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Distribution (or place) is one of the four elements of the
marketing mix The term "marketing mix" is a foundation model for businesses, historically centered around product, price, place, and promotion (also known as the "4 Ps"). The marketing Marketing refers to activities a company A company, abbreviated as ...
. Distribution is the process of making a product or service available for the consumer or business user who needs it. This can be done directly by the producer or service provider or using indirect channels with distributors or
intermediaries An intermediary (or go-between) is a third party that offers intermediation services between two parties, which involves conveying messages between principals in a dispute, preventing direct contact and potential escalation of the issue. In la ...
. The other three elements of the
marketing mix The term "marketing mix" is a foundation model for businesses, historically centered around product, price, place, and promotion (also known as the "4 Ps"). The marketing Marketing refers to activities a company A company, abbreviated as ...
are product,
pricing Pricing is the Business process, process whereby a business sets the price at which it will sell its products and services, and may be part of the business's marketing plan. In setting prices, the business will take into account the price at whi ...

pricing
, and
promotion Promotion may refer to: Marketing * Promotion (marketing), one of the four marketing mix elements, comprising any type of marketing communication used to inform or persuade target audiences of the relative merits of a product, service, brand or i ...
. Decisions about distribution need to be taken in line with a company's overall strategic
vision Vision or The Vision may refer to: Perception Optical perception * Visual perception Visual perception is the ability to interpret the surrounding environment (biophysical), environment through photopic vision (daytime vision), color visio ...
and
mission Mission may refer to: Religion *Mission (station) A religious mission or mission station is a location for missionary work, in particular Christian missions. History Historically, missions have been religious communities used to spread ...

mission
. Developing a coherent distribution plan is a central component of
strategic planning Strategic planning is an organization An organization, or organisation (English in the Commonwealth of Nations, Commonwealth English; American and British English spelling differences#-ise, -ize (-isation, -ization), see spelling differenc ...

strategic planning
. At the strategic level, there are three broad approaches to distribution, namely mass, selective and exclusive distribution. The number and type of intermediaries selected largely depend on the strategic approach. The overall distribution channel should add value to the consumer.


Definition

DistributionDistribution may refer to: Mathematics *Distribution (mathematics) Distributions, also known as Schwartz distributions or generalized functions, are objects that generalize the classical notion of functions in mathematical analysis. Distr ...
is fundamentally concerned with ensuring that products reach target customers in the most direct and
cost-efficient Cost efficiency (or cost optimality), in the context of parallel computer Parallel computing is a type of computation Computation is any type of calculation A calculation is a deliberate process that transforms one or more inputs into one or ...
manner. In the case of services, distribution is principally concerned with access. Although distribution, as a concept, is relatively simple, in practice distribution management may involve a diverse range of activities and disciplines including detailed
logistics Logistics is generally the detailed organization and implementation of a complex operation. In a general business sense, logistics is the management of the flow of things between the point of origin and the point of consumption to meet the requi ...

logistics
,
transportation Transport (in British English British English (BrE) is the standard dialect of the English language English is a West Germanic languages, West Germanic language first spoken in History of Anglo-Saxon England, early medieval Engl ...

transportation
, warehousing, storage,
inventory management Field inventory management commonly known as inventory management is the function of understanding the stock mixStock mix is the combination of Product (business), products a company sells or manufactures. The stock mix is determined by the demand ...
as well as channel management including selection of channel members and rewarding distributors.


Distribution strategies

Prior to designing a distribution system, the planner needs to determine what the
distribution channel Distribution (or place) is one of the four elements of the marketing mix. Distribution is the process of making a product or service available for the consumer or business user who needs it. This can be done directly by the producer or service pr ...
is to achieve in broad terms. The overall approach to distributing products or services depends on a number of factors including the type of product, especially perishability; the market served; the geographic scope of operations and the firm's overall mission and vision. The process of setting out a broad statement of the aims and objectives of a distribution channel is a strategic level decision. Strategically, there are three approaches to distribution: * ''Mass distribution'' (also known as ''an'' ''intensive distribution''): When products are destined for a mass market, the marketer will seek out intermediaries that appeal to a broad market base. For example, snack foods and drinks are sold via a wide variety of outlets including supermarkets,
convenience store A convenience store, convenience shop, corner store, or corner shop is a small retail business that stocks a range of everyday items such as coffee, groceries, snack foods, confectionery, soft drinks, tobacco products, lottery tickets, over-the ...
s,
vending machine Newspaper vending machines in Munich, Germany">Munich.html" ;"title="Newspaper vending machines in Munich">Newspaper vending machines in Munich, Germany A vending machine is an automated machine that provides items such as snacks, beverages, c ...
s,
cafeteria A cafeteria, sometimes called a canteen outside the U.S. The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country primarily located in North America North America is a c ...

