Definition of Distribution
Distribution is defined as the act of spreading the product throughout the market, as large and wide as possible so that many people can buy it. A company needs distribution so that it can sell its products in the market. A proper Distribution channel can become a huge competitive advantage for the company.
The sharing of a product or service amongst several recipients is understood as Distribution.
With the help of a distribution channel, a manufacturer or creator enables its products to reach the end-users.
There are two kinds of distribution channels that are functional – Direct Distribution and Indirect Distribution.
Indirect Distribution, the manufacturer sells products directly to the end-users while in in-direct Distribution, products reach the users through different hands such as wholesaler, distributor, dealer, retailer, consultant, representative of manufacturer and catalog.
Having a proper distribution system plan is one of the critical features of strategic planning for supply chain and running a business.
In this post, we will dive deep into the world of Distribution to understand what it is, how it works, and what the different approaches of Distribution are. So, without delaying any further, let us get started right here-
What is Distribution?
According to experts, Distribution refers to spreading the product in the market on a large scale, so people have access to the product and can buy it.
It can also be understood as the effective placement of products that result in profits for the seller because of their customers’ purchase. It is not an exaggeration to say that physical Distribution management can determine whether a company is successful or not.
When a company has an active distribution channel, there are higher chances of the company selling more products than its competitors. It is because when a company has an extensive distribution network, the products are sold in more platforms and at a cheaper cost.
Such a robust distribution strategy will ensure that the profit margins are higher and tend to absorb the cost of raw materials as well. It also makes sure that the products can survive in the market in the long run, especially when market conditions are severe.
Distribution channels are a part of the downstream process where the main concern is how the product reaches the consumer as opposed to the upstream process where the primary concern is who the suppliers are.
Role of Distribution
A distribution channel is also called placement and can refer to a company’s marketing strategy as well, which includes price, promotion, and product.
These channels also describe the pathway formed for the payment made from the customer to reach the manufacturer.
When the number of ways a consumer can access a product is increased, there is an increase in profits, but more distribution channels can lead to difficulty in the management of these channels.
If there are more extended distribution channels, it can lead to a reduction in profits because the intermediaries also have to be paid. So, it is crucial to strike a balance between the reach of the product and earning profits.
Components of Distribution
- There must be geographical diversity while setting up your distribution channel so that the product has a broad reach.
- An effective tracking system must be in place, especially if the company is involved in e-commerce so that the company can check if the goods have been delivered in the right place with the correct specifications.
- The packaging of the product must be done well so that there is no damage to the goods while transporting and storage.
- Distribution involves tracking of places so that the placement can be done in such a manner that includes maximum profits.
- If the product faces a slump in the market, the distribution channel must also allow taking back products from the market.
Distribution of FMCG (Fast Moving Consumer Goods)
In the Indian FMCG industry, companies distribute their products that are usually of low value, high volume products to nearly one million retail outlets.
Some of the most successful companies in this category have large quantities and sophisticated networks of distributors, including factories, stock points, wholesalers, retailers, and carrying and forwarding agents.
Direct marketing, which involves selling directly to the public through mail orders or telephone selling, is also considered a viable approach to distributing FMGC.
Types of Distribution
Channels of Distribution are usually classified into two types – direct and indirect.
1) Direct Distribution
Direct channels are when the consumer can directly purchase from the manufacturer.
For instance, service provider like car-wash and barber services usually use direct channels, as there is no inclusion of middlemen, and the customer can directly avail the assistance from the producer.
Products and services distributed by these channels usually have lower costs because mediators and intermediaries are eliminated.
2) Indirect Distribution
Indirect channels involve mediators for the Distribution centers of products and services from the manufacturer to the customer.
The more distribution channels involved, the higher the cost of the product or service. This type is further divided into two types:
- This channel includes all four – manufacturers, wholesalers, retailer and consumers. Alcoholic beverages are a famous example of this channel because there are laws that prevent the consumer from buying directly from the manufacturer.
- The second channel eliminates the wholesaler, and the manufacturer sells directly to the retailer, who then makes a sale to the customer. Most electronic gadgets make use of this channel like Dell, which has the resources to sell directly to retail outlets established for the purchase of electronic devices.
Different Approaches to Distribution
You can opt for three different distribution approaches for channelizing Distribution of your products and services-
1) Mass distribution approach (also known as an intensive distribution)
For mass-market Distribution, businesses opt for those intermediaries who can cover the whole market base. You may understand this with the examples of cold drinks that are distributed by using a different variety of outlets such as vending machines, supermarkets, shopping stores, and so on.
Here those distribution channels come in play that can serve the purpose of mass-market Distribution affordably.
2) Selective distribution approach
There are some of the specific kinds of products that need special handling and for this, selective distribution approach is followed. For instance, if you talk about some of the electronic goods, they must be handled by expert hands, and for them, businesses opt for their trained employees to take part in the Distribution.
Some of the top cosmetic brands also opt for this kind of distribution approach such as Jurlique, Estee Lauder, Clinique, etc.
3) Exclusive distribution approach
In this kind of distribution approach, a business or manufacturer would prefer to deal directly with one specific type of intermediary. For having better control in the distribution process, this kind of distribution approach is considered quite useful.
In an exclusive distribution approach, the distributor would be working quite closely with the manufacturer by offering a more personalized service. The distributor is responsible for paying heed upon specific requirements and instructions of the manufacturer.
How to Choose the Right Distribution Channel?
There is no one specific distribution that will work for all kinds of every kind of business, so it is essential to analyze the type of products or services that a company offers before choosing the distribution channel.
The channel must be chosen in such a way that it aligns with the company’s goals and achieving its sales targets.
While choosing the channel of Distribution, businesses or manufacturers need to pay attention upon the specific requirements of their products, the kind of branding company enjoys in the market, their market share, customer demands, supply chain and demand gaps, sorts of features, and then accordingly they need to choose the right distributor for them.
Let us have a look upon some of the tips that will you about the right ways of choosing the best distribution channel for your business-
- There must be value-added to the consumer. If the company decides to use telephone marketing, for instance, it should determine whether the customer will want to talk to a salesperson or if there is value addition in choosing this channel. If not, a different channel must be used.
- Another factor that companies must consider is how quickly they want the customer to access their products. There are some products like meat, vegetables, and fruits which do not have a long shelf life and can perish quickly. For such products, a shorter product distribution channel with minimal mediators must be preferred.
- Finally, if a company chooses to distribute its products through multiple distribution channels, it must ensure that one channel does not affect the efficiency of the other. Proper strategizing can assist the companies in avoiding clashes between the different channels. For instance, if a company sells its products in retail markets and online shopping, it should ensure that there is no difference in the quality of the products sold in both these channels and there is ample stock in both the places.
Distribution Wrap Up!
Before deciding on a distribution channel, it is crucial to study the market and understand its nuances so that the company can earn profits.
Even if the product or service is innovative and one of its kind, it is essential to have the right type of distribution channel so that it can reach the right target audience.
The selection of the distribution channel is as important as the product itself.
So, how important do you consider the distribution channels in optimizing the market presence and sustainable existence of a business?
Do you have any other relevant criteria while choosing the distribution channel for your business? Enlighten us with your thoughts about the significance of distribution strategy in business management and the market.
In case of any doubts in choosing the right distribution channel for your business, feel free to ask the M91 team in the comments below.
