What are the Basic Distribution Channels in the Business?

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By: Site Engineer, Staff

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Distribution is concerned with the movement of products from the point of production to the point of consumption. It can be divided into two broad categories: namely, distribution channels and physical distribution.

1. Distribution Channels

A distribution channel (otherwise known as a marketing channel or channel of distribution) refers to the combination of institutions which direct the company’s product to consumers. Marketing intermediaries (middlemen) are a part of this channel. A marketing intermediary may be a wholesaler or a retailer. They may also be classified on the basis of whether or not they take title to the products they deal in.

Those who take title to the products are called merchant middlemen, while those who do not take title to the products but simply deal in them for a commission are referred to as agent middlemen.

The Importance of Middlemen

Middlemen play a vital role in our economy. Their functions benefit both the producer and the consumer.

They provide a link between producers and consumers, who may be located very far apart. In doing so, they make buying and selling more convenient by reducing the time and effort expended in making multiple contacts. Imagine a very hypothetical situation in which there are only three producer and five buyers.

Without intermediaries, each buyer would have to make contact with every producer, assuming all five buyers need the products of all three producers. Thus, fifteen (3 x 5) contacts are needed. However, with the introduction of an intermediary (a retailer, in this case) who stocks the products of all three producers, the number of contacts needed is reduced considerably to only eight.

Retailers

A retailer is a merchant or agent whose main business is selling directly to the ultimate consumer. A manufacturer or a wholesaler sometimes sells directly to ultimate consumers, but because that is not his main business, he is not regarded as a retailer, although he performs some retailing functions. Similarly, it is not unusual to find a retailer who sometimes sells on a wholesale basis. But, in this case, retailing is his main function and so he is a retailer.

A host of other smaller retail outlets, some carrying a single product line such as sports equipment, drugs, or electronics, and other carrying a scrambled assortment of merchandise, line up most streets in all major towns in this country. The large supermarket is also a retail organization. Retailers perform a variety of functions for wholesales and consumers.

Wholesalers

A wholesaler is a middleman between a producer or producers and retailers. He buys in very large quantities from the producer or from another wholesaler and resells in smaller quantities to users or retailers.

More specifically, a wholesaler is a business unit which buys and resells merchandise to retailers and other intermediaries and/or to industrial, institutional, and commercial users, but does not sell in significant amounts to ultimate consumers.

As implied previously, a wholesaler may be a merchant wholesaler, in which case he takes little to the products he sells, or an agent wholesaler, in which case he does not. Furthermore, a merchant wholesaler may be a full-service or a limited-service wholesaler. The former provides all wholesaling functions, while limited-service wholesalers provide only some of these functions.

Selecting a Channel

We indicated previously that a channel consists of intermediaries used in moving goods from producers to consumers. It must be emphasized that a company has a choice as to what channel to use since a number of alternatives are usually available to choose from.

The three basic alternatives are:

  • A producer may sell to wholesalers, who in turn sell to retailers, who then resell to consumers.
  • A producer may sell directly to consumers without going through intermediaries.
  • A producer may sell to retailers, who then sell to consumers or users.

The choice of a channel or channels to use will depend on the nature of the product, the financial strength of the company, the number, location and shopping habits of consumers, the availability and willingness of capable middlemen to handle the product, the desired intensity of distribution or market coverage and what competitors are doing in this respect.

Once a company has decided to use middlemen, it must decide on the type and number, the criteria for selection, and, of course, the geographical location in which middlemen are needed.

Exclusive Distribution

This describes a market coverage involving the use of only one dealer, in a relatively wide geographical area. For example, a company may decide to have a sole distributor to serve a northern region, another to serve the western region and a third to serve the eastern region. A company may adopt exclusive distribution policy because of the need to maintain a high standard of service, when specialty products are being marketed, or when the product is expensive and not purchased very often. An example of such a product is the computer.

A policy of selective distribution means that a company uses some, but not all, distribution outlets in a specific geographical area. This is usually considered advisable in the case of some shopping goods, which the consumer is prepared to expend some effort searching for. Air-conditioners and cars are common examples.

