Distribution is the process of getting products and services from producers to consumers and users when and where they are needed. Distribution occurs through a variety of channels which fall into one of the two categories: direct from the producer to the consumer or industrial user, and indirect-through intermediaries, the most common of which are wholesalers and retailers. Industrial goods manufacturers most frequently employ the direct channel because usually there are relatively few customers to serve. Consumer goods manufacturers on the other hand, commonly employ indirect channels because there are large numbers of geographically dispersed consumers to be reached. Distribution strategies and policies are concerned with specific objectives in terms of market coverage, services to customers, product promotion, support and optimization of cost / performance ratios.
Market coverage strategies: Market coverage for consumer goods can be classified as intensive, selective or exclusive according to the relative numbers of retail outlets used for each geographic market. Intensive coverage calls for distribution through many retail outlets, selective coverage, through a few retail outlets; and exclusive coverage; through only one retail outlet per geographic area. Industrial (multi-purpose) products like screws, nuts, bolts, office supplies and consumer goods like soaps, toothpaste, etc. are offered through mass merchandising stores. Shopping for goods like television sets, bicycles, typewriters, stereo sets etc. are offered through selected retail outlets. Similarly, industrial goods like plumbing equipment, electrical equipment, lumber etc., are distributed through select retail outlets. Specialty goods like Scotch whiskey, special drugs, high quality men’s suits, jewellery etc. are offered through exclusive retail outlets in metropolitan areas. Exclusive industrial goods dealership is heavy equipment industries such as farm road and drilling equipment.
Channel strategies: There are two basic strategic decisions that manufacturers must make concerning channels:
1) Whether to employ direct or indirect channels and
2) If the decision is to employ indirect channels then whether to use single or multiple product channels.
Indirect channels are highly suitable for consumer goods because they help in meeting the regular, frequent shopping needs of consumers. In general, the direct channel is appropriate for industrial goods:
1) When products are of high value;
2) When there are relatively few customers
3) When transportation costs are low relative to product value or
4) When orders are infrequent
Other factors that may favour the direct channel are proximity to customer locations and the degree of after sale service needed by the products.
The manufacturer should be able to achieve the best trade-off between costs on the one hand and performance on the other. He should also see whether the marketing requirements can be met in terms of levels, of production, at the required quality and cost so as to market the product successfully and make it sufficiently profitable to be financially acceptable. The manufacturer should also evaluate the promotional efforts in terms of expenditures and quality, relative to his major competitors. He should also compare the expenditure for advertising, personal selling and sales promotion with competitor’s expenditures and note any change in trends of his own or competitor’s expenditure. He should also evaluate the effectiveness of his advertising in terms of reach, frequency, and performance compared to objectives.
Trade positioning strategies: These strategies offer higher or lower trade discounts in order to position the firm in the market in an advantageous way. Higher trade discounts are offered generally.
To help the company with a weak market position sign up wholesalers and retailers to represent the product line
To encourage wholesalers to provide extra promotion effort
Lower trade discounts are offered when the company’s position in the market is strong and wholesalers and retailers want to carry the product voluntarily.
There are options to administer price strategies; price maintenance flexible pricing and negotiated pricing. Price maintenance refers to the efforts of a firm to hold to its established price. List price maintenance is not always possible because of pressure from customers and sales force to extract discount from the list price. Even the strong firms have to yield to such pressures and keep the price line varying between strict adherence to list price and highly flexible pricing. Flexible pricing implies willingness to adjust price to the ups and downs of market demand and to vary price when required to obtain orders from individual customers. Negotiated pricing is more common in the buying and selling of complicated products like bridges, special machinery military hardware, or weapon systems. Long and intensive negotiation may be carried on before price can even be estimated for such projects.
New products strategies:
The important question in the pricing of new products is whether to price above, below, or at the market rate. The answer will depend on the effectiveness of your new product’s differentiation, its cost relative to competitors and the marketing resources to be put behind the market introduction. Test marketing at different prices can be helpful in spotting the optimum price. Penetration pricing calls for introducing the new product at a low price to develop the market quickly. This strategy is more suitable when: the product is price sensitive in the early stages, there are opportunities to reduce costs through economies of scale, there is likely to be early strong competition and there is no elite segment willing to pay a higher price to obtain the newest and best.
As in other areas of marketing planning, facts are needed for the development and administration of effective price policies. At a minimum it is essential to know:
1) The competitive market situation
2) To know your competitors costs and
3) To have a good estimate of market at different prices.