What is Distribution Strategy?: Supply Chain Explained

Summary

This lecture covers distribution strategies in marketing, focusing on channels of distribution and the role of intermediaries in moving products from producers to consumers. It explains the different types of intermediaries, such as wholesalers, retailers, and agents, and their functions in transactional, logistical, and facilitating roles. The video also discusses how companies choose their distribution channels based on customer characteristics, product types, and costs. Additionally, the lecture explores the importance of relationship marketing and flexibility in adapting to changing market conditions, as well as various retailing methods, including non-store retailing.

Takeaways

• 📦 Channels of distribution involve the institutions through which a seller markets products to consumers or organizations.
• 🏷️ Marketing intermediaries help producers distribute products more efficiently and cost-effectively than doing it themselves.
• 🤝 The primary role of intermediaries is to balance supply and demand, ensuring products reach consumers without overstocking or stockouts.
• 🚚 Intermediaries perform various functions: transactional (buying, selling, risk-taking), logistical (storing, transporting), and facilitating (financing, grading, providing information).
• 🏬 Distribution strategies vary based on whether the company uses intensive, selective, or exclusive coverage, depending on the brand and product type.
• 🛒 Retailers and wholesalers have different roles in the distribution chain, and costs increase as more intermediaries are involved.
• 💻 Direct-to-consumer sales have increased due to online retailing, bypassing some intermediaries.
• 🔄 Vertical marketing systems (corporate, contractual, and administered) create long-term relationships between manufacturers and intermediaries to improve efficiency.
• 🏷️ Companies like Coca-Cola use an intensive distribution strategy to make their products widely available, while smaller brands might use selective or exclusive distribution.
• 📈 Flexibility in distribution channels is critical, allowing companies to adapt to changes in market demand, such as during crises like COVID-19.

Q & A

What is a channel of distribution?

A channel of distribution is the combination of institutions through which a seller markets their products to organizational buyers or ultimate consumers. It typically involves producers, wholesalers, retailers, and consumers.

Why do producers use marketing intermediaries?

Producers use intermediaries because they can perform distribution functions more cheaply and efficiently than the producer could. Intermediaries help deliver products when and where they are wanted at a minimal cost.

What are the three main functions performed by intermediaries?

Intermediaries perform three main functions: transactional (buying and selling products), logistical (sorting, storing, and transporting products), and facilitating (financing, grading, and providing market information).

How does the number of intermediaries in a channel affect the final cost of a product?

The more intermediaries in the channel, the higher the cost for the end consumer, as each intermediary adds a markup to cover their costs and generate profit.

What is intensive distribution?

Intensive distribution is a strategy where a company tries to distribute its product to as many retailers and customers as possible, maximizing product availability.

What is selective distribution?

Selective distribution involves a company choosing a few wholesalers and retailers to distribute their product, often focusing on more selective channels to reach specific markets.

What are the benefits of exclusive distribution?

Exclusive distribution limits the availability of a product to a single or very few retailers, which can create a sense of exclusivity, brand loyalty, and increased demand for the product.

What role do wholesalers play in the distribution process?

Wholesalers buy products, store them, and resell them to retailers or businesses. They create value by performing these functions more efficiently than producers and attract both producers and retailers to use their services.

What is the difference between breadth and depth in retailing?

Breadth refers to the variety of different product lines a retailer offers, while depth refers to the assortment of products within a specific category. For example, Walmart has a broad assortment, while Best Buy offers deep assortments in electronics.

What is multi-channel marketing?

Multi-channel marketing refers to a strategy where a company offers its products through multiple channels, such as in-store, online, catalogs, and television, to reach a wider audience and increase sales opportunities.

Outlines

00:00

📦 Introduction to Distribution Strategy

This paragraph introduces the concept of distribution strategy in marketing. It references foundational marketing ideas, such as channels of distribution and marketing intermediaries, focusing on how products move from producers to consumers through various intermediaries (wholesalers, retailers). The importance of intermediaries in reducing costs and increasing efficiency for producers is highlighted.

