What is meant by Distribution Channels in marketing?

Buying a computer in the post, petrol at a supermarket, mortgages over the phone and phones themselves from vending machines are just some innovations in distribution which create competitive advantage as customers are offered newer, faster, cheaper, safer and easier ways of buying products and services.

Without distribution even the best product or service fails. Author Jean-Jacques Lambin believes a marketer has two roles: (1) to organise exchange through distribution and (2) to organise communication.

Physical distribution, or Place, must integrate with the other ‘P’s in the marketing mix. For example, the design of product packaging must fit onto a pallet, into a truck and onto a shelf; prices are often determined by distribution channels; and the image of the channel must fit in with the supplier’s required ‘positioning’. You can see how Coca Cola further integrate the timing of distribution and promotion in the Hall Of Fame later. In fact, they see distribution as one of their “core competencies”.

Why are Distribution Channels important?

Firstly, it affects sales – if it’s not available it can’t be sold. Most customers won’t wait.

Secondly, distribution affects profits and competitiveness since it can contribute up to 50 percent of the final selling price of some goods. This affects cost competitiveness as well as profits since margins are squeezed by distribution costs.

Thirdly, delivery is seen as part of the product influencing customer satisfaction. Distribution and its associated customer service play a big part in relationship marketing.

Decisions about physical distribution are key strategic decisions. They are not short term. Increasingly it involves strategic alliances and partnerships which are founded on trust and mutual benefits. We are seeing the birth of strategic distribution alliances. You can see Southwestern Bell in the Hall Of Fame explain how marketing marriages provide new ways of getting products and services in front of customers.

Channels change throughout a product’s life cycle. Changing lifestyles, aspirations and expectations along with the IT explosion offer new opportunities of using distribution to create a competitive edge.

Controlling the flow of products and services from producer to customer requires careful consideration. It can determine success or failure in the market place.

The choice of channel includes choosing among and between distributors, agents, retailers, franchisees, direct marketing and a sales force.

Deciding between blanket coverage or selective distribution, vertical systems or multi-channel networks, strategic alliances or solo sales forces, requires strong strategic thinking.

Decisions about levels of stock, minimum order quantities, delivery methods, delivery frequency and warehouse locations have major cash flow implications as well as customer satisfaction implications.

All of these questions are considered in more detail in the sections on channels and strategies. Meanwhile remember Lambin – “distribution is one of the two main roles of marketing.”

What Is Distribution Strategy?

Distribution strategy is influenced by the market structure, the firm’s objectives, its resources and of course its overall marketing strategy. All these factors are addressed in the section on selecting Distribution Channels.

The first strategic decision is whether the distribution is to be: Intensive (with mass distribution into all outlets as in the case of confectionery); Selective (with carefully chosen distributors e.g. speciality goods such as car repair kits); or Exclusive (with distribution restricted to upmarket outlets, as in the case of Gucci clothes).

The next strategic decision clarifies the number of levels within a channel such as agents, distributors, wholesalers, retailers. In some Japanese markets there are many, many intermediaries involved.

Next comes a sensitive strategic decision whether to go single channel or multi-channel. Some producers, like Manchester United FC, use multi-channels – they use many different routes, direct and indirect, to bring their products to their customers. Multi-channel Systems like this are common where intensive distribution is required. So direct marketing is combined with indirect marketing through intermediaries.

Then comes the next level of strategic decisions concerning strategic relationships and partnerships. Two common strategies are Vertical Marketing Systems and Horizontal Marketing Systems.

What is Vertical Marketing Systems?

Vertical Marketing Systems involve suppliers and intermediaries working closely together instead of against each other. They plan production and delivery schedules, quality levels,promotions and sometimes prices. Resources, like information, equipment and expertise, are shared. The system is usually managed by a dominant member, or ‘channel captain’. VMS is more flexible than vertical integration where the manufacturer actually owns the distribution channel, for example, Doctor Martens boot manufacturers own their own retail store.

What is Horizontal Marketing Systems?

Horizontal Marketing Systems occur where organisations operating on the same channel level (e.g. two suppliers or two retailers) co-operate. They then share their distribution expertise and distribution channels. This can speed up the time taken to penetrate the market. There is room for creative alliances here. See Southwestern Bell’s alliance with Granada TV Shops in the Hall Of Fame.

Resources available affect distribution strategy. Who can handle outbound logistics, marketing and sales, and servicing? Can the supplier afford to deliver small quantities, can it provide more trucks, can its sales force ‘push’ produ