Distribution Strategies PDF

Topic: Distribution Theme 1: Section 1.3 Marketing Mix & Strategy What You Need to Know ​ Methods of distribution (channels) ​ Choosing appropriate distribution ​ Changes in distribution to reflect social trends ​ Increasing use of multi-channel distribution (including online) ​ Changing from...

Topic: Distribution Theme 1: Section 1.3 Marketing Mix & Strategy What You Need to Know ​ Methods of distribution (channels) ​ Choosing appropriate distribution ​ Changes in distribution to reflect social trends ​ Increasing use of multi-channel distribution (including online) ​ Changing from product to service – implications for distribution Introduction to Distribution Distribution (or place) is one of the four traditional elements of the marketing mix. It involves the ways in which a product reaches the end consumer. The ultimate aim of effective distribution is to make products available in the right place at the right time in the right quantities The decisions about what methods of distribution to use are strongly influenced by the choice of target market and product positioning. Key questions for a business to consider include: ​ How can the business ensure that its products reach existing and potential customers? ​ How and where do customers prefer to buy the product? ​ How important are factors such as stock availability, price & speed of delivery? Distribution Channels A distribution channel moves a product through the stages from production to final consumption. Distribution channels can have more than one stage. A distribution channel with more than one stage will involve “intermediaries”: Distribution channels serve a variety of purposes: ​ Provide a link between production and consumption ​ Help gather market information ​ Communicate promotional offers ​ Find and communicate with prospective buyers ​ Physical distribution - transporting and storing ​ Financing – other parties finance the inventory Topic: Distribution Theme 1: Section 1.3 Marketing Mix & Strategy ​ Share risk taking – other parties take some risk by handling inventories Let’s look briefly at the four main kinds of distribution channel intermediary: ​ Retailers ​ Wholesalers ​ Distributors ​ Agents Retailers Key points about retailers: ​ Retailer is the final step in the chain – deals directly with the customer ​ Focused on consumer markets ​ Various kinds of retailer: o​ Multiples – chains of shops owned by a single company (e.g. Sainsbury’s or Next) o​ Specialist chains (e.g. fast fashion, perfume) o​ Department stores (e.g. Debenhams, John Lewis) o​ Convenience stores (e.g. Spar, Costcutter) o​ Independents – a shop run by an owner o​ Franchises (retail format operated by franchisee) Distributing products via retailers obviously involves a significant loss of margin – since the retailer will add their own “mark-up” to the price charged. However, effective retail distribution offers significant potential advantages: ​ Convenience for customers ​ Often with a broad geographical coverage ​ Retailer chooses the final price ​ Retailer handles the financial transaction ​ Retailer holds the stock ​ Retailer handles after-sales support (e.g. returns) Wholesalers Key points about wholesalers: ​ Wholesalers “break bulk” o​ Buy in large quantities from producers o​ Break into smaller quantities to sell to retailers ​ Advantages o​ Reduce the producer’s transport costs (fewer journeys to the wholesaler rather than many journeys to retailers) o​ Retailers can order in smaller amounts from wholesalers ​ Wholesaler makes money by buying at a lower price from the producer and adding a profit margin onto the price paid by the retailer Topic: Distribution Theme 1: Section 1.3 Marketing Mix & Strategy Distributors Key points about distributors: ​ Distribute (sell on) products and serve as a local sales point ​ Usually specialise in a particular industry ​ Examples – building supplies, electrical components, industrial clothing ​ Offer products from many producers = greater choice ​ Different from agents in that a distributor holds stock Agents Key points about agents: ​ Specialist type of distributor ​ Does not hold stock ​ Tend to operate in tertiary sector (services); e.g. o​ Travel o​ Insurance o​ Publishing ​ Agents normally earn commission based on sales achieved Making Decisions About Which Distribution Channels to Use Choosing the most effective approach is not easy. Key decisions to be made include: ​ Channel length - direct or indirect? ​ Choice of intermediary ​ Use just one or several channels? ​ How to move the goods through the channel? ​ Control over the channel – e.g. who decides price, promotion, packaging? A key distinction is made between direct distribution and indirect distribution: Direct Distribution Where a producer and consumer deal directly with each other without the involvement of an intermediary Indirect Distribution Involves the use of intermediaries between the producer and consumer Direct distribution is increasingly popular, particularly with advances in the effectiveness of direct marketing methods, growing adoption of e-commerce. However, there are still some good reasons to use indirect distribution, For example: ​ Geography - customers may live too far away to be reached directly or spread widely ​ Enables of consolidation of small orders into large ones Topic: Distribution Theme 1: Section 1.3 Marketing Mix & Strategy ​ Allows a business to make better use of resources elsewhere (e.g. less capital tied up in inventories) ​ Business may lack of retailing expertise ​ Segmentation - different segments of the markets can be best reached by different distribution channels. Mass-market products in particular continue to be distributed via retail channels. Multichannel Distribution Multichannel distribution involves a business using more than one type of distribution channel. For example, a producer of branded consumer products may distribute via retail stores as well as sell directly to consumers using e-commerce. Consumer electronics giant Apple is one of the best examples of multichannel distribution. The benefits and possible drawbacks of multichannel distribution include: BENEFITS DRAWBACKS Allows more target market segments to be Potential for channel “conflict” –e.g. reached competing with retailers by also selling direct Customers increasingly expect products to Can be complex to manage be available via more than one channel Enables higher revenues – e.g. if retail Danger that pricing strategy becomes outlets have no stock, but customer can buy confused (in the eyes of customers) online Some Key Changes in Distribution to Reflect Social Trends As markets become more dynamic and e-commerce and mobile-commerce becomes widespread, the nature of distribution must change too. Some of the key changes in distribution that reflect social trends are summarised in the diagram below: Topic: Distribution Theme 1: Section 1.3 Marketing Mix & Strategy ​ Traditional distribution channels and methods were and are focused on getting physical products to the consumer ​ There will always be the need for distribution of tangible, physical products ​ But the move to a mobile & cloud-based world is changing things quickly A good example is the distribution of software. A decade ago most business software, for example, was sold in a box. Now, the vast majority of software is downloaded and much of it is now sold as “software as a service” or SAAS – where customers buy a subscription to the software and use it across one or more registered devices. The distribution of software via mobile phone “app stores” is another example of the same change in distribution. Key Terms Distribution channel The route a product takes from production to final consumption. Multichannel Where a business uses more than one channel of distribution distribution