Distribution management

What is distribution?

For any production to be considered complete, the finished goods must read the final consumers. Distribution is the process of making sure that the finished goods reach final consumers. Through this means, the company will be able to acquire value in the form of money that customers pay to purchase the goods.

Distribution channels

In most cases, producers don’t maintain direct contact with customers and as such, distributing directly to customers is impossible. Thus, they make use of different networks of distribution to bring their goods to customers. These middle men whole play the linking role between customers and producers are known as distribution channel. They include retailers and wholesalers.

1. Wholesalers – they buy goods in bulk quantity from producers and sale to retailers and consumers.
2. Retailers – they buy goods in smaller quantities from wholesalers and producers and then sale directly to consumers.
3. Direct marketing – this is a situation in which producers sale their goods directly to consumers without the aid of middlemen (thus, they eliminate the distribution channel). This is more expensive for the producers.

Importance of distribution

The major importance of distribution is that it makes production complete. In economics, production is not considered complete else the finished goods have reached final consumers and distribution is the only process through which such outcome can be made possible. Thus, distribution is important because it provides consumers with the goods to meet their needs and providers producers with financial value gained from such outcome.

Additionally, distribution makes production sustainable because manufacturers will use the money gained from consumers through distribution to effect more production process. The more producers can distribute, the more they can reinvest and the more profit they can make.

Importance of distribution channel

1. Allows producers to reduce cost through specialization - since producers will focus on producing while the middlemen distribute, they will be able to reduce cost associated with distribution (as is common in direct marketing).
2. Reduces exchange time – majority of these middlemen live close to consumers, so consumers can purchase goods whenever they so desire.
3. Offers consumers variety – middlemen normally distribute different kinds of goods, thus consumers are provided with the opportunity of choosing from variety of products.
4. Convenient for consumers – since the retailers live close to consumers and operate before and after official working hours, consumers can purchase goods conveniently from them than producers.
5. Generates more sales – majority of the consumers prefer to buy in smaller quantity because they don’t have the money to purchase in bulk. Thus, middlemen makes this possible and creates more sales in the process.
6. Source of information – since the middlemen live close and communicate with the consumers, they are better positioned to understand the individual needs of the consumers and provider producers with such information. This helps producers to tailor their products more effectively towards meeting the needs of these consumers.

Distribution as a component of the marketing mix

The elements of the marketing mix are also referred to as the 5 P's of marketing. For years marketers referred to the 4 P's of marketing. Only recently has a 5th P been added. They are as explained below:

1. Product – The products or services offered to your customer: Their physical attributes, what they do, how they differ from your competitors and what benefits they provide.
2. Price – How you price your product or service so that your price remains competitive but allows you to make a good profit.
3. Place (Also referred to as Distribution) – Where your business sells its products or services and how it gets those products or services to your customers.
4. Promotion – The methods used to communicate the features and benefits of your products or services to your target customers.
5. People - refers to how your level of service and the expertise and skills of the people who work for you can be used to set you apart (differentiate) from your competitors.

From the above discussion, it is obvious that the distribution is an important aspect of the marketing mix. It ensure that all aspects of the marketing mix are effective. If products are manufactured, price set, products promoted, and the right workforce available (people), the marketing mix is incomplete without distribution because it is the only process through which consumers can obtain value from produced goods and producers make profit from sales of such goods. Thus, production cannot be complete or sustainable without distribution.

Objectives of distribution

1. Movement of goods - The main objective of distribution is to make flow of goods from production place to consumption place. For this, the role of the distribution channel system and its members becomes very important.
2. Availability of goods - The objective of distribution function is to make or supply necessary goods to the large masses of customers living indifferent geographical areas.
3. Protection of goods - The objective of distribution is also to properly storing, handling and protecting the goods and supplying them to the consumers in good condition.
4. Cost reduction - The objective of distribution is also to reduce cost of product by bringing effectiveness in distribution process.
5. Customer satisfaction - The other objective of distribution function is to help consumers feel satisfied through effective distribution.