05:01

🔄 Functions of Intermediaries in Distribution

This section covers the various functions intermediaries perform in the distribution channel, including transactional (buying, selling, risk-taking), logistical (assorting, storing, sorting, and transporting), and facilitating functions (financing, grading, providing information). Examples, such as loyalty cards used by retailers to provide feedback to producers, are provided to explain how intermediaries add value.

10:04

🏬 Types of Distribution Channels

Here, different types of distribution channels are discussed, including direct distribution from manufacturers to consumers and more complex channels involving multiple intermediaries. It highlights how the number of intermediaries affects the final price of products, with each intermediary adding costs. The section also explains how distribution channels vary for consumer goods and organizational goods.

15:05

📊 Key Considerations for Distribution Strategy

This paragraph focuses on key considerations when selecting a distribution strategy, such as customer characteristics, product features, intermediary availability, competitors' actions, and the company's specific needs. It explains how distribution coverage (intensive, selective, exclusive) affects the overall strategy and discusses the trade-offs between control, cost, and flexibility.

20:07

🌐 Coverage and Control in Distribution

This section elaborates on distribution coverage and control. It explains intensive distribution (wide coverage, many retailers), selective distribution (fewer retailers, more control), and exclusive distribution (high control, limited retailers). The paragraph emphasizes the importance of balancing control over marketing efforts and the cost implications of more or fewer intermediaries.

📦 Wholesaling and Retailing in Distribution

This paragraph discusses wholesaling, explaining how wholesalers buy, store, and resell products more efficiently than producers. It notes the importance of wholesalers attracting both producers and retailers by offering a wide range of products. The section also introduces the concept of store retailing, varying by merchandise type, product assortment breadth and depth, and service levels (e.g., Walmart vs. Best Buy).

📦 Non-Store Retailing and Multi-Channel Marketing

This paragraph explores methods of non-store retailing, including catalogs, vending machines, television shopping, and online/mobile retailing. The rise of mobile retailing and innovative approaches like ordering via text or social media (e.g., Domino's tweet-to-order) are highlighted. The paragraph concludes with a discussion on multi-channel marketing, where companies offer products through a combination of retail channels (e.g., MyPillow).

Keywords

💡Distribution Strategy

Distribution strategy refers to the overall plan a business uses to ensure its products reach consumers or organizational buyers efficiently. In the video, the speaker explains how various channels and intermediaries are utilized in this process, such as wholesalers and retailers. The strategy can involve different methods like intensive, selective, or exclusive distribution depending on the company’s goals.

💡Channels of Distribution

Channels of distribution are the paths or networks through which goods move from the producer to the end consumer. The video describes different channels such as direct channels (manufacturer to consumer) and indirect channels (using intermediaries like wholesalers and retailers). Channels are essential in balancing supply and demand efficiently.

💡Marketing Intermediaries

Marketing intermediaries are third parties, like wholesalers and retailers, that help a producer distribute its products to the final consumers. In the script, intermediaries are highlighted for their role in performing logistical functions and reducing costs for the producer, such as Kellogg using intermediaries to reach broader markets.

💡Wholesalers

Wholesalers are businesses that buy goods in bulk from manufacturers and sell them to retailers or other businesses. They are important in the distribution chain for managing inventory, transporting goods, and ensuring efficient supply. The speaker discusses how wholesalers add value by performing these functions better than producers could.

💡Retailers

Retailers are businesses that sell goods directly to the final consumer. They are the last step in the distribution process and often provide additional services like loyalty programs, which help collect valuable customer data. Retailers play a crucial role in getting products from wholesalers to consumers.

💡Logistical Functions

Logistical functions include sorting, storing, and transporting products within the distribution chain. Intermediaries, like wholesalers, take on these responsibilities to ensure that products are delivered efficiently and cost-effectively from producers to consumers. The video emphasizes the importance of these functions in reducing stockouts and optimizing supply chains.

💡Supply and Demand

Supply and demand refer to the relationship between the availability of a product and the desire for that product by consumers. Intermediaries help balance supply and demand by ensuring that enough product is available without excess inventory or stockouts. This concept is key in understanding the role of intermediaries in distribution.

