Introduction

The objective of this paper is two-fold:

(a) To review and examine the various possible

methods or channels through which products are
currently distributed from producers to consumers in
the Malaysian marketing scene.

(b) To highlight certain changes and development

which are currently taking place in product
distribution. Here, special attention will be drawn
to the impact of direct selling and direct selling
organisations.

The distribution function in marketing, as we all

know, is concerned with the flow of products and
services from the producer to the ultimate consumer.
The objective is to make our products available to
consumers at the right place and at the right time,
in the right quantity and at a price acceptable to
the target consumer.

Current practices in product distribution

The various possibilities of distributing products

currently adopted by Malaysian companies fall very
much along the lines of various basic channel
patterns. They are as follows:

a) M-A-W-R-C

b) M-W-R-C

c) M-A-R-C

d) M-R-C

e) M-A-C

f) M-C

g) M-Direct Selling Organisation-C

M-Manufacturer; A-Agent; W-Wholesaler; R-Retailer;

C-Consurner.

Products can be channelled direct from producer to

the ultimate consumer (Pattern f). On the other
hand, a lengthy channel may be adopted (Pattern a).
In between, a combination of various possibilities
of having agent, wholesalers and retailers may be
used.

Various factors govern the choice of appropriate

channels. They include:

- type of products

- experience of the company

- marketing facilities available within the company

- availability of middlemen

- finance and cost.

In this paper, I would like to particularly

elaborate on one important determinant, that is, the
type of products. Here, we can distinguish three
categories of products:

- Consumer goods

- Industrial goods

- Capital goods

Consumer goods These can be classified according to

three groups:

i) Convenience Goods

These are used more or less regularly by large

number of consumers e.g. detergents, soap, soft
drinks and many other household items. Manufacturers
usually adopt an intensive and extensive
distribution strategy using Pattern a or b.

Examples of Pattern a:

Richardson Merrell-Harpers-Ws-Rs-Cs (Vicks, Oil of

Ulan & Clearasil)

Cerebos-Eastern Agencies-Ws -- Rs-Cs (Brand Essence

of Chicken)

Examples of Pattern b:

These companies have their own marketing team and

facilities to distribute to wholesalers and
retailers without requiring the services of a
national agent. Example are Beecham, Lam Soon, Lever
Brothers and F&N

It should be noted that the patterns of distribution

are not strictly rigid but highly flexible,
depending on the nature and requirements of the
trade. For instance, many manufacturers distribute
their products not only to wholesalers but also to
retailers on a selective basis.
ii) Shopping Goods

These are purchased not so regularly as convenience

goods, therefore, fewer retail outlets are necessary
e.g. cosmetics, shoes, watches and electrical goods
like TV, refrigerators, fans etc. The manufacturer
usually adopts a selective distribution strategy,
that is, by selecting only a limited number of
retail outlets in each area (Pattern d).

Examples of Pattern d:

Matsushita (through Matsushita Sales & Service)

--Rs-- Cs Toshiba (through Toshiba Sales &
Service)-Rs-Cs

Note: Both Matsushita Sales & Service and Toshiba

Sales & Service can perhaps be considered
theoretically as the Marketing Divisions of
Matsushita and Toshiba respectively.

iii) Specialty Goods

These items are very infrequently purchased. The

manufacturer may appoint an exclusive agent in each
territory or town to sell to consumers. (Pattern e).

Examples of Pattern e:

Assembly Services Sdn. Bhd. -Borneo Motors-Cs

(Toyota cars)

Industrial goods

These products are not for household use but for

industrial consumption. There are 3 main groups as
follows:

- Raw materials e.g. chemicals, plastics

- Semi-manufactured goods e.g. canvas, leather

- Accessory materials required in production e.g.

bottles, cans, packaging materials.

Generally, most local manufacturers of the above

categories of products sell direct to the industrial
consumer (Pattern f).

Examples of Pattern f:

Metal Box sells tubes to tooth-paste manufacturers.

KL Glass sells bottles direct to soft-drinks
manufacturers. Times Packaging supplies boxes direct
to cigarettes manufacturers.
Capital goods

Examples of capital goods are buildings, machineries

and equipment. Usually, close contact between the
manufacturer and consumer is necessary. Therefore,
there is no need to have any intermediary except
perhaps a manufacturer's, agent (Pattern e or f).

For example, Lindeteves Jacoberg handles a range of

wood-working machines and equipment and sell direct
to the industrial consumers, including the
Government, sawmills and timber companies.

Recent development in product distribution

One of the significant developments in product

distribution in recent years is the growth of the
direct selling industry. This is indicated by the
large number of direct selling companies which came
up in the last couple of years. Many of these
companies confine their activities to certain
localities while a few have grown and expanded their
business nation-wide.

The direct selling companies sell products ranging

from shopping and specialty goods to fast-moving and
regularly consumed convenience items. They source
such products either locally or from overseas. Some
well-established ones make use of contract
manufacturers to manufacture various items under
their own brand names. At the same time, many
manufacturers are already scouting for reputable and
well-managed direct selling companies to handle
their products.