Dimensions of distribution management

In order to ensure that goods are effectively distributed (on-time delivery), a number of features must be combined together with the wholesaler to make such outcome a success. Such dimensions in distribution management include:

1. Warehousing – a warehouse is where raw materials are stored for later use in production, or where finished goods are stored for later distribution. Warehouses are very important when it comes to distribution. This is because some products are seasonal and order increases when the season reaches (for instance fireworks used in festive seasons). Thus, such goods need to be produced in advanced and stored in order to meet demand.
2. Materials handling – material handling is also another dimension in distribution. Some products are sensitive to both environmental and mechanical conditions. Thus, it is mandated that the producers work together with the middlemen in order to provide the right conditions for such products.
3. Purchasing – products must be packaged in the right way to provide necessary protections for the product itself and also in a way that it will attract the interest of customers.
4. Information maintenance – in order to maintain effective production system, the company also need to maintain good flow of quality information. Information can be gathered through research (internally) and survey (externally from the customers). The middlemen also play an important role when it comes to gathering information because they maintain close relationship with the final consumers show share their views on what they think about the product.

Methods of distribution

The main purpose of distribution is to ensure that goods reach the final consumers, but how such goods reach these consumers can differ as a result of differences in choice and location. Thus, the methods of distribution are as discussed below.

1. Direct Selling – direct selling involves the company selling its products directly to the consumers without the aid of middlemen. Many businesses choose the direct-sales channel, because you have access to the customer and keep all revenue under the control of the company. Direct sales let you do your market research and choose your own customers while setting the selling price. The downside is that it takes a lot of time and focus away from your main preoccupation: the production of high-quality goods. Direct selling is a good match for a marketing plan that has identified, researched and segmented the final customers.
2. Wholesale/Retailers - When you have difficulties establishing who your retail customers will be and don't have time to go out and sell, your marketing plan can focus on wholesale distribution. This choice is especially valid if your potential customers are widely dispersed or located far from your facilities. Wholesale distribution leaves the selling to wholesalers and retailers specialized in retail sales. Because they have the sales costs, you may receive only a portion of the final sales price, but you can focus on manufacturing the best product at the lowest cost.
3. Mail Order - Mail order is a low-cost distribution channel that is convenient for the customer. You can use mail order by buying mailing lists or placing ads in a suitable publication. If you send out material to a mailing list, you need fliers and other materials. The mailing list has to target the demographic groups that you expect will buy your products, as described in your marketing plan. With time, you can create your own mailing lists complete with customer profiles and preferences.
4. Online - A channel that is disruptive to the traditional ways of marketing and distribution is the online channel. Online selling features disintermediation, or the removal of intermediaries, while still reaching large groups of potential customers. Cutting out the middle man while retaining the ability to sell to a broadly-based market makes online sales particularly attractive. Harnessing social networks, online ad campaigns and message boards to spread the word, you can achieve substantial sales volumes quickly. Your marketing plan has to have an overall strategy, because online sales can suffer from instability and large variations unless there is a strategic direction to keep potential customers engaged. Good examples are Toplando, OLX, Jumia, Konga etc.

Marketing channels

Marketing channels are the ways that goods and services are made available for use by the consumers. All goods go through channels of distribution, and your marketing will depend on the way your goods are distributed. The route that the product takes on its way from production to the consumer is important because a marketer must decide which route or channel is best for his particular product.

1. Manufacturer to Customer (direct marketing) - Manufacturer makes the goods and sells them to the consumer directly with no intermediary, such as a wholesaler, agent or retailer. Goods come from the manufacturer to the user without an intermediary. For example, a farmer may sell some produce directly to customers. For example, a bakery may sell cakes and pies directly to customers.
2. Manufacturer to Retailer to Consumer (indirect marketing) - Purchases are made by the retailer from the manufacturer and then the retailer sells the merchandise to the consumer. This channel is used by manufacturers that specialize in producing shopping goods. For example, clothes, shoes, furniture and fine china. This merchandise may not be needed immediately and the consumer may take her time and try on the items before making a buying decision. Manufacturers that specialize in producing shopping goods prefer this method of distribution.
3. Manufacturer to Wholesaler to Customer indirect marketing) - Consumers can buy directly from the wholesaler. The wholesaler breaks down bulk packages for resale to the consumer. The wholesaler reduces some of the cost to the consumer such as service cost or sales force cost, which makes the purchase price cheaper for the consumer. For example, shopping at some of the warehouse clubs, the customer may have to buy a membership in order to buy directly from the wholesaler.
4. Manufacturer to Agent to Wholesaler to Retailer to Customer (indirect marketing) - Distribution that involves more than one intermediary involves an agent called in to be the middleman and assist with the sale of the goods. An agent receives a commission from the producer. Agents are useful when goods need to move quickly into the market soon after the order is placed. For example, a fishery makes a large catch of seafood; since fish is perishable it must be disposed of quickly. It is time consuming for the fishery to contact many wholesalers all over the country so he contacts an agent. The agent distributes the fish to the wholesalers. The wholesalers sell to retailers and then retailers sell to consumers.