💡Selective Distribution

Selective distribution is when a company limits its product distribution to a few intermediaries or retailers rather than aiming for a broad market. The video gives examples of smaller companies or exclusive brands that use this method to maintain control over where and how their products are sold.

💡Exclusive Distribution

Exclusive distribution occurs when a manufacturer allows only one or a few retailers to sell its products, creating a sense of exclusivity and driving customer demand. This is often used for high-end products or unique brands. The video mentions how some retailers, like HEB, have exclusive deals with suppliers to differentiate their offerings.

💡Cost of Distribution

Cost of distribution refers to the expenses associated with getting a product from the producer to the end consumer, including transportation, storage, and intermediary fees. The video emphasizes that using more intermediaries increases the final product cost to consumers as each intermediary adds a markup to cover its expenses and profit.

Highlights

Introduction to the importance of distribution strategy in marketing.

Channels of distribution include intermediaries like wholesalers and retailers.

The role of marketing intermediaries is to perform tasks more efficiently and at a lower cost than producers.

Marketing intermediaries balance supply and demand to avoid product stockouts or oversupply.

Types of intermediaries include agents, wholesalers, retailers, and brokers.

Intermediaries perform three main functions: transactional, logistical, and facilitating.

Risk management is a significant part of an intermediary's role, including the potential for unsold goods.

Logistical functions involve sorting, storing, and transporting products within the supply chain.

Facilitating functions include financing, product grading, and providing market research data.

Direct-to-consumer channels, often used in online retailing, bypass intermediaries.

Distribution strategies vary based on the number of intermediaries involved, influencing product pricing.

There are different types of distribution coverage: intensive, selective, and exclusive.

Larger companies like Coca-Cola use intensive distribution to reach the widest possible customer base.

Wholesalers help producers reach more customers efficiently by aggregating products from multiple producers.

Non-store retailing methods, such as vending machines, TV home shopping, and mobile retailing, offer new avenues for distribution.

Transcripts

hello today i will be covering

distribution strategy

let's jump in so with distribution

strategy we have to

think back to some of the concepts that

we discussed

early on in the semester which goes back

to foundational

um marketing concepts back in era one

of marketing that is the idea of

channels of distribution

and marketing intermediaries now these

were

some of the most common things talked

about in the early marketing

part of our discipline because

channels of distribution and marketing

intermediaries was

marketing in that first area era

because they were concerned about the uh

these middlemen and um the

way that products got from the producer

to the consumer

and those intermediaries in between so

what is a channel of distribution well

it is the combination

of the institutions through which a

seller markets their products to

organizational buyers or ultimate

consumers

so we have different channels of

distribution

which may occur from the producer to the

wholesaler to the resaler

uh to the retailer and then finally to

the

end consumer these we're going to go

through a lot more but that's just to

give you a good idea of where

channels of distribution will kind of

lead us so

why are marketing intermediaries used by

producers

why would uh say for instance like

kellogg why would they

want to use an intermediary well

kellogg serial company they may want to

use an intermediary because

they're performing the intermediary

performs the functions

uh perform several functions more

cheaply and efficiently

than the producer could so

what does it mean by being efficient

well that's delivering the product

when and where it's wanted at a minimum

cost

so obviously there's costs associated

with

distributing your product uh from

production to the end consumer

and so those costs if you can use an

intermediary those costs may be

minimized

um compared to doing all of the

distribution yourself as the company

so the primary role of an intermediary

is to bring supply and de and demand

together efficiently and effectively

so with that

[Music]

