Distribution strategy regarding channels of distribution refers to the use of intermediaries (agents, wholesalers, distributors, retailers) in the distribution process – getting the product to the consumer. Not how products are transported.
The most important decision for marketing managers to make regarding the distribution strategy is whether to sell directly to customers or use intermediaries:
1. Direct selling. Direct selling means that the producer of the product sells directly to the customer without the ‘middle man’ – the wholesaler, agent or distributor. Advantages to the producer include direct feedback from the consumers, higher profit margin or lower prices as well as direct control over price and promotion. Disadvantages to the producer include having a smaller market as well as high cost-distribution and warehousing costs.
2. Use of intermediaries. Use of intermediaries means that the manufacturer of the product does not sell directly to the customer but through a shop, possibly supplied by a ‘middle man’ such as the wholesaler, agent or distributor. In this process, products pass through what is known as a supply chain. Advantages to the producer include larger coverage of the market, low cost-distribution and warehousing costs as well as marketing benefits such as promotions. Disadvantages to the producer include not getting true consumer feedback as well as lower profit margin or higher prices.
When intermediaries are used, the business will then need to decide on the length of distribution channel:
A. Short channel of distribution. A short channel of distribution tends to lower prices for the consumers as there are fewer intermediaries who add a profit margin to their price. Benefits include few (if any intermediaries used), greater control over the marketing of the product and keeping greater proportion of profit. However, shorter channels of distribution mean increased distribution costs.
Short channels are mainly used for:
- Industrial products
- Expensive and complex goods
- Customized products
- Services
- Products sold in geographically concentrated markets
- Products bought infrequently by relative small numbers of customers
B. Long channel of distribution. A long channel of distribution tends to raise prices for the consumer as each intermediary in the supply chain adds a profit margin to their price. Furthermore, a longer channel of distribution lengthens the distribution process, meaning that such processes are not appropriate for perishable products. Benefits include reduced costs and reductions in the producer’s control over marketing.
Long channels are mainly used for:
- Consumer goods
- Inexpensive and simple goods
- Small products
- Standardized products
- Goods sold in geographically dispersed markets
- Goods sold frequently and to many customers
Defining a channel strategy is not simply an arbitrary matter. Bear in mind that all middlemen along the way are, in essence, in partnership with your business to sell something to the end-user. You are in the same boat!
