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Distribution Decisions

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Business Studies

Having a great idea for a product is important but having a great idea for product distribution is even more important."

- Reid Hoffman 1

Product distribution plays a large role in marketing strategy and makes up one of the 4Ps of the marketing mix. There are several ways businesses can approach distribution depending on the type of product they offer. Let's examine this idea in further detail.

What are distribution decisions in marketing management?

Distribution channels are paths that a product goes through, from the manufacturer to the end-user.

In between, there can be intermediaries such as wholesalers, retailers, brokers, and delivery companies. The purpose of distribution channels is to ensure the timely arrival of goods and prevent delayed sales. Distribution channel decisions help to determine the types, levels, and strategies of distribution channels.

Distribution is one of the four 4Ps of the marketing mix, which affects the product's pricing, positioning, and promotional efforts:

  • On pricing: Local goods with direct distribution have lower costs than exported goods which are charged with additional intermediary commissions.

  • On positioning: Products distributed in a few outlets enjoy a more luxurious image compared to those sold in multiple outlets.

  • On promotional effort: Without wholesalers and distributors, businesses must market and deliver the products themselves, which could consume a lot of resources. On the other hand, outsourcing tasks to a third-party distributor allows the firm to reach a wider market with less effort.

Distribution decisions in marketing management include selecting distribution channels, delivery partners, and other third-party distributors. There may also be decisions about training programs for staff of the intermediaries. Once the distribution strategy is set, the next step is to monitor and measure the effectiveness of the distribution channel on sales.

International distribution decisions

International distribution decisions are one of the strategic decisions made by global companies. The decisions include choices of products to sell overseas, the level of difficulty in delivery, as well as the degree of control the company wants to have over the selling process.

There are three ways to distribute your products in the foreign market:

  • Set up international departments: Directly enter a market and have full control over local distribution. For example, Amazon set up fulfillment centers all over the world to pick, pack, ship products to the customers.

  • Partner with distributors: Have export companies sell your products overseas so that you don't have to worry about shipping and complex procedures. This is the easiest and fastest way to extend your product reach. For example, motorsport startup Formula E uses Deutsche Post DHL to transport race cars, batteries, charging units, and media equipment to urban areas around the world.

  • Sell your products online: Use the internet to sell your product over the world, however, you may still need to partner with local distributors for shipping. For example, eCommerce stores sell clothes, technology, and most consumer goods.

Distribution and sales decisions

Sales are the exchange of goods and services for money. It is a key function that helps businesses generate profit.

Sales activities include analyzing, planning, organizing, directing, and controlling the company's sales effort.

Meanwhile, distribution decisions determine how a product can reach the customer.

Sales and distribution are closely related processes. While the sales department handles local advertising and promotion, distribution channels determine how much sales force is needed.

Distribution and sales decisions consider how distribution channels and sales force can be combined to achieve the company's objectives.

Types of distribution decisions

There are four types of distribution decisions:

Direct selling

Direct distribution channel, StudySmarterDirect Distribution Channel, StudySmarter

With direct selling, the product goes directly from the producer to the customers.

A local bakery that sells bread to people in the neighbourhood.

It's hard for a business with a direct channel to scale quickly as the producer is the sole distributor of the product.

However, the advantage is the lower price since the company doesn't have to pay commissions for intermediaries. Also, the product's delivery may be faster.

Indirect selling

Indirect distribution channel, StudySmarterIndirect Distribution Channel, StudySmarter

In indirect distribution channels, products are delivered by intermediaries. These intermediaries can be wholesalers, retailers, or brokers.

A canned meat producer distributes its products in a local supermarket.

This type of distribution gives the product a wider reach, but the manufacturer will have less control over the selling process. Moreover, the product will be priced higher due to the commission paid to intermediaries.

Dual distribution

Dual distribution is the combined strategy of direct selling and selling through intermediaries to maximize product reach.

M&M chocolate can be purchased at M & M's own brand stores as well as retailers such as supermarkets, department stores, and gas stations.

Reverse channel distribution

Reverse channel distribution is the channel where products flow from consumers back to retailers and manufacturers. The two most common types of reverse distribution are recycling containers (eg bottles, wine glass) and product recalls (eg failed products).

Levels of distribution channels

Distribution channels can be split into 4 levels:

Four Levels of Distribution Channels, StudySmarter

Zero-level channel

A direct distribution channel is called the zero-level channel. Goods are delivered directly to the customers, without intermediaries. Some examples include selling in brand stores and taking orders through the hotline or the company's website. This strategy works well for perishable goods or expensive goods where the consumer point is close to the manufacturers.

One-level, two-level, and three-level channels are indirect channels . In these channels, goods travel from manufacturer to consumer through one or many levels of intermediary:

One-level channel

Retailers buy goods from the manufacturer and sell them to the customers. The one-level channel is often used for products such as clothing, toys, furniture, etc.

Two-level channel

Wholesalers buy the products in bulk from the manufacturer, and sell smaller batches to the retailer who later markets it to the end-user. The two-level channel applies to durable, inexpensive goods.

Three-level channel

Companies make use of three-level channels when there's high demand for a product throughout the country. A gents are split into stockist agents, and carrying and forwarding agents. S tockist agents keep stock on behalf of the company and sell them to wholesalers in the area. Caring and forwarding agents only provide the warehouse and shipping expertise for the order process and they work on a commission basis.

Types of distribution strategies

Depending on the level of penetration, are three main strategies to distribute a product in the market:

Intensive distribution

Intensive distribution is when companies distribute their products through a large number of outlets.