supply and demand is a really important

concept where

obviously there's producers on one hand

where

they are they have the supply and then

there are consumers that want

particular goods so

the job of the intermediary is to

balance how much

product they have on hand um and

based off of how much demand there is

for a particular product

and to make sure that those come

together to where

you know products don't go bad sitting

on the shelf

um they're put out there and consumers

are getting what they need so we don't

have stock outs so

many of you who are a supply chain major

you're probably familiar familiar with

distribution because

distribution is uh is pretty key

in the supply chain uh program

understanding distribution so we're

going to give

a broad overview of how uh distribution

plays a role in marketing strategy and

different strategies a firm may employ

with uh their distribution process

itself

so there are different marketing

intermediaries

these could be called like middlemen as

i've mentioned

uh agents we also have the term

wholesaler which i've used before

retailer their type of intermediary you

also have brokers

manufacturers agents things that we call

like distributors

previously we might have heard terms

like jobber or

facilitating agent

now the functions that are performed in

channels of distribution

we're going to go into each of those one

is

they perform transactional functions

meaning that

a intermediary will buy

a product they will also sell the

product and they take on certain risks

right with buying and selling they take

on the risk that potentially the

products they buy

will not sell and so that can cause

a lot of problems for the intermediary

if the product doesn't sell right they

have to eat the cost

they also perform logistical functions

and this

comes into play in the supply chain part

where they have to

assort the products store the product

sort them and transport those products

and finally they provide facilitating

functions

and that is they have to oftentimes

perform

certain financing they at times can

perform grading

particular products and then other times

they may provide

different types of information and

research so for example the retailer

may be able to provide certain

information

to the producer or the manufacturer

to help them better understand um you

know maybe they have

information on uh customer loyalty uh

information by having like that loyalty

card well they may be able to pull okay

who the certain demographics

are of their particular product uh who

they may need to

focus on as far as like their target

market or

re-evaluate their target market a lot of

information can be

gleaned from loyalty cards and

and information that a in retailer might

collect

so this is just the way of

uh we might see channels of distribution

particularly

for consumer goods sometimes you might

have direct from manufacturer to

consumers

this happens uh quite often now due to

online retailing

where a manufacturer or

whoever is going to make that good

they will sell that good directly to

consumers through their website

however oftentimes what we're probably

most familiar with

is a manufacturer will send their

products to a retailer who then sells it

to the

end consumer now there's other

variations of this

where you can have several

intermediaries and that's shown

here at the bottom where you may have a

manufacturer

who they have sales agents that then uh

talk to the wholesalers

and those wholesalers then sell the

product to the retailers

who then sell the final product to

consumers so

it can be a lot of uh intermediaries

in that chain of or that whole channel

of distribution and so with this

obviously whenever there's more uh

intermediaries

the cost of that good for the end

consumer

increases because everybody has to make

money uh as it progresses through that

channel right the

manufacturer has to make money the agent

whoever they sell it to the wholesaler

they have to make money the wholesalers

make money and then the retailer

they would also have to make a certain

markup percentage so

with that uh consumers as more

intermediaries enter the channel the

greater the cost will be

for that product

now we can also look at the channel

distribution for organizational goods

you can see that the widest channel

of distribution is not as wide as for

the

consumer side so with that um

we could have manufact manufacturers who

make their goods

and sell it to organizational users

we also have distributors or agents who

could directly

sell from the manufacturer to the user

and then you may also have where there's

agent uh distributor and then the

organizational user so

these channels uh are kind of important

where you can see

different ways that a company or a firm

may decide that they want to set up

their distribution channel

those are are some of the ways that they

could do that

now there are some different uh

characteristics we might consider

uh as more general considerations one is

customer characteristics

product characteristics intermediary

characteristics competitor uh

and company characteristics so all of

these are more general

considerations um that whenever we're

selecting our channel of distribution we

have to be aware of so who are our

customers

uh what type of product we are selling

what type of intermediaries are

available

to get our products to the end consumer

what are our competitors doing

does this really fit in with our company

and then what things are happening in

the environment

that may affect what type of channel of

distribution that we use

finally you can consider some specific

things and this might be

uh the type of distribution coverage

that you need

