Newport institute communication & economics Karachi

DISTRIBUTION

Lecture # 11 - Distribution

Channels of distribution
• A set of institutions which perform all the activities utilized to move a product and its title from production to consumption. • All the organizations through which a product must pass between its point of production and consumption

Functions of a distribution channel

Lecture # 11 - Distribution

• To provide a link between production & consumption • Promotion – to communicate an offer • Contact – to find and communicate with prospective buyers • Matching – adjusting the offer to fit buyer’s needs • Negotiation – reaching an agreement • Physical distribution – transporting & storing • Risk taking – assuming some of the commercial risks

Lecture # 11 - Distribution

Mqrketing-Channel Terminologies
• Broker - An intermediary whose job is to bring together buyers and sellers, and who does not carry inventory, get involved in financing, or assume risk • Facilitator - An intermediary who assists in the distribution process but neither takes title to goods nor negotiates purchases or sales • Manufacturer’s Representative - A company that represents and sells the goods of several manufacturers. Hired by companies instead of or in addition to an internal sales force • Merchant - An intermediary who buys, takes title to, and resells merchandise • Retailer - A business enterprise that sells goods or services directly to the final consumer for his or her personal, non-business use • (Sales) Agent - An intermediary who searches for customers and negotiates on a producer’s behalf but does not take title to the goods • Wholesaler (Distributor) - A business enterprise that sells goods or services to those who buy for resale or business use

Lecture # 11 - Distribution

Channel strategy decisions
• • • • Channel length – direct or indirect Choice of intermediary Multiple or single channels How to move the goods through the channel? • Control over the channel

Lecture # 11 - Distribution

Channel length or structure
• Choice of direct (short) or indirect (long) channels

- Direct channel – producer &
consumer interact directly without the involvement of an intermediary - Indirect channel – Involves intermediaries between producer & consumer

• Channel length refers to the no. of intermediaries involved

Lecture # 11 - Distribution

Why intermediaries ?
• Geography – Consumers maybe too dispersed • Consolidation of small orders into large ones • Lack of retailing know-how • Segmentation – different segments of the market being reached by different distribution

Lecture # 11 - Distribution

Long/Indirect

Short/Direct

Manufacturer Manufacturer Manufacturer Manufacturer Agent Wholesaler Retailer Consumer Wholesaler Retailer Consumer Retailer Consumer Consumer

Lecture # 11 - Distribution

Short or Long ?
• Short distribution channel:
- Higher distribution costs - Gives producer greater control over marketing of products

• Long distribution channels:
- Reduced costs - Reduces the producers control over marketing of products

Factors affecting choice of distribution channel
• Nature of the product:
-

Lecture # 11 - Distribution

Perishable/fragile Technical/complex Customized Type of product e.g. Convenience, shopping

Factors affecting choice of distribution channel
• Market
- Geographically spread market? - The extent of competition

Lecture # 11 - Distribution

• Company
- Size - Nature - Does it have established network?

• Legal issues
- Are there any limitations on sale?

Lecture # 11 - Distribution

Short channels are used for…
• • • • • Industrial products Expensive and complex goods Customized products Services Products sold in geographically concentrated market • Products bought infrequently by smaller no. of consumers

Lecture # 11 - Distribution

Long channels are used for…
• • • • • Consumer goods Inexpensive and simple goods Standardized products Goods sold in dispersed markets Goods sold frequently and to many consumers

Decision 2: Choice of intermediaries

Lecture # 11 - Distribution

• Intermediaries must be chosen carefully • Choice of intermediary should be related to the product & other aspects of marketing mix • Intermediaries to offer appropriate customer services for expensive & technically complex goods • Choice of intermediary (particularly retail outlet) affects product’s image

Criteria for selection of intermediaries
• Operational criteria: - Knowledge of market - Appropriate premises & equipment - Customer convenience - Product knowledge - Payment system - Sales force structure

Lecture # 11 - Distribution

• Strategic criteria:
- Plans for growth & expansion - Capacity - Quality assurance procedures - Willingness as a partner - Level of loyalty & cooperation - Innovativeness

Decision 3: Single or multiple channels

Lecture # 11 - Distribution

• Single channel: Reliance upon a single channel of distribution & a single set of channel members to distribute the product • Multiple channels: Distributing the product via a variety of channels, some direct and some indirect.

Lecture # 11 - Distribution

Multi channel strategies
• Advantages: - Different markets can be targeted more accurately - Spreads risk - Greater control of the market • Disadvantages:
- Intermediaries might feel threatened - Promotion more difficul

Decision 4: How to move goods through the channels
• A problem facing the distributor is how to encourage intermediaries to stock the product and actively promote it • Two strategies commonly used either separately or in unison:
- Push strategy - Pull strategy

Lecture # 11 - Distribution

Moving goods through the channel

Lecture # 11 - Distribution

• Pushing: • Pulling: - Involves sales - Emphasis on promotion directed at advertising to channel members persuade the user to buy the product - Emphasis on Sales promotion particularly, trade promotion

Decision 5: The degree of market exposure
• Determination of required market coverage • Three broad strategies can be applied:
- Intensive distribution - Selective distribution - Exclusive distribution

Lecture # 11 - Distribution

Lecture # 11 - Distribution

Intensive distribution
• Saturation coverage – covering all/maximum no. of available outlets • Target outlets in as many geographical area as possible • Limited support for the dealer • Used for:
- Inexpensive fast moving consumer convenience goods - Goods purchased on impulse - Goods purchased by high no. of purchasers

Lecture # 11 - Distribution

Selective distribution
• • • • Limited no. of outlets Medium no. of consumers Medium level of control over distributors Retailers may require specialist knowledge • Used for:
- Shopping goods - Medium priced goods - Goods purchased occasionally

Lecture # 11 - Distribution

Exclusive distribution
• A single outlet is targeted in a geographic area • Stringent control of the dealer • Used for
- Specialized/niche products
- High priced products - High involvement & planned purchase

Market coverage
Intensive
No. of outlets Outlets/region Price Type of product No. of potential buyers Purchase frequency Planning reqd. of buyer Example Maximum Many Low Convenience High Often Low Sweets Many Few Medium

Lecture # 11 - Distribution

Selective

Exclusive
Few One High Speciality Low Seldom High Rolex

Shopping Medium Occassional ly Medium Car

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