Place (Distribution)

Distribution is concerned with activities involved in transferring goods from

producers to final consumers and users.

It is classified into two:

1. Physical distribution such as

A. Transportation
B. Warehousing

2. Distributive constitution

A. Wholesaling
B. Retailing

Distribution refers to the act of marketing and carrying products to consumers.

It is also used to describe the extent of market coverage for a given product.

In the 4Ps, distribution is represented by place or placement.

Physical distribution involves the physical flow of products. Physical

distribution management is the development and operation of efficient flow systems
for products. It consists of those activities related to physical handling of goods -
order processing, inventory, transportation, and storage.

Physical distribution would include:

1. Product movement from last step in production process to point of

consumption.
2. From raw materials stage, from suppliers to the final consumer.

Functions of Physical Distribution System

1. Identifying inventory location and warehousing system.

2. Establishing materials handling system.
3. Establishing inventory control system.
4. Establishing order processing steps.
5. Determining effective transportation system.

The goal of the entire distribution activity is to get the right goods to the right
place at the right time at the least possible cost.

Transportation and warehousing are functions of supply.

Channels of Distribution

A channel of distribution (also called trade channel) for a product is the route
taken by the title to the product as it moves from producer to ultimate consumer or
industrial user.
 The word channel has its origin from a French word which means “canal.” As
applied to marketing, it refers to the pathway followed in the transfer of goods.

Under product trade channels, middlemen play a vital role. Middlemen are
independent business concerns that operate as links between producers and
ultimate consumers or industrial users. The essence of middleman’s operations is
their active and prominent role in negotiations involving the buying and selling of
goods

Two (2) Types of Middlemen

1. Merchant middlemen. Those who actually take title to the goods they handle.
Examples are wholesalers and retailers.

2. Agent middlemen. Those who do not take title to the goods but do actually
assist in the transfer of title. Examples are real estate brokers.

TYPES OF MARKET EXPOSURES FOR PRODUCTS

1. INTENSIVE DISTRIBUTION. A market exposure where a product is available

in almost all outlets. This is commonly needed for convenience goods like soft
drinks, cigarettes, food seasonings or for operating supplies like pencils,
typewriting papers, ball pens, and the like.

2. SELECTIVE DISTRIBUTION. A market exposure where product is available

in several outlets but not all. The usual reason for selective distribution is to
gain advantages of exclusive distribution while still distributing the product in
wider market coverage.

3. EXCLUSIVE DISTRIBUTION. A market exposure where product is sold by

only one middleman in a given geographic area. Sellers are granted exclusive
rights to sell manufacturer’s products in a given area. An agreement known
as franchise contract will bind exclusive distributorship. Specialty goods like
signature items for bags, shoes and dresses use exclusive distribution at a
standard manufacturer’s price.

Huckstering - these are hucksters or peddlers in public places like bus terminals,
railroad stations or trains and those who go from house to house.

- traditional channel of distribution

STORAGE – a marketing activity that involves handling and preserving of products

from production point to consumption point

Storage Cost - the major items to consider in computing warehousing cost.

a. Capital invested in the products

b. Insurance

c. Taxes

d. Storage housing costs

e. The risk of product obsolescence or deterioration

WAREHOUSING – includes storage functions of assembling, bulk-breaking and

preparing products for re-shipment
 The following are reasons why storage is necessary:

- Some goods are produced seasonally but consumed regularly.

- Some goods are produced regularly but consumed seasonally.

- Products may be stored for possible protection against price advances or

scarcities.

- Storage may be necessary for buying in large quantity to obtain quantity

discount.

- Some products require special storage facilities while in-transit.

- For producers to obtain favorable market prices.

Transportation

Transportation is the actual transfer or movement of goods and people from

one place to another. It moves goods from one place to another. It moves goods to
places or locations where consumers will buy or use the goods. Absence of this
physical distribution will not complete transfer of goods to the point of destination. In
marketing management, people must decide on the form of transportation to use for
transfer or movement of products.