This works well with mass consumption goods such as milk, meat, clothes, or cosmetics. With the intensive distribution strategy, the company tries to cover as big a market as possible.

Heineken beer is sold in supermarkets, restaurants, and bars.

Selective distribution

Selective distribution is when companies select a few outlets to distribute their products.

These outlets are chosen for their reputation and are responsible for marketing the product to the customers. The strategy is suited for specialized goods such as technology or fashion.

Sony TVs and Zara are brands that adopt the selective distribution method.

Exclusive distribution

Exclusive distribution is when companies reserve the distribution to one store chain.

Products for exclusive distribution tend to be high-end or produced by reputable brands.

AT&T is the sole distributor of iPhones to the end customer. Gucci and Lamborghini also reserve exclusive distribution to one distributor.

Summarizing Distribution Strategies, StudySmarter

Distribution Decisions - Key takeaways

  • Distribution channels are paths that a product goes through, from the manufacturer to the end user. In between, there can be intermediaries such as wholesalers, retailers, brokers, and delivery companies.
  • Distribution decisions can affect the product's price, positioning, and promotional efforts.

  • International distribution decisions consider the product to sell overseas, the level of difficulty in delivering product did, and the extent to which the company wants to control the selling process.

    Sales and distribution are interconnected processes.

  • Four types of distribution are direct selling, selling through intermediaries, dual distribution and reverse distribution.

  • There are four levels of distribution: zero-level (direct channel), and two, three, four-level (indirect channel).

  • Distribution strategies can be split into intensive distribution, selective distribution, and exclusive distribution.


1. Reid Hoffman, Reid Hoffman's 10 Rules for Entrepreneurial Success, Entrepreneur. https://www.entrepreneur.com/article/219380

Distribution Decisions

Distribution decisions are decisions about the type, level, and format of a distribution channel. One example of a distribution decision is that a company chooses to distribute its products through direct selling without using intermediaries (retailers, wholesalers, brokers).

Four types of distribution include direct selling, selling through intermediaries, dual distribution and reverse channel distribution. The first three types of distribution flow from the manufacturer to the end customer whereas in the last channels, goods flow from the user end to the manufacturer.

Distribution is one of the four 4Ps of the marketing mix. The decision on distribution channels can affect all other three elements of a marketing campaign, including product positioning, pricing, and promotion. It's a long-term decision that reflects the nature of the business and affects relationship-building with intermediaries and other delivery companies.

Final Distribution Decisions Quiz

Question

What is a distribution channel?

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Answer

A distribution channel is a path that a product goes through from the manufacturer to the end user. 

Show question

Question

What is the purpose of distribution channels?

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Answer

The purpose of distribution channels is to ensure the timely arrival of goods and prevent delayed sales.

Show question

Question

Give examples of distribution decisions

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Answer

  • Select distribution channels and delivery partners. 
  • Develop training programs for staff of the intermediaries
  • Measure the effectiveness of the distribution channel on sales.

Show question

Question

International distribution decisions are one of the strategic decisions made by...


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Answer

domestic companies

Show question

Question

What are 3 ways to distribute products in foreign markets?

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Answer

  1. Set up international departments
  2. Partner with distributors
  3. Sell your products online

Show question

Question

Sales and distribution are closely related processes. 

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Answer

True

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Question

Name 4 types of distribution decisions

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Answer

  1. Direct selling
  2. Indirect selling
  3. Dual distribution
  4. Reverse channel distribution

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Question

Direct selling means selling products through an intermediary. 

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Answer

True

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Question

The combined strategy of direct selling and selling through intermediaries is called...

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Answer

Dual distribution

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Question

In reverse channel distribution, products flow from consumers back to retailers and manufacturers. 

Show answer

Answer

True

Show question

Question

Give an example of reverse channel distribution. 

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Answer

recycling containers such as bottles and wine glasses are sent back to the manufacturer by the customer. 

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What type of distribution channel does a 'product recall' belong to?

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Answer

Reverse channel distribution

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How many levels of distribution channels are there?

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Answer

Four

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What is the difference between intensive and selective distribution strategies?

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Answer

Intensive distribution is when companies distribute their products through a large number of outlets. 


Selective distribution is when companies select a few outlets to distribute their products.



Show question

Question

Selective distribution is suitable for...

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Answer

specialised goods

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Question

Name 3 types of distribution strategies. 

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Answer

  1. Intensive distribution
  2. Selective distribution
  3. Exclusive distribution

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Question

Intensive distribution method aims to release products in as many stores as possible. 

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Answer

True

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Question

Give examples of 2 companies that use selective distribution

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Answer

Sony, Zara

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Give examples of 2 companies you know that use exclusive distribution

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Answer

Apple, Gucci

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Question

Milk, meat, everyday clothes, and cosmetics are examples of products that are distributed intensively.

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Answer

True

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Question

Products for exclusive distribution tend to be ...


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Answer

high-end or produced by reputable brands. 

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Question

Selective distribution means distributing products in ...

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Answer

one or few stores in each country

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Exclusive distribution is served for ...

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Answer

one store chain 

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What does exclusive distribution mean? Give an example!

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Answer

Exclusive distribution is when companies reserve the distribution to one store chain. AT&T is the sole distributor of iPhones to the end customer. 


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Question

What are the responsibilities of agents in Level 3 distribution channels?

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Answer

Agents are responsible for keeping stock on the company's behalf, carrying, and forwarding goods.

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