does it need to be nationwide are you

looking to

get this out to several retailers or

just one

retailer in particular so a lot of those

things

are really important important and we're

going to

be talking about each of those aspects

of the distribution coverage in the next

slide you may also want to have a degree

of control

you may want to have more control or you

may be okay with less control

and then we also need to consider the

cost

of the total distribution and the

flexibility

of our channel is it going to be very

rigid or can we have a little bit of

flexibility there

so first we'll talk about the

distribution coverage required

and so we could have um where it's more

of intensive distribution

where you're trying to get out to as

many retailers

and obviously to as many customers as

possible

so with that you may use several

wholesalers

that then distribute your product to

several retailers

and that gets your product out to as

many customers as possible

you may want to have selective

distribution where

you go to a few wholesalers and you're

more selective in the retailers that you

want to be

you want your product to be sold at and

obviously

these would differ based off of the size

of your company the reputability of your

company

and so like a major company like

coca-cola

they're following more of like the

intensive distribution right we can see

coca-cola is their products are pretty

well available

anywhere you go like at gas stations at

the university at grocery stores

coca-cola is like everywhere right so

they have a very intensive distribution

uh as far as their distribution coverage

whereas

maybe a smaller coke

company soda company they may be focused

more on the selective

or they could even be focused on like an

exclusive distribution

so with that like uh this happens a lot

with like heb

they usually get a lot of like with

their wine and beer segment

they have um exclusive

distribution with many of their

wineries that they go and source the

wine from

or beer from and so at heb you can find

many brands that are selectively and

only sold at heb stores and

this kind of creates this

once consumers find that out and if it's

a really

good product that they just really love

it may create a specific demand that

brings a lot of customers to that

particular

retail location so there are these types

of distribution coverage

and with that we have to consider the

degree of control

so degree of control it has to do with

the the way that the processes can

affect

uh behaviors of another person group

organization

so the degree of control is directly

proportional to the directness of

channel

so i had shown you um those different

types of channels of distribution we

could have intensive selective and

exclusive

well the more direct the more indirect

the channel

the more the manufacturer surrenders

more control over the marketing

of the firm's products and

with that the manufacturer kind of

leaves the marketing oftentimes

to the to the retailer especially for

like sales promotion

we can think of this like in the serial

uh aspect

that a lot of these companies like

kellogg's obviously they advertise

on tv but the sales promotions

they leave to the retailer because they

can't control

every retailer because they're in almost

every store

that you can think of right every

grocery store has a serial aisle

and pretty much their products are

available to the

most wide audience as possible

we also have to consider the cost of

getting

our products out there and the

flexibility

so with this we can view a channel

distribute channel of distribution

as a system perspective and obviously

there's these in

interdependent subsystems involved in

that

with that you may have a manager that

they're trying to optimize the total

performance and

we have some major costs that we might

want to minimize such as transportation

the order processing and the cost of any

lost business due to like stockouts or

anything like that

so we also may have some inventory

carrying costs

and that occurs through any storage

space charges

taxes insurance deterioration of the

product

we also have to consider the packaging

and handling

and with that we also should consider

our channel flexibility

and that's uh the ability for that

manufacturer

to adapt to any particular changing

conditions

that are happening in the environment

right a lot of times

especially whenever like let's say covet

19 whenever it hit

a lot of these channels had to be

flexible

to be able to adjust to the increased

demand for like

toiletry products uh that weren't

available

in many places due to the low supply

relationship marketing is pretty key

here and that's because

long-term relationships in the between

the intermediaries is really important

that's because you can get higher

quality products uh you can also have

lower cost

and we also have to consider that

there's vertical marketing systems at

play

where the channels in which

members are more dependent on one

another they develop more

long-term relationships to improve that

efficiency and effectiveness

so we may have more of a corporate

uh holistic type of uh

vertical marketing system where apple

kind of is really

involved in all aspects of the

uh of the distribution right

apple can uh get your product to you

directly and so we might have that uh

that corporate side of vertical

marketing system or we could have more

of a can

contractual side and then we could have

also

the administered which is uh the greater

the size of

the manufacturer the more dominance that

manufacturer has

on the channels of distribution

so we're about to be finished up but we

have a few more things that we might

consider

wholesaling is one wholesalers they are

