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Distribution Strategy
Introduction
“Marketing channels are sets of
interdependent organizations
involved in the process of making a
product or service available for
use or consumption”
Philip
Kotler
Functions of a
Distribution Channel
• The main function of a distribution
channel is to provide a link between
production and consumption.
Importance of Distribution
Decision
• Firms market share
• Market penetration
Decisions In Physical
Distribution Systems
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Order processing
Warehousing
Inventory
Transportation
Distribution - types of
distribution intermediary
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Distributors
Distributors have a similar role to wholesalers – that of taking
products from producers and selling them on. They also usually
have a much narrower product range. Distributors are often
involved in providing after-sales service.
Wholesalers
Wholesalers stock a range of products from several producers.
The role of the wholesaler is to sell onto retailers. Wholesalers
usually specialise in particular products.
Franchises
Franchises are independent businesses that operate a branded product
(usually a service) in exchange for a licence fee and a share of sales.
Agents
Agents sell the products and services of producers in return for a
commission (a percentage of the sales revenues)
•Retailers
•Retailers operate outlets that trade directly with
household customers. Retailers can be classified in several
ways:
• Type of goods being sold( e.g. clothes, grocery, furniture)
•Type of service (e.g. self-service, counter-service)
• Size (e.g. corner shop; superstore)
• Ownership (e.g. privately-owned independent; publicquoted retail group
• Location (e.g. rural, city-centre, out-of-town)
• Brand (e.g. nationwide retail brands; local one-shop name)
Number of Channel
Levels
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Size of the market
Service requirement
Complexity of product
Price
Order lot size
Basic Channels of
Distribution
Manufacturers/products
Agents/brokers
Wholesalers/distributors
Retailers
Retailers
Consumers and organizational end users
Transaction Cost by
Channels
As the value-added increases, the cost of
transaction also increases
• Direct marketing channels—low valueadded; low cost of transactions e.g. ecommerce, telemarketing
• Indirect marketing channels—medium
value-added; medium cost of transactions
e.g. retail stores, distributors
• Direct sales channels—high value-added;
high cost of transactions e.g. own sales
force
Distribution Objectives
• Minimize total distribution costs for a
given service output
• Determine the target segments and the
best channels for each segment
• Objectives may vary with product
characteristics
– e.g. perishables, bulky products, nonstandard items, products requiring
installation & maintenance
Role of Intermediaries
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Information
Price stability
Promotion
Financing
Title
Factors Influencing
Distribution Decision
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Marketing Mix Strategy
External Environmental Factors
Market Characteristics
Consumer Preference And Behaviour
Marketing Mix Strategy
• Long term strategic pricing plan
determines distribution through high
margin outlets or high volume outlets
• Product characteristics
• Image of the product
• After sales service
External Environmental
Factors
• Government policy
• State of the economy
• Infrastructure development
Market Characteristics
• No of customers
• Average purchase
• Type of customers
Aligning Channels With
How Customers Buy
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Identify customers’ channel preferences
and buying behavior
Tabulate channel selection to key buying
criteria
Provide flexible channel options
Monitor (and respond to) changes in
buying behavior
Distribution-Scope Strategies
• Exclusive Distribution
– Limiting the distribution to only one
intermediary in the territory
• Intensive distribution
– Distribute from as many outlets as
possible to provide location
convenience
• Selective distribution
– Appoint several but not all retailers
Example of Exclusive
Distribution
• LEICA was officially appointed Jebsen &
Jebsen Marketing as the exclusive
distributor for Singapore, Malaysia,
Thailand, Indonesia and Brunei
• A main factor in choosing J&J was its
expertise in “high-quality technical
products on the consumer market.”
Source: Smartinvestor, Singapore Ed. June 2000
Exclusive Distribution:
Advantages
• Maximize control over service
level/output
• Enhance product’s image & allow higher
markups
• Promotes dealers loyalty, better
forecasting, better inventory and
merchandising control
• Restricts resellers from carrying
competing brands
Exclusive Distribution:
Disadvantages
• Betting on one dealer in each
market
• Only suitable for high price, high
margin, and low volume products
Example of Intensive
Distribution
• Newspapers
• Most fast moving consumer goods
you see in the newsstand
• Photo processing shops
Intensive Distribution
• Advantages:
– Increased sales, wider customer
recognition, and impulse buying
• Disadvantages:
– Characteristically low price and lowmargin products that require a fast
turnover
– Difficult to control large number of
retailers
Example of Selective
Distribution
Daewoo have 2 distributors in Singapore
• “Starsauto, part of a larger Indonesian
group, represents Daewoo’s traditional
line of sedans.
• Homegrown family-owned JTA Motors
market Daewoo’s offroad vehicles like
the Musso and Korando, and an upmarket
model called the Chairman.
(Source: BT, Motoring, Feb4/1999)
Selective Distribution
• Advantages:
– Better market coverage than exclusive
distribution
– More control and less cost than intensive
distribution
– Concentrate effort on few productive outlets
– Selected firms capable of carrying full
product line and provide the required service
Selective Distribution
(cont’d)
• Disadvantages:
– May not cover the market adequately
– Difficult to select dealers (retailers)
that can match your requirement and
goals
Multiple-Channel
Strategy
Using two or more different channels to
distribute goods and services
• Why?
– Permits optimal access to each market
segment
– Increase market coverage, lower channel
cost and provide more customized selling
• What to look out for?
– More channels usually means more conflict
and control problems
Complementary Channels
Each channel handles a product or
segment that is different or noncompeting e.g.
• Toyota Lexus
• Magazine distributions
Competitive Channels
The same product is sold through two
different and competing channels e.g.
– Non-prescriptive drugs
– Electronic goods
• Why? To increase sales
• What to look out for?
– Over extending yourself
– Dealers’ resentment
– Control problems
Modifying Distribution Strategies
Modify when the following changes occur:
• Consumer markets and buying habits
• Customer needs
• Competitor’s perspectives
• Relative importance of outlet types
• Manufacturer’s financial strength
• Sales volume level of existing products, and
• The marketing mix
Channel-Control Strategy
• Vertical Marketing System (VMS)
– Also known as centrally coordinated,
professionally managed and centrally
programmed network systems
– The emerging trend in ASPAC
replacing existing conventional
marketing channels
– Classified into corporate,
administered and contractual VMS
Channel-Control Strategy
(cont’d)
Horizontal Marketing System
• One company putting together different
resources to exploit a marketing
opportunity.
• Eg. ITC E-choupals
• Aqua, Soya, Planters.net.com set up in A P.
M P and Karnataka.
Competitive Advantage
of Channels
• Traditional means of achieving competitive
advantage is through products but can be
easily copied
• Low-cost as a competitive advantage
– Also suffer from sustainability
• Brands as competitive advantage
– Only if you are a strong brand
• Marketers are turning more and more to
channels as a competitive advantage e.g.
Dell Computer
Source: The Channel Advantage by Friedman and Furey