Deciding on a Distribution Channel

8/22/2019 Deciding on a Distribution Channel

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Deciding on a Distribution Channel


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Distribution Channel

The way a product reaches the consumer

Two categories of distribution channels

Direct

Indirect

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Direct Distribution (Sales)

Producer of product sells directly

to the consumer

Advantages:

Less complicated

Less expensive

Eliminates cost of middle man

Allows for market research

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Direct Distribution (Sales)

Disadvantages:

Producers may not be good marketers

Direct sales take time away from production

Producers may not be objective in sales

Allows for market research

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Direct Distribution (Sales) Examples

Person to Person

Display booths at events

Party-plan sales

In-home demos

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Additional Direct Distribution (Sales) Examples

Business trade shows

Temp space in shopping malls

Direct mail

Mail order

Telemarketing

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Indirect Distribution Utilizes Middlemen Who Sell

Advantages:

Middlemen are sales professionals

Useful when zoning prevents home sales

Useful when location of home base is too far

from consumers

Greater sales volume potential

Frees producer to focus on production

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Indirect Distribution

Disadvantages:

Producer removed from consumers

More expensive than direct distribution

Less control over product

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Indirect Distribution Examples

Sales Representatives

Wholesalers, Distributors, Jobbers

Wholesale Trade Shows

Wholesale to Retailers

Consignment

Mail Order

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Indirect Distribution Channels

Wholesalers

Distributors

Jobbers

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Manufacturer or Sales Reps

Move merchandise

Call on retailers

Handle marketing within a territory

Get commission on orders

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Wholesale Trade Shows

Build long lasting relationships

Good packaging and nice display are critical

Quality business cards, brochures and/or free

Sales literature and pre-determined pricingstructure will help in attracting retail accounts

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Selling Wholesale to Retailers

Producer can make contact

Must know trade practices

Need written agreements

Cannot undercut retail price

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Consignment

Contracting with Retailers to Display

and Sell Product

Advantages:

Exposure without overhead expenses of utility and space

Disadvantages:. Money tied up in inventory with possibility of damage

Merchandise may not be displayed to advantage

Merchandise may not be aggressively marketed

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Mail Order

Producers may develop their own catalogs,fliers, or indirect distribution

Buy ad space in an established catalog,

magazine, tabloid, etc.

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Mail Order

Timing is important

Knowledge of postal regulations, FTC

rules, and tax laws in each state where

merchandise is exchanging hands Need good mailing lists

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Securing Mailing Lists

Can be rented or purchased

Need clear description of customer profile

Check library for mailing list brokers

Check listings in trade journals

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When Evaluating Mail-Order Media, Ask About:

Demographics of readership (sex, age, ethnicity)

Regional publications

Number of ongoing advertisers

Circulation numbers

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Magazine Advertising

Advantages:

Longer shelf life than other ad media

Often read cover to cover by different people

Associates your product with prestige of magazine

More sophisticated production process and betterquality paper than newspapers and most catalogs

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Magazine Advertising

Disadvantages:

Longer lead from ad placement

time to published ad

High cost

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Questions When Considering Catalogs

Is there a fee to be included in the catalog or do youpay a percentage of the sales?

Is there minimum inventory that must be available?

What is your knowledge of laws and regulations?

Is merchandise warehoused by catalog company or

does producer drop ship.

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Questions When Considering Catalogs

How is merchandise evaluated actualproduct or photographs?

What is the pricing structure?

What is the time frame for catalogproduction and distribution?

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Additional Indirect Distribution Examples

TV Marketing

Computer Networks

Vending Machines / Rack Merchandising

Cooperatives Franchises

Multilevel Marketing (MLM)

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Telemarketing

A sales approach conducted

entirely by phone.

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Television Marketing

Cable network channels

Infomercials

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Computer Networks

Vast online information system that

links businesses and potential customers

all over the world.

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Internet Marketing

Web sites

Social Marketing

Internet Sales

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Vending Machines

&

Rack Merchandising

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Cooperative

A business formed by a group of people to

market their products together

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Franchises

Buying continuous direction and support frompeople who are experts in their field

Owned and managed by self-employed

business people

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Franchise Agreements May Include

Using the franchisors name

Help in finding a location

Store design and outfitting

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Advertising

Acquiring Supplies

Management Training

Protected Territory

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Financing

Marketing and Promotion

Record Keeping

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Multi-Level / Network Marketing

People sell at different levels in company

hierarchy. Distributors recruit new people to join

the program. The practice is sometimes calledsharing business.

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Possible Distribution Channels

Direct Channel: Producer > Consumer

Single Channel (w/ middleman):

Producer > Retailer > Consumer

Double Channel (w/ middleman):Producer > Wholesaler > Retailer > Consumer

Simultaneous Dual Channel:

(Producer > Wholesaler > Retailer) and (Producer > Consumer)

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Making Choices

Consider:

Opportunities available

Appropriate for your business

Delivery time frame

Packaging for shipment

Cost

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Deciding on a Distribution Channel

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