WELCOME TO CHECK POINT 90

HOW CAN YOU BENEFIT FROM CHECK POINT 90?

LEAN MANAGEMENT GUIDELINES FOR CHECK POINT 90

DISTRIBUTION STRATEGY

Business owners and marketing managers must have a good understanding about various distribution strategies to ensure effective implementation of the marketing plan within the organization.

Distribution Strategy represents a specific plan designed to secure an efficient distribution of a company's products or services to customers. Every organization uses a number of alternative methods to distribute products and services in the marketplace. The channels of distribution vary from direct selling to consumers to utilizing one or more intermediaries.

A Distribution Channel is a set of inter-dependent organizations involved in the process of making a product or service available for use or consumption. (31)

ADDITIONAL INFORMATION ONLINE

MARKETING INTERMEDIARIES

Different types of organizations, known as Marketing Intermediaries or simply Intermediaries, are involved in the distribution of products in the marketplace. Distinguishing characteristics of marketing intermediaries are summarized below.

DEFINITIONS AND CHARACTERISTICS OF MARKETING INTERMEDIARIES

ADDITIONAL INFORMATION ONLINE

IMPORTANCE OF THE INTERMEDIARIES

Marketing Intermediaries are used in the distribution process for several reasons, the most important of which is that they facilitate bringing the products into the marketplace.  Without intermediaries, this function would have been performed by manufacturers, imposing additional difficulty on the distribution process. 

Intermediaries play a highly visible role in an effective Distribution Process. These include organizations or individuals specializing in particular lines of products or operating in well-defined market segments.

Throughout the process of their work, intermediaries establish strong Personal Contacts in the marketplace and learn to understand specific market requirements. This, in turn, facilitates a more efficient exchange process between manufacturers and consumers. Additionally, intermediaries perform two important functions for manufacturers as outlined below.

TWO MAIN FUNCTIONS PERFORMED BY INTERMEDIARIES

ADDITIONAL INFORMATION ONLINE

The Sorting Function includes a number of activities outlined below.(32)

 ELEMENTS OF THE SORTING FUNCTION

THE SEARCHING FUNCTION

The Searching Function entails constant movement of intermediaries in the marketplace with the objective of identifying and qualifying the exact requirements of prospective customers. This results in an improved Customer-Market Intelligence Level and facilitates a more effective process of distributing goods and services.

Business owners and marketing managers must be engaged with their immediate suppliers and other market intermediaries on a continuous basis to ensure cost-effective distribution of products and services. This is particularly important in light of the current developments in supply chain management, which is discussed next.

ELEMENTS OF THE SEARCHING FUNCTION

Business owners and marketing managers must be engaged with their immediate suppliers and other market intermediaries on a continuous basis to ensure cost-effective distribution of products and services. This is particularly important in light of the current developments in supply chain management, which is discussed next.

SUPPLY CHAIN MANAGEMENT

Intermediaries became particularly important since the development of supply chains between a broad range of suppliers and intermediaries on one hand, and the users, on the other hand.

The prime purpose of Supply Chain Management is to ensure that the organization develops a long-term competitive edge in order to remain successful in a highly challenging business environment. The concept of "supply chain management" has been developed in the recent decades and it still undergoes a process of continuous refinement.

A Supply Chain is a sequence of suppliers, warehouses, manufacturing and operational facilities, wholesale distributors, retailers, and ultimate customers - the end-users of products and services.

A supply chain may be different for various companies depending upon their specific nature of business, i.e. manufacturing, merchandising, service, project, or contract as illustrated below.

SUPPLY CHAIN OVERVIEW

ADDITIONAL INFORMATION ONLINE

THE SUPPLY CHAIN MANAGEMENT STRATEGY

According to Robert L. Evans, every CEO and business owner should be thinking today about the supply chain management strategy in order to secure the future success of his or her organization. 

The Supply Chain Management Strategy entails formulating a number of important decisions related to the issues of customers, suppliers, sub-contractors, distributors of products, and providers of services. These decisions should include a number of steps outlined below. (33)

SUPPLY CHAIN MANAGEMENT DECISIONS

Step 1: Identify The Most Cost-Effective And Optimal Supply Chain For Your Organization.

The supply chain is selected in accordance with the type of your company's operations, i.e. manufacturing, merchandising, service, projects or contracts.

