The Distribution Plan

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The Distribution Plan

Marketing channels provide a vital link to the customer

A company can gain a competitive edge by providing products on a timely basis in a way which is required by its customers

Distribution costs account for up to 30%-40% of a products cost

A company's channel decisions will directly affect other marketing mix decisions, especially pricing

Distribution channels often involve long term commitments to other firms, which are not easily changeable (therefore must be considered as a strategic option)

The Role of the distribution network

The COLLECTION OF INFORMATION on customers, competitors, and the sorts of developments that are taking place within the market
The PROMOTION of the product
The FINANCING OF INCENTIVES
The DELIVERY AND PHYSICAL TRANSFER of the product to the customer
The degree of RISK SHARING
An ORDERING function

Direct versus Indirect

Marketers may decide to go direct when they want immediate feedback, to receive better margins or be in control of their marketing mix

They may decide to go indirect if someone else can perform the distribution functions better, smarter or cheaper

Influences upon the channel decisions

PRODUCTS CHARACTERISTICS (e.g. perishability, specialist installation etc.)

CHARACTERISTICS OF THE INTERMEDIARIES (e.g. skills and level of expertise, geographic coverage, level of effort put into the product, profit margin required etc.)

COMPETITIVE CHARACTERISTICS (copy the competition? Or is there scope for doing something different and gaining a competitive advantage?)

COMPANY CHARACTERISTICS (long term objectives, relationships we have developed, level of resources etc.)

ENVIRONMENTAL FACTORS (any legal issues? Economy buoyant/depressed and the implications for costs, margins and prices?

Choosing Distribution Channels

ENVIRONMENTAL FORCES

Legislation influences the pattern of distribution in a country e.g. insurance products may only be sold through insurance companies approved by governmental bodies, in France the distribution of Pharmaceutical products is restricted to pharmacists

CORPORATE OBJECTIVES

Marketers must decide what specific tasks need to be accomplished by their channel members according to their Corporate Strategy, e.g. is the firm a low cost producer of a high-perceived value manufacturer

The location of the store should be consistent with the corporate image

MARKET CHARACTERISTICS

How accessible is the market

CUSTOMER BUYING BEHAVIOUR

The distribution strategy must be based on an identification of what the customer segments targeted really need and value

(e.g. cheap prices, speed of delivery, personalised service etc.)

PRODUCT LIFE-CYCLE

In general, the use of new products needs to be explained to consumers

(e.g. PC's began by being distributed in specialist shops, now can be sold directly to end users, by stores such as PC World)

Product factors: complexity/perishability/bulky or difficult to handle)

ECONOMIC FACTORS

Every task performed by a channel member costs money, marketers must understand therefore how performance can be enhanced in order to develop a sustainable competitive advantage

Choice of Coverage

There are three methods of coverage:

Intensive
Selective
Exclusive

The method chosen depends on:

level of expertise/service needed
exclusive nature and image of product
sales volume likely
control over intermediaries
possibility of conflict between channel members

Exclusive Coverage

Severely limiting the number of intermediaries

producer maintains control over service
"exclusive dealings"

(enhances product image and increased mark-ups!)

arises when the producer limits the number of intermediaries in any given geographical areas (usually one). This is in agreement not to carry any other lines from competing companies
The producer will receive greater commitment from the outlet and more control over price and image
For example: Rolls Royce cars

Selective Coverage

More than a few but less than all available intermediaries

develop a good working relationship
better than average selling effort
adequate market coverage with more control and less cost that intensive distribution
is used by manufacturers of consumer durables for which the typical pattern of buying behaviour is that of 'shopping around'
Consumers will make an effort to compare the offerings available, and for this reason the manufacturer need not distribute its products through all available outlets
Involves less communication effort (than intensive)
Offers opportunities to develop closer relationships within the channel from which adequate market coverage might be achieved with lower cost and greater control than is possible with intensive distribution
For example: Estee Lauder cosmetics

Intensive Coverage

Placing the goods or services in as many outlets as possible

less expensive products which are purchased frequently by a large number of customers
Is often sought by manufacturers of high-volume, low-value products in mass demand
Buying behaviour is usually that of habit and convenience
For example: Coca-Cola beverages, which are distributed in outlets ranging from Petrol Stations to Vending machines and from Supermarkets to corner shops

Channel may be integrated horizontally or vertically

Integration can stabilise supply, reduce costs and increase co-ordination of channel member.

Vertical marketing system Such defines the notion of supply chain management. Retailing is dominated by such systems, which are also significant in the business to business, industrial products and service sectors. Advantages of such a system is viewing each channels as been integrated, and managing the system in a co-ordinated manner

McCammon (1970) defined Vertical Marketing System as:

"...professionally managed and centrally programmed networks pre-engineered to achieve operating economies and maximum market impact...through integration, co-ordination, and synchronisation of marketing flows from point of production to point of ultimate use"
Category Buster

Changes the entire industry and how the distribution task is carried out

For example: Toy retailer 'Toys 'R' Us', which by virtue of its size, scale of operations, the siting of its enormous stores and its general way of doing business has radically altered how toys are sold

Major trends (of channel management)

See distribution 1 notes