Distribution
(Place) Strategy
Distribution Strategy
 Involves how you will deliver your goods and
services to your customers.
o It includes movement of your product to both your location
and to you customers
 Where and how the product will be distributed and
sold in the marketplace
 How will your products and customers “meet” or
come together through sales and distribution?
Channel of Distribution
 Channel of Distribution: the path a product takes
from producer (or manufacturer) to final user (or
consumer)
o Channels are paths
o Channel members are those involved in the path
 When the product is purchased for use in a business
o The final user is classified as a business user
 When the product is purchased
for personal use
o The final user is classified as a
consumer
Typical Model
Manufacturer
(Producer)
Wholesaler
Retailer
Final User
Channel of Distribution
 Wholesalers: businesses that buy large quantities of
goods from manufacturers, store the goods, and
then resell them to other businesses
 Intermediaries: businesses involved in sales
transactions that move products from the
manufacturer to the final user
o Also known as middlemen
 Retailers: sell goods
to the final consumer
for personal use
Channel of Distribution
 Agents: unlike wholesalers and retailers, agents do
not own the goods they sell.
o They act as intermediaries by bringing buyers and sellers
together
 Two different types of agents:
o Independent Manufacturers’ Representatives: work with
several related (but non-competing) manufacturers in a
specific industry
• Not employed by the manufacturer; paid on commission
based on what they sell
o Brokers: principal function is to bring buyers and sellers
together in order for a sale to take place
• Usually do not have a continued relationship with either party
• They negotiate the sale, are paid on commission, and then
look for other customers
Channel of Distribution
 Channels of distribution are classified as direct or
indirect
o Direct: the producer (manufacturer) sells goods/services
directly to the customer
• With no intermediaries
o Indirect: involves one or more intermediaries
 Both consumer markets and
business markets use direct and
indirect channels of distribution
Different Markets
 Consumer Market
o Direct: factory outlet stores, farmers’ roadside stands, using
catalogs to generate sales, Internet online sales
o Indirect: retail clothing stores, buy a John Deere tractor
from Home Depot, automobiles, most supermarket items
o Fewer consumer products are marketed using direct
distribution
• Consumers are used to
shopping in retail stores
Different Markets
 Business Market
o Direct: sales representatives call directly to commercial
businesses
• Xerox sells a copier machine to ATHS; Caterpillar sells a forklift
to XYZ Lumber
o Indirect: wholesaler takes ownership and buys restaurant
supplies (pots, pans, utensils) from manufacturer and sells
to restaurant owners
o Business users shop differently and have different needs
from consumers, so they use different channels of
distribution
o Direct Distribution is the most used channel
Distribution Planning
 Major considerations include:
o the use of multiple channels, intensity of distribution and
involvement in e-commerce
 Multiple channels: producer must identify the best
channel for each market
 Distribution intensity:
o Exclusive, Integrated,
Selective, Intensive
 E-commerce: products are sold to customers and
business buyers through the Internet
Distribution Intensity
 Exclusive
o Protected territories of a
product in a given
geographic area
o Dealers are given
exclusive rights to
protected areas
 Integrated
o Manufacturer acts as
wholesaler and retailer for
its own products
o Example: GAP sells
clothing in companyowned store
 Selective
o Limited number of outlets in a
given geographic area is used to
sell the product
o Example: Armani sells its clothing
only through top department
stores that appeal to the affluent
customers who buy its
merchandise
 Intensive
o Involves the use of all suitable
outlets to sell a product
o Objective is complete market
coverage; sell to as many
customers as possible, wherever
they choose to shop
Physical Distribution
 Comprises all the activities that help to ensure that
the right amount of product is delivered to the right
place at the right time
o It involves order processing, transporting, storing, stock
handling, and inventory control of materials and products
 To succeed in today’s business environment, a
company must deliver its products to customers
around the country and throughout the world in the
most efficient and effective way
Location, Layout, and
Availability
 Important part of the distribution strategy
o Especially important to retail and service businesses that
rely on customers to customers to come to them
 Important questions:
o Is the exchange of the product made in a store?
• Through the mail? Through a direct sales representative?
o What are your production and inventory capacities?
• How quickly can you make products and how many can you
store?
o Where will your product be placed so customers have
access to it?
o Are there cyclical fluctuations or seasonal demands for
your products?
Follow a Product—
Promotion Strategy
 For your product, list:
o What your channel of distribution is?
• Is it direct or indirect
o Who are your retailers (if any)?
o What type of distribution does your product have?
• Exclusive, integrated, selected, or intensive
o What is the location, layout, and availability of your
product?