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.