cafeteria
s and others. The choice of distribution outlet is skewed towards those that can deliver mass markets in a cost efficient manner. * ''Selective distribution:'' A manufacturer may choose to restrict the number of outlets handling a product. For example, a manufacturer of premium electrical goods may choose to deal with department stores and independent outlets that can provide added value service level required to support the product. Dr. Scholl orthopedic sandals, for example, only sell their product through pharmacies because this type of intermediary supports the desired ''therapeutic'' positioning of the product. Some of the prestige brands of cosmetics and skincare, such as Estee Lauder, Jurlique and
Clinique Clinique Laboratories, LLC () is an American manufacturer of skincare, cosmetics, toiletries and fragrances, usually sold in high-end department stores. It is a subsidiary of the Estée Lauder Companies. As of 2019, Clinique has over 22,000 cus ...
, insist that sales staff are trained to use the product range. The manufacturer will only allow trained clinicians to sell their products. * ''Exclusive distribution:'' In an exclusive distribution approach, a manufacturer chooses to deal with one intermediary or one type of intermediary. The advantage of an exclusive approach is that the manufacturer retains greater control over the distribution process. In exclusive arrangements, the distributor is expected to work closely with the manufacturer and add value to the product through service level, after sales care or client support services. Another definition of exclusive arrangement is an agreement between a supplier and a retailer granting the retailer exclusive rights within a specific geographic area to carry the supplier's product. Summary of strategic approaches to distribution


Push vs pull strategy

In consumer markets, another key strategic level decision is whether to use a push or pull strategy. In a ''push strategy'', the marketer uses intensive advertising and incentives aimed at distributors, especially retailers and wholesalers, with the expectation that they will stock the product or brand, and that consumers will purchase it when they see it in stores. In contrast, in a ''pull strategy'', the marketer promotes the product directly to consumers hoping that they will pressure retailers to stock the product or brand, thereby pulling it through the distribution channel. The choice of a push or pull strategy has important implications for advertising and promotion. In a push strategy, the promotional mix would consist of trade advertising and sales calls while the advertising media would normally be weighted towards trade magazines, exhibitions, and trade shows while a pull strategy would make more extensive use of consumer advertising and sales promotions while the media mix would be weighted towards mass-market media such as newspapers, magazines, television, and radio.


Channels and intermediaries

Distribution of products takes place by means of a
marketing channelA marketing channel consists of the people, organizations, and activities necessary to transfer the ownership of goods from the point of production to the point of consumption. It is the way products get to the end-user, the consumer A consumer ...
, also known as a distribution channel. A marketing channel is the people, organizations, and activities necessary to transfer the ownership of goods from the point of production to the point of consumption. It is the way products get to the end-user, the consumer. This is mostly accomplished through merchant retailers or wholesalers or, in the international context, by importers. In certain specialist markets, agents or brokers may become involved in the marketing channel. Typical intermediaries involved in distribution include: * Wholesaler: A merchant intermediary who sells chiefly to retailers, other merchants, or industrial, institutional, and commercial users mainly for resale or business use. The transactions are B2B (Business to Business). Wholesalers typically sell in large quantities. (Wholesalers, by definition, do not deal directly with the public). * Retailer: A merchant intermediary who sells direct to the public. There are many different types of retail outlet - from hypermarts and supermarkets to small, independent stores. The transactions in this case are B2C (Business to Customer). * Agent: An intermediary who is authorized to act for a principal in order to facilitate exchange. Unlike merchant wholesalers and retailers, agents do not take title to goods, but simply put buyers and sellers together. Agents are typically paid via commissions by the principal. For example, travel agents are paid a commission of around 15% for each booking made with an airline or hotel operator. * Jobber: A special type of wholesaler, typically one who operates on a small scale and sells only to retailers or institutions. For example, rack jobbers are small independent wholesalers who operate from a truck, supplying convenience stores with snack foods and drinks on a regular basis.


Channel design

A firm can design any number of channels they require to reach customers efficiently and effectively. Channels can be distinguished by the number of intermediaries between producer and consumer. If there are no intermediaries then this is known as a ''zero-level'' distribution system or
direct marketing Direct marketing is a form of communicating an offer, where organizations communicate directly to a Target market, pre-selected customer and supply a method for a direct response. Among practitioners, it is also known as ''direct response ma ...
. A ''level one'' (sometimes called ''one-tier'') channel has a single intermediary. A ''level two'' (alternatively a ''two-tier'') channel has two intermediaries, and so on. This flow is typically represented as being manufacturer to retailer to consumer, but may involve other types of intermediaries. In practice, distribution systems for perishable goods tend to be shorter - direct or single intermediary, because of the need to reduce the time a product spends in transit or in storage. In other cases, distribution systems can become quite complex involving many levels and different types of intermediaries.


