Distribution

The physical flow of goods through channels involves the movement of

products from producers to consumers. This flow ensures the right
products reach the right place at the right time and in the desired form.

Channel
A channel refers to a network of agents or intermediaries working
together to deliver goods and services from producers to consumers.
They collectively provide four types of utility:
1. Place Utility: Ensures products are available at locations
convenient for consumers.
o Example: Amazon delivering goods to your doorstep.

2. Time Utility: Ensures products are available when consumers need

them.
o Example: Retailers stocking holiday items before the season
starts.
3. Form Utility: Ensures products are in a usable or desirable form.
o Example: A bakery transforming raw ingredients into ready-
to-eat cakes.
4. Information Utility: Provides essential details about the product
or service.
o Example: Sales staff explaining the features of a
smartphone.

Distribution Network
A distribution network is an organized system of intermediaries (e.g.,
wholesalers, retailers, agents) that link producers to consumers. It
facilitates the smooth transfer of goods, ensuring efficiency and
customer satisfaction.
 Example: A network connecting a shoe manufacturer to retailers
and ultimately to customers.

Physical Distribution Channel and Trading (Transaction) Channel lies in

what they deal with during the movement of goods:
Physical Distribution Channel
 Focus: Physical movement of products.
 Concerned with:
 o Transporting the product from the production site to the customer.

o Warehousing, inventory management, and logistics.

 Examples:
o A factory shipping products to a retail store or directly to a
customer’s home through delivery services.
o A supplier using trucks or couriers to move goods to warehouses.

Trading (Transaction) Channel

 Focus: Ownership and transactional processes.
 Concerned with:
o Negotiations, contracts, and financial exchanges related to the
product.
o Who owns the product at each stage of distribution.

o Sales agreements and legal transfers of ownership.

 Examples:
o A wholesaler negotiating prices with retailers before goods are sold.

o A company buying goods from a supplier under a purchase

agreement.
Simplified Example:
1. Physical Distribution Channel: A smartphone is manufactured in a
factory, transported to a warehouse, and then delivered to a retailer or
directly to the consumer.
2. Trading Channel: Before the smartphone is physically moved, the retailer
negotiates a price with the manufacturer and takes ownership once
payment is made.
Both channels work together to ensure the product reaches the customer, but
one manages the physical logistics, and the other manages the legal and
financial transactions.
1. Manufacturer Direct to Retail Store
 Products are delivered directly from the manufacturer to retail stores using
the manufacturer’s own vehicles.
 Used for: Full vehicle loads; uncommon in modern logistics.
 Example: Perishable goods like fresh produce.

2. Manufacturer via Manufacturer’s Distribution Operation to Retail

Store
 Products are stored in manufacturer-owned warehouses (central or
regional distribution centers).
 Products are delivered to retail stores via the manufacturer’s vehicles.
 Example: Brewing industry (beer distribution).

3. Manufacturer via Retailer Distribution Center to Retail Store

  Products are sent to retailer-operated distribution centers or
consolidation centers.
 Retailers manage final delivery to their stores using their own or third-
party vehicles.
 Example: Large grocery chains like Walmart or Tesco.

4. Manufacturer to Wholesaler to Retail Shop

 Wholesalers act as intermediaries, purchasing in bulk from manufacturers
and delivering to small retailers.
 Wholesalers use their own warehouses and fleets.
 Example: Grocery wholesalers supplying small independent stores.

5. Manufacturer to Cash-and-Carry Wholesaler to Retail Shop

 Retailers pick up goods directly from cash-and-carry wholesalers instead of
receiving deliveries.
 Common for small retailers with small order sizes.
 Example: Restaurant supplies from cash-and-carry chains like Metro.

6. Manufacturer via Third-Party Distribution Service to Retail Store

 Third-party logistics companies handle distribution, often offering
specialist services (e.g., fragile goods or garments).
 Outsourcing logistics helps manufacturers manage rising costs and
regulations.
 Example: DHL or FedEx distributing electronics.

7. Manufacturer via Small Parcels Carrier to Retail Shop

 Specialized small-parcel carriers deliver smaller quantities quickly, often
next-day delivery.
 Popular for e-commerce and home delivery.
 Example: Courier services delivering books or accessories.

