1.3.4 distribution

• objective of distribution


  to make products available in the right place at the right time in the right quantities
• what is a distribution channel?


  moves a product through the stages from production to final consumption
• four stage distribution channel


  producer -> wholesaler -> retailer -> customer
• three stage distribution channels:


  eliminate the wholesaler stage, with the producer selling directly to the retailer

  three ways:

  • producer ->distributor -> consumer
  • producer -> agent -> consumer
  • producer -> retailer -> consumer
• three stage distributor channel - continued


  producer -> distributor -> customer

  • distribute (sell on) products and serve as local sales point
  • usually specialise in particular industry: building supplies, electrical components, industrial clothing
  • offer products from many products = greater choice
  • distributors hold stock
• three stage distribution channels - continued


  producer -> agent -> consumer

  • agents dont hold stock
  • tend to operate in tertiary sectors (services):

  1. travel
  2. insurance
  3. publishing

  • earn commission based on sales achieved
• two stage distribution channel


  eliminates both the wholesaler and retailer stages, with the manufacturer selling directly to the end consumer

  this channel is commonly used for products that are sold online or through direct sales channels eg, ryanair
• two stage distribution channel - continued


  producers -> consumers

  direct channel:

  various methods:

  • direct mailing
  • e-commerce
  • telemarketing (telephone selling)
• direct distribution


  channel where a product 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
• multi-channel distribution


  involves a business using more than one type of distribution channel
• advantages of using a multi-channel distribution


  • allows target market segments to be reached
  • customers increasingly expect products to be available via more than one channel
  • enables higher revenues
  • reach more customers - those with different demographics
• disadvantages of using a multi-channel distribution


  • retailers will be in competition
  • potential for channel ''conflict''
  • complex to manage
  • danger that pricing strategy becomes confused (from customers pov)
• extension strategy


  developing new products is expensive and takes time, so businesses will usually try to extend the life cycle of a product and prevent it from going into decline
• • extend the life of a product in decline
  • boost sales and maintain profitability
  • two types of extension strategies

  1. product-related extension strategies
  2. promotional-related strategies
• product related extension strategies 


  changing or modifying the product to make it more appealing to customers and extend its life cycle

  • product improvements/innovation
  • line extensions - add more choice
  • repositioning
• promotion-related strategies


  changing marketing and promotion of the product to extend its life cycle

  • changes to advertising
  • price promotions - reducing prices
  • sales promotions - encouraging repeat purchases
• key decisions - what type of distributor channel to use


  • 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 - eg, who decides price, promotion, packaging?
• possible reasons to use indirect distribution channels


  • geography - customers may live too far away to be reached directly or spread widely
  • consolidation of small orders into large ones
  • better use of resources elsewhere
  • segmentation - different segments of the market can be best reached by different distribution channels.
• social trends impact distribution channels used


  1. growth of e-commerce

  • online distribution has become increasingly popular due to convenience and accessibility it offers to consumers
  • many businesses now use dropshipping, which allows them to sell products without holding stock
  • once a business has sold products, they are shipped directly from producer to customer
  • this reduces the cost and compexity of distribution, making it easier for businesses to sell online
• social trends impact distribution channels used


  2. shift from product-based businesses to service-based businesses

  • delivery of services is different from delivery of physical products
  • consumers now value experiences over material possession
  • delivery services to customers directly, such as through a mobile app or website
• product life cycle stages:


  1. development (R&D)
  2. introduction
  3. growth
  4. maturity
  5. decline
• development


  explanation: designing and developing products, businesses usually incurs high costs for R&D, market research and product testing

  implication: cash flow is negative, heavy investment with no revenue
• introduction


  explanation: product is launched. sales may be low. low brand awarenesss.

  implication: cash flow is negative. high costs for promotion and increasing brand awareness
• growth


  explanation: more customers become aware of the product. sales increase rapidly

  implication: cash flow turns positive. revenue increases. marketing strategy focuses on differentiating product from rivals
• maturity


  explanation: sales reach their peak during this stage

  implication: cash flow remains positive. marketing strategy focuses on maintaining market share, entering new markets and cutting costs.
• decline


  explanation: sales fall during this phase as products lose popularity and customers look for alternatives. it is withdrawn when it becomes unprofitable.

  implication: sales decline. revenue declines. marketing strategy might consider discontinuing or extension strategy to entice sales.
• factors to consider - when choosing distribution channels


  1. nature of product
  2. the market, spread geographically, extent/nature of competition
  3. the business - size, nature, established distribution network