Step 2: Select A Pool Of Companies With Whom You Want To Connect, Taking Into Account:

• • What your competitors are doing?
• • What your potential partners in the supply chain are doing?
• • What value-adding role will your company play in the supply chain?

Step 3: Identify And Select The Dimensions Across Which You And Your Supply Chain Partners Will Connect.

• This entails deciding the following:
  • What information will be shared between partners?
• • Whether product and processes will be jointly designed?
• • What planning and decision-making will be shared between partners?
• • How operations could be combined to eliminate redundant assets, reduce cost, and serve   customers better?
• • How the financial terms will be arranged between partners?

Step 4: Select The Organizational Form Your Supply Chain Will Take.

• Relationships between supply chain partners may take different forms such as:
  • Continuous business relationship of buying and selling products and services.
• • Merger with a supply chain partner.
• • Acquisition of a supply chain partner.

Step 5: Finalize Your Selection Of Supply Chain Partners.

• Your selection must be based on the most economically viable long-term mutually beneficial association.

ADDITIONAL INFORMATION ONLINE

You can obtain additional information about Supply Chain Management online:

• Supply Chain Management Resources
• The Institute For Supply Management
• Material Handling Management
• Outsourcing Center
• Supply Chain Online

Supply Chain And Materials Management are discussed in detail in Tutorial 4.

DISTRIBUTION CHANNELS

Producers of goods or services use different Distribution Channels to reach their customers and to ensure high level of customer satisfaction at the best possible prices. Sometimes producers decide may to use direct distribution to end-users, while in other instances it may be more prudent to use one or more levels of marketing intermediaries to achieve specific sales objectives.

The Social Media also plays an increasingly important role in enabling producers to reach their customers in a more cost-effective manner. For this reason social media became an integral part of several types of distribution channels in the marketplace.

The two main Distribution Channels are outlined below.

TWO MAIN TYPES OF DISTRIBUTION CHANNELS

ADDITIONAL INFORMATION ONLINE

CONSUMER CHANNELS OF DISTRIBUTION

Consumer Channels include all channels of distribution that can be used by producers in making goods or services available to the consumer market. Four commonly used types of Consumer Channels (A, B, C, D), are illustrated below.

BASIC CHANNELS OF DISTRIBUTION FOR CONSUMER GOODS

THE CONSUMER CHANNELS OF DISTRIBUTION

• Channel A (Producer - Consumer).

The first type represents the simplest way of distributing goods or services to consumers. This is a direct marketing method and does not require intermediaries at all. This method is particularly useful when producers distribute highly perishable products (e.g., food stuffs, flowers) or provide services that require personal attention (e.g., plumbers, accountants, lawyers). Probably one of the best-known direct marketing methods is offering products to prospective customers through direct mail or through the Internet. Both methods have become particularly popular in recent years.

• Channel B (Producer - Retailer - Consumer).

The second type entails distribution of products to consumers through specialized retailers. This is the shortest indirect marketing method and requires only one intermediary. Different manufacturers, for example, use retailers to supply their products directly to consumers. Some manufacturers go even further and develop their own network of retail outlets in a particular geographic area.

• Channel C (Producer - Wholesaler - Retailer - Consumer).

The third type represents one of the most popular methods of distribution in the marketplace. This method enables manufacturers to sell their products to wholesalers in large quantities at a minimal promotional and distribution expense. Manufacturers can expect prompt settlement of accounts by wholesalers who finance, in part, the entire distribution process. Wholesalers usually specialize in particular product lines (e.g., furniture, appliances, jewelry) and obtain the merchandise from different manufacturers. Retailers also rely on wholesalers that can provide them with products that can be purchased in small quantities, with transportation, and with favorable credit terms.

• Channel D (Producer - Agent - Wholesaler - Retailer - Consumer).

The fourth type represents an expensive method of product distribution. Nevertheless, this method is frequently used by producers that have a narrow product line and target a widely dispersed market. For example, if a manufacturer from the East Coast wants to sell goods in California, he should look for a local agent that may have all the necessary contacts.

ONLINE MARKETING

Direct distribution from producers to consumers, or Channel A, became increasingly popular during the last twenty years as a result of enormous advances made in the area of Online Marketing. In fact, online marketing, and Social Media in particular, has been growing exponentially since its inception and it currently represents a large part of the total distribution of products and service to consumers.