any merchants that are engaged in buying

uh taking title to

storing and handling those goods and

resaling

those goods to retailers or any

particular business that may need it

they're also called distributors in some

cases and

they create value by performing those

functions

more efficiently and effectively than

the producer could so

this just kind of ties back to what we

talked about at the beginning of the

lecture

and the goal of the wholesaler is they

try to attract

more producers to use their services

because the more products

they have that the wholesaler can offer

they can attract

even more like in uh businesses or even

more

uh customers that might want to purchase

from the wholesaler but

oftentimes we can think about this like

restaurants they purchase from

wholesalers quite often

that's uh primarily who they get their

products from

and so the more products that they have

uh a wholesaler there's not

a ton of wholesalers out on them like

for the restaurant market

but the more products they have they can

be more competitive

than their other the old other

wholesalers that are out there on the

market

they also though need to attract

retailers

and organizational customers to purchase

from them so

they need it goes hand in hand where

they need more products but they also

need more people to purchase

their products and so with that there's

agents that will try to

get manufacturers to wholesale directly

with

the one particular wholesaler and then

there's other agents that go to

retailers and end customers to get them

to purchase

from that wholesaler so they have two

different types of agents that kind of

work hand in hand

in that regard we also have store

retailing which is

what we should be very familiar with

they vary in different ways obviously by

the type of merchandise they carry

uh the breadth of product assortment and

then the depth of product assortment so

we can think of breadth as being like

walmart they offer a very

wide variety of products but as far as

depth

we may think of like best buy because

they're focused more on electronics

and then they also vary by the amount of

service they provide

and that is the in service that they may

provide similar to where you may need

extras so like whenever you buy your car

if they have

complimentary services like you can get

your oil changed if they offer

car wash window tinting all of those

little

extra services that you may need that go

with

your product so we may think of

mass merchandisers where we have the

broad assortments like kroger

and they compete based off of the amount

of selections they have a

wide selection of products at

what we might say is like a high quality

but walmart

they're competing based on low price so

they have a broad product assortment but

the products that they have are focused

on more of the lower priced

items we may also have specialty stores

and that's really the depth

uh deep assortments and i had mentioned

like best buy because their focus is

specifically on electronics so they have

a very deep assortment of

all all things electronics at best buy

and then we might also have uh the

convenience store which we're

probably all familiar with which is uh

providing location convenience and we

might think of like 7-eleven

as an example so to conclude our

presentation we'll talk about some

methods of non-store retailing

we could have back in the day we had

catalogs and direct mail which were very

common

a lot of retailers still use

catalogs in direct mail sam's club is

very

um it's very common that they send out

direct mail pieces and sometimes like

mini catalogs that you can look through

of their

like they do it for like the july 4th

sale or they do it for like christmas

sale

jc penney's used to do this and several

other

retailers used to do this more often we

also have vending machines as non-store

retailing

while uh vending machines primarily used

to be

right food is what we typically know of

it uh or

drinks we could have vending machines

also now for like electronics

that you may see in like airports um

and it's a great way for

a retailer to place their products uh in

that location without having to have

anybody really man

um those vending machines just come back

and restock

every now and then uh we also have

television home shopping which is like

the qvc

uh network if you've ever watched that

on on television

where or any type of infomercial really

is the

television home shopping we also have

direct sales and telemarketing that

happen

and online retailing mobile retailing

and then multi-channel marketing so

online retailing

we're very familiar with mobile

retailing

has started to become more popular where

you can order

through an app or you can order even by

text message

in some cases like domino's they allow

you to order your

your food like reorder via text

they've also come out with recently

where you can order

your uh pizza through a tweet so

there's companies who are like kind of

breaking the boundaries on this mobile

type retailing that really hasn't been

done

in the past and then like i mentioned

multi-channel marketing

this is where a company is offering

their products and services

in a variety of channels whether it be

like in stores and catalogs

online uh through direct sales on

television

um i think of this like my pillow

they uh offer through their info

infomercials quite a bit they sell

online they also were

heavily brought into

like the walmarts and so

they are a good example of multi-channel

marketing

now we've gone through um everything

with distribution strategy a lot of the

specifics

if you have any questions about

distribution strategy

please feel free to email me at kt.manus

ttu.edu

thanks