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
Order processing
Warehousing
Inventory
Transportation

Distribution - types of
distribution intermediary

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; public-
quoted 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
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 channelslow value-
added; low cost of transactions e.g. e-
commerce, telemarketing
Indirect marketing channelsmedium
value-added; medium cost of transactions
e.g. retail stores, distributors
Direct sales channelshigh 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, non-
standard items, products requiring
installation & maintenance

Role of Intermediaries

Information
Price stability
Promotion
Financing
Title
Factors Influencing
Distribution Decision

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
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 products 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
Advantages:
Increased sales, wider customer
recognition, and impulse buying
Disadvantages:
Characteristically low price and low-
margin products that require a fast
turnover
Difficult to control large number of
retailers

Intensive Distribution
Example of Selective
Distribution
Daewoo have 2 distributors in Singapore
Starsauto, part of a larger Indonesian
group, represents Daewoos traditional
line of sedans.
Homegrown family-owned JTA Motors
market Daewoos 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
(contd)
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 non-
competing 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
Competitors perspectives
Relative importance of outlet types
Manufacturers 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
(contd)
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