Distribution (or
place) is one of the four elements of
marketing mixThe marketing mix is generally accepted as the use and specification of the 'four Ps' describing the strategy position of a product in the marketplace. The 'marketing mix' is a set of controllable, tactical marketing tools that work together to achieve company's objectives...
. An organization or set of organizations (go-betweens) involved in the process of making a product or service available for use or consumption by a consumer or business user.
The other three parts of the
marketing mixThe marketing mix is generally accepted as the use and specification of the 'four Ps' describing the strategy position of a product in the marketplace. The 'marketing mix' is a set of controllable, tactical marketing tools that work together to achieve company's objectives...
are
productThe noun product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced. Since 1695, the word has referred to "thing...
,
pricingPricing is a fundamental aspect of financial modelling, and is one of the four Ps of the marketing mix. The other three aspects are product, promotion, and place...
, and
promotionPromotion involves disseminating information about a product, product line, brand, or company. It is one of the five key aspects of the marketing mix....
.
Chain of intermediaries, each passing the product down the chain to the next organization, before it finally reaches the consumer or end-user.
Distribution (or
place) is one of the four elements of
marketing mixThe marketing mix is generally accepted as the use and specification of the 'four Ps' describing the strategy position of a product in the marketplace. The 'marketing mix' is a set of controllable, tactical marketing tools that work together to achieve company's objectives...
. An organization or set of organizations (go-betweens) involved in the process of making a product or service available for use or consumption by a consumer or business user.
The other three parts of the
marketing mixThe marketing mix is generally accepted as the use and specification of the 'four Ps' describing the strategy position of a product in the marketplace. The 'marketing mix' is a set of controllable, tactical marketing tools that work together to achieve company's objectives...
are
productThe noun product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced. Since 1695, the word has referred to "thing...
,
pricingPricing is a fundamental aspect of financial modelling, and is one of the four Ps of the marketing mix. The other three aspects are product, promotion, and place...
, and
promotionPromotion involves disseminating information about a product, product line, brand, or company. It is one of the five key aspects of the marketing mix....
.
The Distribution Channel
Chain of intermediaries, each passing the product down the chain to the next organization, before it finally reaches the consumer or end-user. This process is known as the 'distribution chain' or the 'channel.' Each of the elements in these chains will have their own specific needs, which the producer must take into account, along with those of the all-important end-user.
Channels
A number of alternate 'channels' of distribution may be available:
- Distributor, who sells to retailers
- Retailer (also called dealer
Dealer may refer to:*Antiques dealer, someone who sells Antiques*Broker-dealer, a legal term for a business firm that buys and sells securities before selling the securities to customers...
or resellerA reseller is a company or individual that purchases goods or services with the intention of reselling them rather than consuming or using them. This is usually done for profit...
), who sells to end customers
- Advertisement typically used for consumption goods
Distribution channels may not be restricted to physical products alone. They may be just as important for moving a service from producer to consumer in certain sectors, since both direct and indirect channels may be used. Hotels, for example, may sell their services (typically rooms) directly or through travel agents, tour operators, airlines, tourist boards, centralized reservation systems, etc.
There have also been some innovations in the distribution of services. For example, there has been an increase in
franchisingFranchising is the practice of using another person's business model. The franchisor grants the independent operator the right to distribute its products, techniques, and trademarks for a percentage of gross monthly sales and a royalty fee...
and in rental services - the latter offering anything from televisions through tools. There has also been some evidence of service integration, with services linking together, particularly in the travel and tourism sectors. For example, links now exist between airlines, hotels and car rental services. In addition, there has been a significant increase in retail outlets for the service sector. Outlets such as estate agencies and building society offices are crowding out traditional grocers from major shopping areas.
Channel members
Distribution channels can thus have a number of levels. Kotler defined the simplest level, that of a direct contact with no intermediaries involved, as the 'zero-level' channel.