MAJOR FORMS OF TRANSPORTATION

1. RAILROAD. This method’s advantage is its ability to handle bulky products at

lowest cost. The railroad as a means of transportation has its own distinct advantage.
It is more economical to use over distances of more than 120 kilometers. The greater
the distance traveled, the lower the cost per ton.

2. TRUCKS or MOTOR TRANSPORTATION. This is characterized by the ability to

move small shipments economically, at varying sizes, short distances and deliver
shipments to any point in the country served by roads and highways.

TYPES OF CARRIERS

a. Common carriers which serve the public at large, moving goods of all types
to any part of the country. These are public utility vehicles.

b. Contract carriers have formal arrangements with customers for transporting

goods, usually for definite periods of time. These are cargo trucks.

c. Private carriers are operated by business firms or individuals for the

transportation of their own goods.

3. WATER VESSELS. Major advantages of water transportation is its low cost but its
greatest disadvantage is its slowest shipping mode. Mostly used for bulky, non-
perishable products such as grain, petroleum products, cement, steel, coal.

4. PIPELINES. Used primarily by petroleum industry to move oil and natural gas.

5. AIRLPANES. Fastest but expensive transportation form of shipments. High-value,

low weight goods are often shipped by air. Although transporting cost of air
shipments may be higher, total cost of distribution may be lower because of reduction
in packing, unpacking expenses, and elimination of outlaying warehouses.
Factors Determining Transportation Rates or Costs Among Different
Commodities

1. Distance

2. Loading characteristics of the articles

3. Risk of loss or damage

4. The volume in which the traffic moves and regularity of traffic movement

5. Amount of liability assumed by the carrier

6. Type of equipment required

7. Services required, livestock, fruit, vegetables and meat require special care during
transit

Retailing

This refers to activities involving the sale of goods or services to the ultimate
consumer for personal use and not for business use.

A retailer or retail store is the seller or a selling outlet offering sale goods to
ultimate consumers for personal and not business use.

Retailing is the final link between consumers and producers.

Retailing is important for the following reasons:

 Most personal income is spent at retail

 It is a major source of employment opportunities

 It adds value to the product by creating time and place utilities

 It is a source of business opportunities

 It is a measure of economic health, since the level of retail sales is an

indicator of consumer purchasing power

 It is the link in the distribution system to the end user

Stages in the development of retail store:

1. The maglalako (peddlers)

2. Perya (fairs)

3. Stall (puwesto)

4. Market (palengke)
 5. Tienda or tindahan

6. General store

Classification of Retailers

1. According to the size of the store

a) Large-scale retailers

b) Small-scale retailers

Primarily, sales volume, inventory-size, capital investment, and physical size

of the outlet qualify a retail store as large-scale or small-scale. Buying, promotion,
expense control, and personnel relations are influenced by whether retail is large or
small.

A large-scale retailer can buy in bigger quantities and get a price discount but
they have higher overhead expenses than a small-scale retailer.

An example of a large-scale retailer is Rustan’s Superstore while a small-

scale retailer is a neighborhood sari-sari store.

2. According to product lines carried

a) General merchandise stores. These are outlets that carry a variety of

product lines and assortment in each line. Examples are department and
variety stores where product lines can be wearing apparel, furniture and
home furnishing.

b) Limited line stores carry only one product with some related items.
Examples: food stores, shoe stores, furniture stores, hardware stores and
the like. These include specialty stores like wine shops, bakeries, and dairy
stores.

3. According to form of ownership

a) Corporate chain stores which have the same name, centrally owned and
managed, and generally handle the same line of product. Example is
Mercury drug outlets.

b) Independent retailers - they have improved retailing effectiveness by

adopting self-service methods, improving store appearance and layout,
choosing better site locations and improving inventory control system and
merchandising practices.

