesses are in the middle between the source of the product and the customers. Most common type is wholesaler and retailer.
Timeliness is important!
Channel Members
Middlemen are classified on the basis of whether or not they take ownership of goods.
Merchant middlemen take title. Ex. CompUSA is middleman for Nikon Cameras. Consumers buy from CompUSA
Agent middlemen (agents) do not take title but work on commission. Agents get buyers and sellers together.
Intensive Distribution
Intensive distribution aims to provide saturation coverage of the market by using all available outlets. Marketers want to achieve ideal exposure.
For many products, total sales are directly linked to the # of
outlets used (e.g. cigarettes, beer). Intensive distribution is usually required where customers have a range of acceptable brands to chose from. In other words, if one brand is not available, a customer will simply choose another.
Examples: Wal-Mart, Convenience Store, Sam’s Club, Kohl’s, Walgreens, etc.
Selective Distribution
Selective distribution involves a producer using a limited number of outlets in a geographical area to sell products.
Advantage of this approach is that the producer can choose
the most appropriate or best-performing outlets and focus effort (e.g. training) on them.
Selective distribution works best when consumers are
prepared to "shop around" - they have a preference for a particular brand or price and will search out the
stores/outlets that supply. High end perfume will probably not be sold at Wal-Mart, but at
Belk, Macy’s, etc.
Exclusive Distribution
Exclusive distribution is an extreme form of selective distribution in which only one wholesaler, retailer or distributor is used in a specific geographical area. Based on the way consumers use products or behave toward a product.
Channels of Distribution
Why pick one type of distribution over another?
Marketer needs to choose distribution that
“fits” his product – result – you will get ideal market exposure.
Offer luxury products at luxury stores
– not discount stores – maintain image of luxury
Channels of Distribution
Best to use exclusive pattern of distribution when you need to maintain tight control over a product.
Exclusive distribution is a legal arrangement when franchisor requires franchisee to only sell franchisor’s products
Use of Technology in Distribution Channels
o Technology (Software) aims to integrate all departments and
functions across channels
o Each channel typically has its own software/computer system
o Channel member employees have to enter info. into the
system in a TIMELY manner
o Processes must be integrated end-to-end and demand the right
mix of technology, infrastructure and labor to make them
work to provide CUSTOMER SATISFACTION.
Use of Technology in Distribution Channels
Some businesses have the capacity to distribute most of their products thru the internet
By using satellite tracking, a dispatcher has current knowledge of delivery truck’s location/destination
Distribution Channels for Consumer Products
Most common is Producer to Retailer to Consumer
Used most often for products that become out-of-date quickly such as clothing and automobiles.
Distribution Channels for Consumer Products
Manufacturer/Producer to Agents to Retailer to Consumer
Manufacturers do not want to handle sales. The agent brings the buyer and seller together.
Expensive cookware, supermarket items and cosmetics are sold this way.
Distribution Channels for Consumer Products
Producer to wholesaler to retailer to consumer
Most often used for staple goods whose styles rarely change – stock items
Wholesaler buys in large quantities and handles the sales, warehousing and distribution to retailers. Examples: Flowers, candy and stationery supplies
Dual Distribution in Channel Marketing
Manufacturer uses 2 approaches simultaneously to get products to end-users. One approach is to use mktg. intermediaries, while the other is to sell direct to end-users
Another example is selling thru a toll-free number, a company website and several retailers.