Roles of distribution channels in marketing

1. Information Provider: Middlemen have a role in providing information about the market to the manufacturer. Developments like changes in customer demography, psychography, media habits and the entry of a new competitor or a new brand and changes in customer preferences are some of the information that all manufacturers want. Since these middlemen are present in the market place and close to the customer they can provide this information at no additional cost.
2. Price Stability: Maintaining price stability in the market is another function a middleman performs. Many a time the middlemen absorb an increase in the price of the products and continue to charge the customer the same old price. This is because of the intra-middlemen competition. The middleman also maintains price stability by keeping his overheads low.

 

3. Promotion: Promoting the product/s in his territory is another function that middlemen perform. Many of them design their own sales incentive programmes, aimed at building customers traffic at the other outlets.
4. Financing: Middlemen finance manufacturers’ operation by providing the necessary working capital in the form of advance payments for goods and services. The payment is in advance even though the manufacturer may extend credit, because it has to be made even before the products are bought, consumed and paid for by the ultimate consumer.
5. Title: Most middlemen take the title to the goods, services and trade in their own name. This helps in diffusing the risks between the manufacturer and middlemen. This also enables middlemen to be in physical possession of the goods, which in turn enables them to meet customer demand at very moment it arises.
6. Help in Production Function: The producer can concentrate on the production function leaving the marketing problem to middlemen who specialize in the profession. Their services can best utilized for selling the product. The finance, required for organising marketing can profitably be used in production where the rate of return would be greater.
7. Matching Demand and Supply: The chief function of intermediaries is to assemble the goods from many producers in such a manner that a customer can affect purchases with ease. The goal of marketing is the matching of segments of supply and demand.
8. Pricing: pricing a product, the producer should invite the suggestions from the middlemen who are very close to the ultimate users and know what they can pay for the product. Pricing may be different for different markets or products depending upon the channel of distribution.

 

9. Standardizing Transactions: Standardizing transactions is another function of marketing channels. Taking the example of the milk delivery system, the distribution is standardized throughout the marketing channel so that consumers do not need to negotiate with the sellers on any aspect, whether it is price, quantity, method of payment or location of the product.
10. Matching Buyers and Sellers: The most crucial activity of the marketing channel members is to match the needs of buyers and sellers. Normally, most sellers do not know where they can reach potential buyers and similarly, buyers do not know where they can reach potential sellers. From this perspective, the role of the marketing channel to match the buyers’ and sellers’ needs becomes very vital. For example, a painter of modern art may not know where he can reach his potential customers, but an art dealer would surely know.

Channel functions and flows

In order to deliver the optimal level of service outputs to their target consumers, manufacturers are willing to allocate some of their tasks, or marketing flows, to intermediaries. As any marketing channel moves goods from producers to consumers, the marketing intermediaries perform, or participate in, a number of marketing flows, or activities. The typical marketing flows, listed in the usual sequence in which they arise, are

1. Information - collection and distribution of marketing research information
2. Promotion - development and dissemination of persuasive communications
3. Negotiation - agreement on terms for transfer of ownership or possession
4. Ordering - intentions to buy
5. Risk taking - acquisition and allocation of funds (financing), assumption of risks
6. Physical possession - storage and movement of product
7. Payment - buyers paying sellers
8. Title - transfer of ownership

Each of these flows must be performed by a marketing intermediary for any channel to deliver the goods to the final consumer. Thus, each producer must decide who will perform which of these functions in order to deliver the service output levels that the target consumers desire. Producers delegate these flows for a variety of reasons. First, they may lack the financial resources to carry out the intermediary activities themselves. Second, many producers can earn a superior return on their capital by investing profits back into their core business rather than into the distribution of their products. Finally, intermediaries, or middlemen, offer superior efficiency in making goods and services widely available and accessible to final users. For instance, in overseas markets it may be difficult for an exporter to establish contact with end users, and various kinds of agents must therefore be employed. Because an intermediary typically focuses on only a small handful of specialized tasks within the marketing channel, each intermediary, through specialization, experience, or scale of operation, can offer a producer greater distribution benefits.