4. According to Method of Operation

a) Full service retailing - this is also known as over-the-counter selling (OTC)

where consumers simply tell what products they want over-the-counter.
Examples of these are the sari-sari store and boticas.

b) Supermarket retailing - a supermarket offers major product lines like

groceries, meats, fish and dairy products. These stores operate on a self-
 service-basis. Consumers have full freedom what product or brand they
want. Since they decide on the spot, supermarket retailing adopts “mass
display.” All varieties of the products or assortments are on display from
which the consumer chooses.

c) Department store retailing - offers the extreme of supermarket retailing.

Salesclerks are around to assist customers in their choice of goods.

d) Non-store retailing - Examples of these are door to door selling, telephone

ordering, mail-to-order selling, etc.

Wholesaling

Wholesaling includes the sale and all activities directly related to the sale of
products or services to those who are buying for business use.

Four factors which determine whether a transaction is wholesale or not.

1. Selling price of the goods - wholesale prices are generally lower than retail
prices.
2. Quantity of goods - usually in large quantities or in bulk.

3. Seller’s method of operation - they are not in direct contact with ultimate
consumers.

4. Buying motive: for industrial use or resale.

The following are the wholesaling functions:

1. Regrouping of goods to provide quantity and assortment wanted by customers

at lowest-possible cost

2. Anticipating needs of customers

3. Carrying stocks or storing goods so that customers do not have to store a

large inventory

4. Delivering goods promptly at low cost

5. Granting credit to small-scale business

6. Providing information and advisory service on technical data about product

installations and sales strategies

7. Provide part of the buying function so those customers do not have to look for
supply sources

8. Owning and then transferring these goods

Classification of Wholesalers

1. Merchant wholesalers - these are wholesalers, jobbers, or industrial distributors.

They are independently owned and take title to the goods they handle.

A. Full-service wholesalers - as the name suggests, they provide all the

wholesaling functions

A.1 General merchandise - wholesalers carry non-perishable items

like hardware, electrical supplies, and furniture equipment. They serve
general stores, hardware, electrical stores, and department stores.
A.2 Single-line wholesalers carry only limited or narrower product lines
like groceries, and apparels. They serve limited-line stores.
A.3 Specialty wholesalers - instead of carrying the full line of groceries,
they might carry only health foods.

B. Limited-function wholesalers - provide only some wholesaling function

B.1 Cash and carry wholesalers operate like service wholesalers but
customers must pay cash.
B.2 Drop shippers own the goods they sell, but do not handle, store or
deliver goods. Delivery of goods is direct to customers since the products
they sell are so bulky like lumber, coal, oil or chemical products.
B.3 Truck jobbers handle perishable goods like tobacco, candy, and
bakery products that are nationally advertised.
B.4 Mail-order wholesaler - sells goods by using catalogue - examples
are pieces of jewelry, sporting goods, etc.
B.5 Rack jobbers specialize in non-food items like sold through
grocery stores and supermarkets. They furnish racks or shelves on which the
merchandise are displayed.

2. Agent Middlemen - wholesalers who own the goods they sell.

A. Manufacturer’s agents - they sell several products for several non-

competing manufacturers on a commission basis.

B. Brokers - negotiate buying and selling for a principal. They provide market
information on prices, products and market condition. Effectively used for selling
seasonal products but also active in real state, stocks and machinery.

C. Commission merchants - they are common in agricultural markets where

farmers ship the harvests to central markets.
D. Auction companies - they provide a place where buyers and sellers can
come together and complete a transaction. They are important for products like
livestock, tobacco or used cars.

E. Import and export agents - these are agents in international trade.

3. Manufacturer’s sales branches and offices - these are outlets owned and
operated by manufacturers but which are located separately.
Activity

1. Why is there a need for means of transportation and channels of distribution?

2. Pick a form of transportation and do research on the mode and write a brief paper
on the strengths and weaknesses, the future, and the popularity of the mode.

3. Give three (3) examples of products within your community, distributed under the
following category:

a. Intensive distribution
b. Exclusive distribution
c. Selective distribution

4. Look around and see. What are the different modes of transportation? Give at
least 20 products and indicate the methods of transportation you would select for
each.