8. Manufacturer via Broker to Retail Store

 Brokers act as intermediaries but focus more on marketing and sales
than physical delivery.
 May use third-party logistics or their own system for distribution.
  Example: A broker promoting multiple cosmetic brands to retail chains.

Key Takeaways:
 Direct channels (e.g., manufacturer to retail store) are faster but suited
for bulk deliveries.
 Wholesalers and retailer-operated distribution centers cater to
smaller or independent retailers.
 Third-party and small-parcel carriers support efficient logistics for
modern businesses, especially with specialized or small-scale deliveries.
Summary of Direct Deliveries:
Direct delivery channels bypass traditional retail stores and cater to both
industrial products and consumer products. These channels are often classified
as Business-to-Consumer (B2C) or Business-to-Business (B2B). Below are
the key types:

1. Mail Order
 Goods are ordered via catalogs and delivered to the consumer's home by
post or parcels carrier.
 Physical flow: Manufacturer → Mail order house → Consumer.
 Example: Clothing or books ordered from catalog companies like Avon.

2. Factory Direct to Home

 Products are sold directly from the factory to the customer, often through
advertisements (e.g., newspapers, magazines).
 Suitable for customized or one-off products.
 Example: Furniture made-to-order or specialty equipment.

3. Internet and Shopping from Home

 Online shopping has expanded direct delivery options.
 Physical delivery:
o General products: From manufacturer or retailer to home using
postal or parcel carriers (e.g., Amazon).
o Groceries: Specialist small delivery vehicles from distribution
centers or stores (e.g., Instacart).
o Digital goods: Products like music, software, or books are
delivered directly online.
  Example: Spotify for music, e-books from Kindle.

4. Factory to Factory / Business-to-Business (B2B)

 Focused on the movement of industrial goods such as raw materials,
components, or semi-finished products.
 Delivery is often tailored to the product size or order (full loads, small
parcels).
 Example: Automotive parts delivered from one factory to another.

Key Takeaways:
 Direct delivery channels are flexible and bypass retail stores.
 Mail order and online shopping focus on convenience for B2C markets.
 B2B channels are critical for industrial supply chains, ensuring materials
and components reach manufacturers efficiently.
 Cost
 Lower-cost channels are often preferred, but the cost must balance with
efficiency and customer satisfaction.
 Example: A small business might use direct-to-consumer online sales to
avoid the high cost of retail partnerships.
 Capital Requirement
 Some channels require higher initial investments, such as setting up your
own distribution network.
 Example: A startup with limited capital may choose third-party logistics
providers instead of building its own warehouses.
 Control
 Companies often prefer channels where they can control pricing, branding,
and customer experience.
 Example: Luxury brands like Gucci sell through exclusive outlets to
maintain control over brand perception.
 Coverage
 The ability to reach a wide audience or specific target markets.
 Example: FMCG companies like Coca-Cola use extensive distribution
networks to ensure their products are available globally.
 Continuity
 Channels that ensure reliable and long-term availability are preferred.
  Example: Pharmacies require a consistent supply chain for essential
medicines.
 Characteristic Alignment
 The channel must align with the product's nature, the target audience, and
market conditions.
 Example: Perishable goods like dairy are distributed through refrigerated
supply chains to maintain quality.

 Cost
o Lower-cost channels are often preferred, but the cost must balance with
efficiency and customer satisfaction.
o Example: A small business might use direct-to-consumer online sales to avoid
the high cost of retail partnerships.
 Capital Requirement
o Some channels require higher initial investments, such as setting up your own
distribution network.
o Example: A startup with limited capital may choose third-party logistics
providers instead of building its own warehouses.
 Control
o Companies often prefer channels where they can control pricing, branding,
and customer experience.
o Example: Luxury brands like Gucci sell through exclusive outlets to maintain
control over brand perception.
 Coverage
o The ability to reach a wide audience or specific target markets.
o Example: FMCG companies like Coca-Cola use extensive distribution
networks to ensure their products are available globally.
 Continuity
o Channels that ensure reliable and long-term availability are preferred.
o Example: Pharmacies require a consistent supply chain for essential
medicines.
 Characteristic Alignment
o The channel must align with the product's nature, the target audience, and
market conditions.
o Example: Perishable goods like dairy are distributed through refrigerated
supply chains to maintain quality.

