Chapter 15: DISTRIBUTION

Chapter 15: DISTRIBUTION

Layout of Chapter:

After organizations develop the marketing strategies, produce products, and price them; firms have to take the goods and services to the marketplace/ consumers. Firms use different avenues to get products to consumers in a timely and efficient manner. Distribution involves all of the following activities: 

1.         Marketing Channels.               2. Wholesaling.

3.         Retailing                                  4. Physical Distribution

1.                  MARKETING CHANNELS (CHANNEL OF DISTRIBUTION)

A group of interrelated organizations that directs the flow of products from producers to ultimate consumers; also called channel of distribution.

Marketing intermediary – An individual or organization in a marketing channel that provides a link between producers, other channel members, and final consumers.

Functions of Marketing Intermediaries

Marketing intermediaries are vital in creating place, time, and possession utilities. They ensure that products are available on a timely basis where they are needed. Intermediaries provide services such as, storage, record-keeping, delivery, and so on.

Types of Marketing Channels 

Depending on the needs of target market, firm utilize many different types of marketing channels to distribute products. Generally channels for consumer products are different than channels for industrial products.

·         Consumer products: the four most commonly used channels for consumer products are shown below:

Consumer Products					Industrial Products
A	B	C	D		E	F
Producer ¯	Producer ¯	Producer ¯	Producer ¯		Producer ¯	Producer ¯
¯ ¯ ¯ ¯ ¯ ¯	¯ ¯ ¯ ¯	¯ ¯	Agent/Broker ¯		¯ ¯ ¯ ¯ ¯ ¯	¯ ¯
		Wholesaler ¯	Wholesaler ¯			Wholesaler ¯
	Retailer ¯	Retailer ¯	Retailer ¯			¯ ¯
Consumer	Consumer	Consumer	Consumer		Industrial user	Industrial user

·         Industrial products: These channels are much shorter than the consumer channels.

Intensity of Market Coverage

Market coverage: The number of outlets in which a product is sold. For instance, Ispahani tea is sold in 4000 outlets of Dhaka city. So the market coverage of Ispahani tea is 4000 outlets.

·         Intensive Distribution – market coverage in which all available outlets are used for distributing a product. E.g. gum, chocolates, cigarettes, bread, eggs, and soft drinks, are distributed in almost all the outlets. (Convenience Product)

·         Selective Distribution – market coverage in which only some of the available outlets are used for distributing a product. E.g. furniture and electrical appliances are distributed selectively. (Shopping Product)

·         Exclusive Distribution – market coverage in which one outlet is used in a specific geographical area for distributing a product. E.g. Mercedes car or lexus car is distributed through a sole dealer. (Speialty Product)

2.                  WHOLESALING

Wholesaling is the marketing activities of intermediaries who sell to retailers, industrial users and other wholesalers.

Services Wholesalers Perform

1.      Ownership: wholesalers absorb inventory costs for manufacturers by purchasing large amount of goods from them and storing for resale.

2.      Financing: wholesalers invest money in inventory, extend credit to retailers, and collect payment from retailers.

3.      Risk assumption: products may become obsolete or deteriorate before they are sold; wholesalers take this risk plus the risk of nonpayment from retailers.

4.      Promotional assistance: often help promote products they sell; e.g. by providing retailers with displays or ideas for special promotions.

5.      Information: wholesalers employ own sales forces, publish catalogs and sponsor trade journals; thus provide information to both retailers and producers about product demand, buying trends and prices.

6.      Product assortment: because wholesalers usually carry an assortment of procuts, customers are able to order from a single source.

7.      Transportation: wholesalers generally arrange local and long-distance shipments to customers.

3.                  RETAILING 

The marketing activities involved in selling products to final consumers for personal or household use.

Types of Retail Stores

·         Department store: a large retailer organized into separate departments and offering a full line of services and a wide product mix. e.g. Macy’s, Harrod’s.

·         Discount store: a retailer offering a wide variety of general merchandise at low prices and with minimum services. e.g. Wal-Mart, K-Mart.

·         Specialty store: a retailer that carries only particular lines of products. e.g. GAP, OLD NAVY etc.

·         Supermarkets: a large, self-service retailer that stocks a wide variety of groceries and a limited assortment of nonfood products.

·         Superstore and Hypermarkets: a giant retail outlet that stocks food and nonfood items as well as most other products purchased routinely. Hypermarket combines of supermarket & discount store.

·         Convenience stores: a small retail store in a convenient location and open for long hours. E.g. 7-Eleven stores.

·         Warehouse showrooms: Retail stores carrying a large inventory that deals in volume and provides limited service. E.g. large furniture retailers like Hatil, Otobi etc.

·         Catalog showrooms: A form of warehouse showroom where customers select products from catalogs sent to customers’s homes or available in store.

·         Warehouse clubs: A large discount retail store offering members a broad range of name-brand merchandise at low prices.

Non-store Retailing

Retailing that takes place outside of stores; can be in-home selling, direct marketing and vending machines.

a.      In-home selling – Non-store retailing activities that involve personal contact with consumers in their home. e.g., salespeople may go door-to-door to sell products.

b.      Direct marketing – Non-store retailing activities that uses non personal media to introduce products to consumers, who then purchase the products by mail, telephone or computer. e.g., Dell computer is sold through direct marketing.

c.      Vending Machine- soft drinks, coffee, candy, gum, snacks, newspapers and other convenience goods are familiar items available in the self-service dispensers known as vending machines.

4.                  PHYSICAL DISTRIBUTION

Those activities that involve the movement of products through marketing channels from manufacturer to customers.

1.      Setting Service Standards: Physical distribution begins with a consideration of customers’ needs.

Service Standards are specific, measurable goals relating to physical distribution activities. For example, when Federal Express guarantees overnight or 24 hour delivery, it must develop physical distribution activities that will achieve this service standard.

2.      Transportation: shipping goods to customers by rail, truck, water                                                                     and pipeline –

Ø      Rail: cost and fuel efficient (useful for carrying goods like food grain, coal, lumber, automobiles, chemicals etc).

Ø      Air: most expensive (fresh flowers, perishable foods, technical instruments, emergency parts etc)

Ø      Truck: most flexible (clothing, paper goods, computers, fresh fruits, vegetables, livestock etc)

Ø      Water: least costly, slowest and least dependable, plus only cities with ports can be served. (petroleum, chemicals, iron ore etc).

Ø      Pipeline: Major products shipped via pipelines are oil, natural gas, etc.

3.      Warehousing – The receiving, storing and shipping activities involved in the physical distribution of goods-

Ø      Private warehouse: privately owned and operated to distribute own products.

Ø      Public warehouse: provide storage on a rental basis.

4.      Order Processing – The receipt and preparation of an order for shipment. Firms need to have efficient an order processing system.

5.      Materials Management – The physical handling of products during transportation and warehousing. E.g. Containerization, Freight Forwarders etc.

6.      Inventory Management – The process of developing and maintaining stocks of products that customers need and want.