What is direct selling?

The best way to define or explain direct selling is

to compare it with the conventional trade selling or
selling through the trade. While trade selling
involves distributing products through retail
outlets (shops, emporiums etc), direct selling means
the products are sold to consumers by means of
personal approach or personal selling.

A well-established direct selling organisation

typically has a large network of thousands of
distributors (some companies call them agents,
dealers etc) who reach out to the ultimate consumers
at large. These distributors are but private
individuals who operate the business independently
either on a part-time or full time basis (somewhat
like insurance agents). They are people from all
walks of life, and strictly speaking, they are not
employees of the company. They can be looked upon as
'mobile retailers' who sell the products to their
friends, relatives, colleagues, neighbours etc.
Many hold party meetings regularly with the
objective to demonstrate and promote the products.
Many even go door-to-door although reputable direct
selling companies do not encourage their
distributors to do so for image reasons.

The rationale for direct selling of consumer goods

There are several merits for selling consumer goods

through direct selling instead of selling through
the trade. They include the following:

1. Saving of Advertising Cost:

Selling through the trade requires intensive

advertising by mass media to 'pull' customers to the
retail outlets. Direct selling involves basically
personal efforts to create the 'push' effect of
promotion. Advertising cost saved can benefit the
consumers in the form of lower price. It also makes
the products more competitive.

2. Savings of Mark-ups and related Distribution

Costs:

Trade selling involves a series of mark-ups through

several intermediaries. By direct selling, these are
saved and the company can afford to give attractive
incentive to its distributors.

3. Finance:

Trade selling is traditionally linked with long term

credit terms, which means much capital is necessary
to finance the trade. Direct selling, on the other
hand, is based on cash terms.

4. Personalised Service:

By direct selling, consumers can enjoy more

personalised type of service from distributors.
Consumers can enjoy even the convenience of
'shopping in their own home'.

5. Consumer Education:

Because of the nature of direct selling which is

based upon personal approach, consumers have a
chance to know more about the features and benefits
of the products that they pay for.

6. Shelf Space:

With increasing competition and with limited shelf

space in the shops and emporiums to display a host
of competitive brands, your brand may be 'drowned'
among others. This problem does not arise in direct
selling.

Direct selling organisations

Direct selling organisations can perhaps be broadly

classified under 3 main categories as follows:

A) Those specialised in 1 or 2 shopping or specialty

items:

Examples are:

Electrolux; Singer; Tupperware; Renaware.

B) Those selling cosmetic and beauty products:

Examples are:

Avon; Nutrimetics; Yardley International.

According to a recent study made by a well-known

international cosmetic company, 20% of cosmetics is
sold by direct selling in Malaysia. This is to
increase to 46% by 1984. Currently, already 9()% of
cosmetics is sold by direct selling in Korea. In
Japan, direct selling of cosmetics is also fast
catching up.

C) Those selling chiefly fast-moving consumer

products:

Examples are:

Newton; Amway; Fortiss.

How direct selling of consumer goods works

According to conventional marketing logic, consumer

goods, especially those convenience items which are
widely and frequently consumed, should be sold
through retail outlets. In direct selling, however,
these items are sold by means of person-to-person
approach. This is made possible chiefly because of a
feature in direct selling known as 'sponsoring'.
Sponsoring means recruiting. A distributor can
recruit others to become distributors and earn
attractive commissions on their sales. An
individual can, therefore, build up a big network of
distributors under him. The result of this
sponsoring feature is the creation of numerous
networks of distributors, each having a multi-level
pattern as shown in Figure I.

It should be noted that each distributor can sell

the company's products as well as to 'sponsor' or
'recruit' others to become his downline
distributors, as illustrated in Figure I. This
differs from the conventional product distribution
through the trade where only retailers have direct
access toe the ultimate consumers as shown in
Figure II.

Challenges faced by direct selling organisations

Inherent to the nature of the business, direct

selling organisations have to continuously meet
certain conditions in order to survive and grow.
Some of these are:

a) High quality and attractively packed products

which are sold at competitive prices to ensure
repeat purchases.

b) Efficient stock distribution system to ensure

continuous availability of products to service a
wide network of distributors. c) Attractive profits,
incentives and benefits package for distributors.

Continuous promotional campaigns, as well as

training and motivational programmes to maintain the
interest and commitment of distributors, most of
whom are operating only on a part-time basis.

Continuous campaigns to recruit distributors to

replace the high fall out rate.

A wide range of products and continuous introduction

of new ones.

g) An aggressive management which is dedicated to

managing the organisation along ethical and
professional lines.

Inability to fulfil the above conditions,

shortsightedness and immaturity of management as
well as lack of commitment towards long term
objectives have accounted for the failure of many
direct selling companies.
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Malaysian Institute of Management
Kuala Lumpur, Petaling Jaya, Pulau Pinang, Johor Bahru, Miri