Distribution Decisions

Our discussions in the tutorials Product Decisions and Managing Products indicate product decisions may be the most important of all marketing decisions since these lead directly to the reasons (i.e., offer benefits that satisfy needs) why customers decide to make a purchase. But having a strong product does little good if customers are not able to easily and conveniently obtain it. With this in mind we turn to the second major marketing decision area – distribution.

Distribution decisions focus on establishing a system that, at its basic level, allows customers to gain access and purchase a marketer’s product. However, marketers may find that getting to the point at which a customer can acquire a product is complicated, time consuming, and expensive. The bottom line is a marketer’s distribution system must be both effective (i.e., delivers a good or service to the right place, in the right amount, in the right condition) and efficient (i.e., delivers at the right time and for the right cost). Yet, as we will see, achieving these goals takes considerable effort.

Distribution decisions are relevant for nearly all types of products. While it is easy to see how distribution decisions impact physical goods, such as laundry detergent or truck parts, distribution is equally important for digital goods (e.g., television programming, downloadable music) and services (e.g., income tax services). In fact, while the Internet is playing a major role in changing product distribution and is perceived to offer more opportunities for reaching customers, online marketers still face the same distribution issues and obstacles as those faced by offline marketers.

In order to facilitate an effective and efficient distribution system many decisions must be made including (but certainly not limited to):

• Assessing the best distribution channels for getting products to customers
• Determining whether a reseller network is needed to assist in the distribution process
• Arranging a reliable ordering system that allows customers to place orders
• Creating a delivery system for transporting the product to the customer
• For tangible and digital goods, establishing facilities for product storage

In this part of our highly detailed Principles of Marketing Tutorials we cover the basics of distribution including defining what channels of distribution are and why these are important. We will also introduce the key parties in a distribution system, such as the reseller network, though much greater coverage will be given to channel partners and to technical aspects of distribution (e.g., ordering, delivery, storage, etc.)

What are Channels of Distribution?

In the Business Buying Behavior Tutorial, we describe a supply chain as consisting of all parties and their supplied activities that help a marketer create and deliver products to the final customer. For marketers, the distribution decision is primarily concerned with the supply chain’s front-end or channels of distribution that are designed to move the product (goods or services) from the hands of the company to the hands of the customer. Obviously when we talk about intangible services the use of the word “hands” is a figurative way to describe the exchange that takes place. But the idea is the same as with tangible goods. All activities and organizations helping with the exchange are part of the marketer’s channels of distribution.

Activities involved in the channel are wide and varied though the basic activities revolve around these general tasks:

• Ordering
• Handling and shipping
• Storage
• Display
• Promotion
• Selling
• Information feedback

  Type of Channel Members

  Channel activities may be carried out by the marketer or the marketer may seek specialist organizations to assist with certain functions. We can classify specialist organizations into two broad categories: resellers and specialty service firms.
  

  Resellers

  These organizations, also known within some industries as intermediaries, distributors or dealers, generally purchase or take ownership of products from the marketing company with the intention of selling to others. If a marketer utilizes multiple resellers within its distribution channel strategy the collection of resellers is termed a Reseller Network. These organizations can be classified into several sub-categories including:
  

  • Retailers – Organizations that sell products directly to final consumers.
  • Wholesalers – Organizations that purchase products from suppliers, such as manufacturers or other wholesalers, and in turn sell these to other resellers, such as retailers or other wholesalers.
  • Industrial Distributors – Firms that work mainly in the business-to-business market selling products obtained from industrial suppliers.

  Specialty Service Firms

  These are organizations that provide additional services to help with the exchange of products but generally do not purchase the product (i.e., do not take ownership of the product):
  

  • Agents and Brokers – Organizations that mainly work to bring suppliers and buyers together in exchange for a fee.
  • Distribution Service Firms – Offer services aiding in the movement of products such as assistance with transportation, storage, and order processing.
  • Others – This category includes firms that provide additional services to aid in the distribution process such as insurance companies and firms offering transportation routing assistance.
  • Importance of Distribution Channels
  • As noted, distribution channels often require the assistance of others in order for the marketer to reach its target market. But why exactly does a company need others to help with the distribution of their product? Wouldn’t a company that handles its own distribution functions be in a better position to exercise control over product sales and potentially earn higher profits? Also, doesn’t the Internet make it much easier to distribute products thus lessening the need for others to be involved in selling a company’s product?

While on the surface it may seem to make sense for a company to operate its own distribution channel (i.e., handling all aspects of distribution) there are many factors preventing companies from doing so. While companies can do without the assistance of certain channel members, for many marketers some level of channel partnership is needed. For example, marketers who are successful without utilizing resellers to sell their product (e.g., Dell Computers sells mostly through the Internet and not in retail stores) may still need assistance with certain parts of the distribution process (e.g., Dell uses parcel post shippers such as FedEx and UPS). In Dell’s case creating their own transportation system makes little sense given how large such a system would need to be in order to service Dell’s customer base. Thus, by using shipping companies Dell is taking advantage of the benefits these services offer to Dell and to Dell’s customers.