The Channels of Distribution

What is distribution?

The process of getting products from production to the consumer

The Two Components of Distribution

1.

Selecting, developing and managing distribution channels Physically distributing goods and services through those channels

2.

Problems in doing these things:

-

Which channel to select? Advantages and Disadvantages Logistics how does the product physically get there

Different options

Distribution Policy
-

Policy regarding how a business wants its products distributed to consumers There are four types

Intensive Distribution
-

try to get the product sold in as many different places as possible

-

Advantages
-

Increase sales Increase recognition

Disadvantages
-

Lack of control of retail locations Intensive competition

Product examples: Coke, Gum, others?

Selective Distribution

Try to control the distribution of product but not exclusively

Advantages

Some control over where product is sold Can still cover a large area Legal implications purchase minimums Missing out on possible sales

Disadvantages

Examples?

Exclusive Distribution

Exclusive distribution contracts with one or two businesses in a certain area

Advantages
Control over image Favourable agreements

Disadvantages
Can severly limit sales Geographical problems

Examples?

Integrated Distribution

When business owns both distribution and manufacturing

Advantage
Total control of product Keep sales revenue

Disadvantage
Handle all expenses Handle all difficulties

Examples?

Types of Channels

Direct Channels

Product goes directly from producer to the consumer

Examples

Trade Services Lemonade stand Integrated distribution Marketing agents

Types of Channels

Indirect Channels

Use distribution intermediaries who make a profit off holding on to the product

Indirect

Examples

Importers

Foreign made product goes to exclusive importer who sells to retail outlets in a geographical area Buy products from domestic manufacturers and sell them to retail stores and other businesses Sell product to consumers

Wholesaler

Retailers

Advantages of the Wholesaler for the Retailer

Buy in bulk lower costs per unit Warehousing hold on to greater amount of product in case needed Risk bearing retailer has less risk for owning large quantitiy of a product with unknown or changing demand Financing retailers dont have to borrow money to pay for extra stock, they can use previous sales of smaller quantities to buy more Buying saves the time and effort of finding mulitple suppliers Transporting Wholesalers usually deliver without charge (in the price of the product) Managing Wholesalers will provide advice on inventory management and play a major role in controlling inventory levels for their customers Promoting wholesalers pass on free promotional materials

Providing market information they know whats hot, what not and what is on the horizon

Retailer success

The five Rights

The Right Merchandise The Right Price The Right Time The Right Place The Right Quantities

Read pages 298-300 and define each of these

Specialty Channels

Any distribution that does involve a retail store

Types of Specialty channels

Vending machines The Internet Catalogues Telemarketing Television Sales

Questions for you to answer

1.

For each of the above, list one product that you could sell effectively using that specialty channel What is an advantage of each of the specialty channels mentioned? What is a disadvantage? Discuss with a partner and use pages 301-306 to help.

2.

What to consider when selecting a distribution channel

Each person in the class will be assigned one of the questions from pages 308-310 read, summarize and report to the class next day
Is the channel directed at an industrial and/or institutional consumer?

What is the income level of the target market?

How large is the local market? What are the buying habits of the consumers? Will the selected channel reach a suffcient number of consumers? Is it a seasonal or high fashion item? Can the channel become a competitive advantage? Is the product custom made? Will the product spoil? What is the unit value of the product? How large or how heavy is the product? Does the product come with a manufacturers warranty? Is the product price sensitive?

Channel Captains

When one company controls the relationship in the distrubtion chain due to volume and/or sales Wal-mart example