The next level, the 'one-level' channel, features just one intermediary; in consumer goods a retailer, for industrial goods a distributor. In small markets (such as small countries) it is practical to reach the whole market using just one- and zero-level channels.
In large markets (such as larger countries) a second level, a wholesaler for example, is now mainly used to extend distribution to the large number of small, neighborhood retailers or dealers.
In Japan the chain of distribution is often complex and further levels are used, even for the simplest of consumer goods.
In Bangladesh Telecom Operators are using different Chains of Distribution, especially 'second level'.
In IT and Telecom industry levels are named "tiers". A one tier channel means that vendors
ITInformation technology , as defined by the Information Technology Association of America , is "the study, design, development, implementation, support or management of computer-based information systems, particularly software applications and computer hardware." IT deals with the use of electronic...
product manufacturers (or software publishers) work directly with the dealers. A one tier / two tier channel means that vendors work directly with dealers and with distributors who sell to dealers. But the most important is the distributor or wholesaler.
The internal market
Many of the marketing principles and techniques which are applied to the external customers of an organization can be just as effectively applied to each subsidiary's, or each department's, 'internal' customers.
In some parts of certain organizations this may in fact be formalized, as goods are transferred between separate parts of the organization at a `transfer price'. To all intents and purposes, with the possible exception of the pricing mechanism itself, this process can and should be viewed as a normal buyer-seller relationship. The fact that this is a
captive marketCaptive markets are markets where the potential consumers face a severely limited amount of competitive suppliers; their only choices are to purchase what is available or to make no purchase at all. Captive markets result in higher prices and less diversity for consumers...
, resulting in a `monopoly price', should not discourage the participants from employing marketing techniques. Less obvious, but just as practical, is the use of `marketing' by service and administrative departments; to optimize their contribution to their `customers' (the rest of the organization in general, and those parts of it which deal directly with them in particular). In all of this, the lessons of the non-profit organizations, in dealing with their clients, offer a very useful parallel. But in spite of this many, organizations prefer not to operate at a 'transfer' price because costs gradually increase as they undergo the distribution process.
Channel decisions
- Channel strategy
- Gravity
- Push and Pull strategy
- Product (or service)<>Cost<>Consumer location
Managerial concerns
The channel decision is very important. In theory at least, there is a form of trade-off: the cost of using intermediaries to achieve wider distribution is supposedly lower. Indeed, most consumer goods manufacturers could never justify the cost of selling direct to their consumers, except by mail order.
Many suppliers seem to assume that once their product has been sold into the channel, into the beginning of the distribution chain, their job is finished. Yet that distribution chain is merely assuming a part of the supplier's responsibility; and, if they have any aspirations to be market-oriented, their job should really be extended to managing all the processes involved in that chain, until the product or service arrives with the end-user. This may involve a number of decisions on the part of the supplier:
- Channel membership
- Channel motivation
- Monitoring and managing channels
Channel membership
- Intensive distribution - Where the majority of resellers stock the 'product' (with convenience products, for example, and particularly the brand leaders in consumer goods markets) price competition may be evident.
- Selective distribution - This is the normal pattern (in both consumer and industrial markets) where 'suitable' resellers stock the product.
- Exclusive distribution - Only specially selected resellers or authorized dealers (typically only one per geographical area) are allowed to sell the 'product'.
Channel motivation
It is difficult enough to motivate direct employees to provide the necessary sales and service support. Motivating the owners and employees of the independent organizations in a distribution chain requires even greater effort. There are many devices for achieving such motivation. Perhaps the most usual is `incentive': the supplier offers a better margin, to tempt the owners in the channel to push the product rather than its competitors; or a competition is offered to the distributors' sales personnel, so that they are tempted to push the product.