Outsourcing

Outsourcing is when a company hires external organizations or individuals to perform certain

tasks or services instead of doing them in-house.

Benefits of Outsourcing

1. Cost Savings
 o Companies save money by outsourcing to regions with lower labor or
operational costs.
o Example: Many U.S. tech companies, like Microsoft, outsource customer
support to countries like India for cost efficiency.
2. Focus on Core Business
o Outsourcing allows companies to focus on their primary expertise.
o Example: Coca-Cola outsources its logistics and bottling while focusing on
marketing and product development.
3. Access to Expertise
o Companies gain specialized skills or advanced technologies from experts.
o Example: Nike outsources manufacturing to factories with advanced expertise
in shoe production.
4. Scalability
o Businesses can quickly scale up or down depending on market demands.
o Example: Amazon outsources delivery to third-party courier services during
the holiday season for scalability.
5. Time Efficiency
o Tasks get completed faster when experts handle them.
o Example: A startup outsources app development to an experienced software
firm to speed up the launch.

Losses of Outsourcing

1. Loss of Control
o The company has less control over the quality or process of outsourced tasks.
o Example: Boeing faced production delays and quality issues after outsourcing
parts of its 787 Dreamliner manufacturing.
2. Data Security Risks
o Sharing sensitive information with external parties can lead to data breaches.
o Example: A Target data breach in 2013 occurred due to a third-party vendor's
system vulnerability.
3. Dependence on Vendors
o Companies become overly reliant on outsourcing partners, leading to risks if
vendors fail.
o Example: KFC in the UK faced a supply chain crisis in 2018 when its delivery
partner DHL failed to deliver chicken to stores.
4. Hidden Costs
o Miscommunication, delays, or poor quality can increase expenses.
o Example: A company outsources IT services but spends extra on fixing errors
caused by the vendor's mistakes.
5. Impact on Employees
o Outsourcing may lead to layoffs and lower employee morale.
o Example: IBM laid off thousands of workers after outsourcing several IT roles
to cut costs.
 Cultural Issues:
These refer to the differences in beliefs, traditions, and habits between countries
or regions that can affect how products are distributed.
 Example: A company selling pork products might avoid markets where
the culture or religion prohibits pork, like in Muslim-majority countries.
 Physical Distance vs Attitudinal Distance:
 Physical Distance: How far the product needs to travel.
 Attitudinal Distance: Differences in attitudes, perceptions, and
preferences of people in different areas.
 Example: Shipping a product from the US to Japan (physical distance)
might also require understanding Japanese preferences for packaging and
advertising (attitudinal distance).
 Government and Legal Constraints:
These are the rules or restrictions set by governments that affect distribution.
 Example: Some countries require foreign companies to partner with a
local business to sell products.
 Protective Regulation:
Rules that protect local businesses or industries by making it harder for foreign
companies to compete.
 Example: High taxes or duties on imported products to encourage buying
local goods.
 Technical Barriers to Trade:
These include specific rules or laws that make it harder to do business.
 Examples:
o Retail ceiling prices: Limits on how much you can charge for a
product.
o Profit repatriation: Restrictions on sending profits back to the
home country.
o Laws on hiring and firing intermediaries: Complex legal
procedures for employing or terminating distributors or agents in
another country.
1. Purchasing Power of Ultimate Customers
 What it means: The financial ability of people to buy products or
services.
 Why it matters: Companies need to ensure that their target customers
can afford their products. If customers have low purchasing power,
businesses might need to lower prices or offer cheaper alternatives.
 Example: A luxury car brand like BMW might target high-income countries
or urban areas in developing countries where people can afford expensive
cars.
2. Demographic Characteristics of Target Population
 What it means: The age, gender, education, income level, and
population size of the market's customers.
 Why it matters: Products and marketing strategies are tailored based on
demographics to fit the needs of the population.
 Example: A toy company will focus on markets with a large number of
young children, while a company selling retirement plans will target older
adults.

3. Lifestyle and Family System

 What it means: The way people live, including their daily habits, work-life
balance, and family structure (e.g., joint or nuclear families).
 Why it matters: Products and services should align with the lifestyle and
family needs of the target audience.
 Example: In countries where families eat together (e.g., India), larger food
package sizes are preferred, while single-serving portions work better in
markets with more single-person households, like Japan.