Probably, the prime reason of this substantial and continuous growth is the cost-effectiveness and simplicity of the online marketing method, which represents one of the main elements of Direct Marketing.

Note:

Online Marketing is discussed in detail in Tutorial 5.

INDUSTRIAL CHANNELS OF DISTRIBUTION

Industrial Channels of distribution include all channels that can be used by producers in making goods and services available to the industrial market. Three types of Industrial Channels (E, F, G), illustrated below, are commonly used.

Moreover, as a part of the Industrial Channel E, Online Marketing is becoming a very popular method of product and service distribution in various markets directly from producers to industrial users.

Note:

Online Marketing is discussed in detail in Tutorial 5.

BASIC CHANNELS OF DISTRIBUTION FOR INDUSTRIAL PRODUCTS

INDUSTRIAL CHANNELS OF DISTRIBUTION

• Channel E (Producer - Industrial User).

The first type enables producers to distribute their goods or services directly to industrial users. Many manufacturers, for example, employ sales people who serve specific market segments and maintain contacts with customers. The direct distribution approach is particularly effective for small and medium-sized manufacturers that wish to maintain a strong presence in a defined market area and generate an additional volume of business.

The Internet added another important dimension in the ability of producers to offer products and services directly to the industrial end-users. Customers may also benefit from a direct marketing approach, particularly when purchasing technical products or services.

• Channel F (Producer - Industrial - Distributor/Dealer Industrial User).

The second type is similar to Channel C (Producer - Wholesaler - Retailer - Consumer) discussed earlier. This type of distribution is particularly useful for larger manufacturers that produce a narrow range of products on a flow production basis (e.g., steel, timber, chemicals, or textile). Industrial distributors act as wholesalers, purchase large quantities of industrial products from manufacturers, and promptly settle the outstanding accounts.

Since distributors purchase materials from several manufacturers, they are able to offer a broad range of specialized product lines to their customers. In addition, industrial distributors provide warehousing, transportation, distribution, and credit facilities. Customers, on the other hand, are in a position to purchase all required materials in small quantities and at short notice. This allows industrial buyers to minimize investment in inventory and to reduce storage space requirements.

• Channel G (Producer - Agent - Industrial User).

The third type is also frequently used by producers. This method is particularly useful for small and medium-sized manufacturers that wish to introduce new products into the market. Agents may provide several advantages to manufacturers since they already have established contacts in the marketplace. In contrast to industrial distributors, agents do not take title to merchandise nor do they offer warehousing, transportation, or credit facilities to customers. Agents merely link the manufacturers with customers and charge a commission for their services.

One advantage of working with agents is that manufacturers can offer their products to customers at a lower price. Since agents usually handle a limited number of product lines on behalf of several manufacturers, they put substantial effort into the promotional activity. Sometimes, however, manufacturers are not able to maintain effective control over their agents' promotional activities. This, in turn, may result in poor coordination in the overall marketing and sales efforts and can subsequently force manufacturers to switch to the Channel E distribution method.

DISTRIBUTION CHANNELS

It is apparent that a variety of offline and online Distribution Channels are available for selection by the marketing manager. In order to develop the most suitable channel of distribution, it is necessary to examine the existing situation regarding several factors in the marketplace as outlined below.

FACTORS INFLUENCING THE SELECTION OF DISTRIBUTION CHANNELS

Basic questions regarding consumer or industrial buying behavior must be answered as outlined below. (34)

BASIC QUESTIONS RELATED TO THE BUYING BEHAVIOR

CROSS-CHANNEL MARKETING STRATEGY

Once you and your marketing manager find best possible answers to the above questions, you will be ready to select the most suitable channels of distribution for your products or services and develop appropriate Marketing Objectives.

Since the Internet and the social media in particular play such a critical role in the current market environment, it is essential to identify all potentially suitable channels of distribution, and combine these channels to maximize your company's sales performance. For this reason, you must adopt and develop a Cross-Channel Marketing Strategy for your products and services to ensure successful performance of your business.

The next step will entail assessment of all relevant costs and preparation of a Distribution Budget. Finally, the selected method of product or service distribution should be implemented as an integral part of your company's activities and its performance should be monitored on a continuous basis.

ADDITIONAL INFORMATION ONLINE