DentDent may refer to:* An indentation or impact mark; it may also refer to a permanent deformation on a surface - People :* Andrew Dent AM, Australian doctor and humanitarian worker* Bucky Dent, American baseball player...
defines this incentive as a
Channel Value PropositionChannel Value Proposition is the business case made by a supplier to attract members of its distribution channel. This is made up of many elements depending upon the sophistication of the supplier and channel members and the intensity of competition for share of the channel...
or business case, with which the supplier sells the channel member on the commercial merits of doing business together. He describes this as selling business models not products.
Monitoring and managing channels
In much the same way that the organization's own sales and distribution activities need to be monitored and managed, so will those of the distribution chain.
In practice, many organizations use a mix of different channels; in particular, they may complement a direct salesforce, calling on the larger accounts, with agents, covering the smaller customers and prospects.
See also
- Channel Value Proposition
Channel Value Proposition is the business case made by a supplier to attract members of its distribution channel. This is made up of many elements depending upon the sophistication of the supplier and channel members and the intensity of competition for share of the channel...
- Extended Enterprise
- Marketing
Marketing is an integrated communications-based process through which individuals and communities are informed or persuaded that existing and newly-identified needs and wants may be satisfied by the products and services of others....
- Agricultural marketing
Agricultural marketing covers the services involved in moving an agricultural product from the farm to the consumer. Numerous interconnected activities are involved in doing this. Agricultural marketing is best carried out by the private sector rather than governments and all stages of the chain...
- Marketing plan
A marketing plan is a written document that details the necessary actions to achieve one or more marketing objectives. It can be for a product or service, a brand, or a product line. Marketing plans cover between one and five years....
- Marketing management
Marketing management is a business discipline which is focused on the practical application of marketing techniques and the management of a firm's marketing resources and activities. Marketing managers are often responsible for influencing the level, timing, and composition of customer demand...
- Marketing mix
The marketing mix is generally accepted as the use and specification of the 'four Ps' describing the strategy position of a product in the marketplace. The 'marketing mix' is a set of controllable, tactical marketing tools that work together to achieve company's objectives...
- Logistics
Logistics is the management of the flow of goods, information and other resources, including energy and people, between the point of origin and the point of consumption in order to meet the requirements of consumers...
- Liquid logistics
Liquid Logistics is a special category of logistics that relates to liquid products, and is used extensively in the "Supply Chain for Liquids" discipline....
- Predictive analytics
Predictive analytics encompasses a variety of techniques from statistics, data mining and game theory that analyze current and historical facts to make predictions about future events....
- Packaging and labelling
Packaging is the science, art and technology of enclosing or protecting products for distribution, storage, sale, and use. Packaging also refers to the process of design, evaluation, and production of packages. Packaging can be described as a coordinated system of preparing goods for transport,...
- Supply chain
A supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to...
- Good distribution practice
Good Distribution Practice or GDP deals with the guidelines for the proper distribution of medicinal products for human use. GDP is a quality warranty system, which includes requirements for purchase, receiving, storage and export of drugs intended for human consumption.GDP regulates the division...
(GDP)
- All commodity volume
All commodity Volume represents the total annual sales volume of retailers that can be aggregated from individual store-level up to larger Geographical sets...
Specific types of distribution
- Film
A film distributor is an independent company, a subsidiary company or occasionally an individual, which acts as the final agent between a film production company or some intermediary agent, and a film exhibitor, to the end of securing placement of the producer's film on the exhibitor's screen...
- Records
- Insurance
Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and known...
- Electricity
File:Electricity grid simple- North America.svg|thumb|380px|right|Simplified diagram of AC electricity distribution from generation stations to consumersrect 2 243 235 438 Power stationrect 276 317 412 556 Transformer...
- Liquids
Liquid Logistics is a special category of logistics that relates to liquid products, and is used extensively in the "Supply Chain for Liquids" discipline....
- Laboratory
Laboratory equipment refers to the various tools and equipment used by scientists working in a laboratory. These include tools such as Bunsen burners, and microscopes as well as specialty equipment such as operant conditioning chambers, spectrophotometers and calorimeters...
- Banking sector
External links