4. Nature/Adequacy of Infrastructure
 What it means: The availability of facilities like roads, electricity, water,
internet, and transportation in a region.
 Why it matters: Poor infrastructure can make distribution and delivery
difficult, increasing costs and delays.
 Example: A business trying to sell products in remote areas of Africa will
face challenges if roads and storage facilities are inadequate. They might
need to invest in better supply chain solutions.
Channel structure refers to the way a business organizes its distribution
channels to get products from producers to customers. Let’s break down the key
components with examples:

1. Length (Long vs. Short Channel)

 What it means: The number of steps or intermediaries (like wholesalers
or retailers) between the producer and the final customer.
 Long Channel: Involves multiple intermediaries.
o Example: A farmer sells produce to a distributor, who sells to a
wholesaler, who then supplies a grocery store.
 Short Channel: Fewer or no intermediaries.
 o Example: A bakery directly selling bread to customers.

2. Width (Number of Each Type of Intermediary)

 What it means: The number of distributors, wholesalers, or retailers used
at each level of the channel.
 Wide Channel: Involves many intermediaries at each level.
o Example: Coca-Cola distributes its products to countless retailers
worldwide.
 Narrow Channel: Uses fewer intermediaries.
o Example: A luxury watch brand may only sell through exclusive
retailers.

3. Density (Sales Outlets)

 What it means: The number of sales outlets or locations available for
customers to buy the product.
 High Density: Many outlets, making the product easily available.
o Example: Snacks like Lays chips are sold in almost every
convenience store.
 Low Density: Limited outlets, creating exclusivity.
o Example: High-end fashion brands like Chanel sell only in select
boutiques.

4. Alignment (Coordination Between Intermediaries)

 What it means: How well the different intermediaries (like
manufacturers, wholesalers, and retailers) work together.
 Good Alignment: All parties collaborate efficiently to achieve shared
goals, like timely delivery and quality service.
o Example: Amazon's supply chain aligns warehouses, delivery
teams, and suppliers to ensure quick deliveries.
 Poor Alignment: Miscommunication or conflict between intermediaries.
o Example: A distributor delaying orders due to payment disputes
with the manufacturer.

5. Logistics (Physical Transfer)

  What it means: The physical movement of goods from production to the
end user, including transportation, warehousing, and inventory
management.
 Why it matters: Smooth logistics ensure timely delivery and lower costs.
o Example: A clothing brand shipping from a factory to a warehouse,
then to retail stores or customers via trucks or ships.
Availability of channels refers to the options a business has to distribute its
products, which can vary based on the country’s economic status, marketing
strategies, and competition. Let’s break down the points:

1. Developing vs. Developed Countries

 Developing Countries:
In these countries, distribution channels may be limited or less organized
due to weaker infrastructure and fewer intermediaries.
o Example: In rural parts of a developing country, products might
only be available through small local shops or informal markets.
Businesses may need to create their own distribution networks.
 Developed Countries:
Distribution channels are more advanced, with well-established retailers,
e-commerce platforms, and logistics systems.
o Example: In the US, companies can rely on big retailers like
Walmart or Amazon for wide and efficient distribution.

2. “Pull” vs. “Push” Strategy

 Pull Strategy:
Focuses on creating customer demand so that retailers or intermediaries
"pull" the product into their inventory.
o Example: A brand heavily advertises its new skincare line on social
media, so customers ask stores to stock it.
 Push Strategy:
Involves convincing intermediaries (like retailers or wholesalers) to stock
the product, even if customer demand isn't high yet.
o Example: A company offers attractive discounts to retailers for
buying bulk quantities of their new beverages.

3. What if Available Channels Belong to Competitors?

 This is a challenge when the main distributors or retailers in a market
already have agreements with competitors.
 Solutions:
o Create New Channels: Build direct-to-customer models like e-
commerce.
 Example: A new smartphone brand could sell directly
through its website rather than relying on stores tied to
competitors.
o Offer Better Terms: Convince intermediaries to switch by offering
higher profit margins or incentives.
 Example: A food brand might offer retailers promotional
discounts or marketing support.
o Collaborate or Share Channels: If feasible, work alongside
competitors in shared channels while differentiating your product.
 Example: Competing brands of soft drinks like Pepsi and
Coca-Cola are often sold in the same grocery stores.