Channel mix

In practice, many organizations use a mix of different channels; a direct sales force may call on larger customers. This may be complemented with other agents to cover smaller customers and prospects. When a single organization uses a variety of different channels to reach its markets, this is known as a ''multi-channel'' distribution network. In addition, online retailing or
e-commerce E-commerce (electronic commerce) is the activity of electronically The field of electronics is a branch of physics and electrical engineering that deals with the emission, behaviour and effects of electrons using electronic devices. Electronics ...
is leading to
disintermediation Image:Safewaydeliverytruck.jpg, Although Webvan failed in its goal of disintermediating the North American supermarket industry, several supermarket chains (like Safeway Inc.) have launched their own delivery services to target the niche market to ...
, the removal of intermediaries from a supply chain. Retailing via smartphone or m-commerce is also a growth area.


Managing channels

The firm's marketing department needs to design the most suitable channels for the firm's products, then select appropriate channel members or intermediaries. An organization may need to train staff of intermediaries and motivate the intermediary to sell the firm's products. The firm should monitor the channel's performance over time and modify the channel to enhance performance.


Channel motivation

To motivate intermediaries the firm can use positive actions, such as offering higher margins to the intermediary, special deals, premiums and allowances for advertising or display. On the other hand, negative actions may be necessary, such as threatening to cut back on margin, or hold back delivery of product. Care must be exercised when considering negative actions as these may fall foul of regulations and can contribute to a public backlash and a public relations disaster.


Channel conflict

Channel conflict can arise when one intermediary's actions prevent another intermediary from achieving their objectives. Vertical channel conflict occurs between the levels within a channel, and horizontal channel conflict occurs between intermediaries at the same level within a channel. Channel conflict is a perennial problem. There are risks that a powerful channel member may coordinate the interests of the channel for personal gain.


Trends in distribution


Channel switching

Channel-switching (not to be confused with zapping or channel surfing on TV) is the action of consumers switching from one type of channel intermediary to a different type of intermediary for their purchases. Examples include switching from brick-and-mortar stores to online catalogues and e-commerce providers; switching from grocery stores to convenience stores or switching from top tier department stores to mass market discount outlets. A number of factors have led to an increase in channel switching behaviour; the growth of e-commerce, the globalization of markets, the advent of
Category killerA category killer is a retailer, often a big-box store A big-box store (also hyperstore, supercenter, superstore, or megastore) is a physically large retail establishment, usually part of a chain store, chain of stores. The term sometimes also r ...
s (such as Officeworks and Kids 'R Us) as well as changes in the legal or statutory environment. For instance, in Australia and New Zealand, following a relaxation of laws prohibiting supermarkets from selling therapeutic goods, consumers are gradually switching away from pharmacies and towards supermarkets for the purchase of minor analgesics, cough and cold preparations and complementary medicines such as vitamins and herbal remedies. For the consumer, channel switching offers a more diverse shopping experience. However, marketers need to be alert to channel switching because of its potential to erode market share. Evidence of channel switching can suggest that disruptive forces are at play, and that consumer behaviour is undergoing fundamental changes. A consumer may be prompted to switch channels when the product or service can be found at cheaper prices, when superior models become available, when a wider range is offered, or simply because it is more convenient to shop through a different channel (e.g. online or one-stop shopping). As a hedge against market share losses due to switching behaviour, some retailers engage in multi-channel retailing.


Customer value

The emergence of a
service-dominant logic Service-dominant (S-D) logic, in behavioral economics Behavioral economics (also, behavioural economics) studies the effects of psychological Psychology is the science of mind and behavior. Psychology includes the study of consciousne ...
perspective has focused scholarly attention on how distribution networks serve to create customer value and to consider how value is co-created by all the players within the distribution chain, including the value created by customers themselves. This emphasis on value-creation is contributing to a change in terminology surrounding distribution processes; "distribution networks" are often termed ''value-chains'' while "distribution centers" are often termed ''customer fulfillment centers.'' For example, the retail giant Amazon, which utilizes both direct online distribution alongside bricks and mortar stores, now calls its distribution centers "customer fulfillment centers". Although the term, "customer fulfillment center" has been criticized on the grounds that it is a
neologism A neologism (; from Greek νέο- ''néo-'', "new" and λόγος ''lógos'', "speech, utterance") is a relatively recent or isolated term, word, or phrase that may be in the process of entering common use, but that has not yet been fully accepted ...
, its use is becoming increasingly mainstream as it slowly makes its way into introductory marketing textbooks.


Disintermediation

Disintermediation occurs when manufacturers or service providers eliminate intermediaries from the distribution network and deal directly with purchasers. Disintermediation is found in industries where radically new types of channel intermediaries displace traditional distributors. The widespread public acceptance of online shopping has been a major trigger for disintermediation in some industries. Certain types of traditional intermediaries are dropping by the wayside.Armstrong, G., Adam, S., Denize, S. and Kotler, P., ''Principles of Marketing,'' Asia-Pacific ed., Australia, Pearson, 2014, pp 315-316


See also


References


External links


pierce college.edu PDF, Product DistributionDifference between an agent, distributor and franchise
{{Authority control Business terms Service industries Trade