Intensive Distribution

It is often used for products for which buying is routine or on impulse, products which are standardized and cheap and for which strong cooperation between retailers and the company is not necessary for effectiveness. Examples are cigarettes; chewing gum and notebooks. They often do not require special attention since they are neither complex nor do they require servicing.

2. Physical Distribution

Physical distribution refers to the transportation, handling and storage of products in the process of moving them from where they are to where they are needed.

Transportation

Transportation creates place utility by moving goods to places where they are more useful. Transportation may be by land, air or sea. Motor vehicles and trains may be used on land; airplanes may be used in the air; ships, tugs, and barges may be used at sea. The choice of a means of transportation will depend on:

  • The distance over which the goods are to be transported;
  • The security of the goods in that means of transport;
  • The availability of transport facilities, such as airports, rail, and sea routes; and
  • The preference of the owner of the goods.
  • The nature of the product; whether it is bulky or light, whether it is easily perishable, fragile or otherwise;
  • The cost of using the different means;
  • The urgency with which the goods are to be transported.

Road transport is particularly attractive when the distance to be covered is short. In Africa, it is faster but more expensive than rail transport. Rail transport can handle bulky and heavy goods over long distances at a very cheap rate. Air transport is notable for its high cost, although it is more speedy and more secure than other means. Sea transport is attractive where it is possible, and where bulky goods need to be carried over very long distances. It is also cheap.

All the factors listed above may not be equally important in any specific case, but by and large, the interplay of these various considerations normally dictates the choice or preference of the decision maker.

Storage

Goods are produced in anticipation of demand. Because of this lag between production and consumption, it is necessary to store the goods that have been produced, until they are needed. Through this process of storage, the marketer creates time utility.

In managing its stock or inventory, a company must:

  • How often to place order;
  • The number of goods to order per period.
  • Decide on how many warehouses to build; one large one or many small ones; and
  • Where to locate these warehouses.

Materials’ Handling

This refers to the in-store transportation of goods from one place to another. Materials’ handling is often necessary for stacking goods, loading and off-loading. These may be done manually or mechanically.

Promotion

Promotion is the fourth component of the marketing mix. The marketing mix consists of the product, price, distribution (place) and promotion – the four Ps. Promotion encompasses all those tools in the marketing mix whose major role is persuasive communication.

The purpose of promotion is to influence the audience which is made up of present and potential consumers, to behave in a way that is favorable to the sponsor of the promotion. Most specifically, it may seek to make the audience desire the company and its products.

Basically, promotion seeks to inform, educate and persuade. For example, when Food Specialties (Nigeria) Limited (now Nestle Food Nigeria Plc) introduced Milo Food drink into the market, it had to inform its potential customers about the existence of the product. Most promotion efforts also attempt to educate the consumer about the weight and chemical contents of the product, its uses and how to use the product. For example, each Milo tin carries the following inscription.

“To prepare: place two or more teaspoonful of milo in a cup or glass. Add warm water. Stir well until dissolved, then add milk and sugar if required.”

Television advertisements further demonstrate this practically to consumers. Most promotions do not stop at merely informing and educating, but also try to influence the audience to patronize the company’s products. In this respect, the Milo tin has this inscription, among others:

“Milo Food drink – makes a delicious and health-giving beverage, which may be drunk HOT or COLD.

Due to its special formula with added vitamins and minerals, adults, students and children will all benefit from drinking MILO regularly. In the morning, it builds up strength for the day and in the evening, it restores lost reserve of energy.”

The television advertisement of the product is less subtle and describes the product as the Food drink of Champions. The purpose is to persuade the consumer to use the product.

Promotional activities are of many types. However, they are usually classified into advertising, personal selling, publicity, and sales promotion. Each of these promo tools involves communication. The combination of these tools that a company adopts is called its promotion mix.

Advertising

Advertising may be defined as ‘any paid form of non-personal presentation and promotion of ideas, goods or services by an identified sponsor. The distinct features of advertising are that it is non-personal (does not involve face-to-face communication); it is paid for by a sponsor, and the sponsor is identified or identifiable. Advertising may be used to:

  • Aid salesmen by giving prior notice of the company’s products to prospective buyers;
  • Introduce new products to the market;
  • Persuade middlemen to carry the company’s products;
  • Inform consumers of changes in the company’s product, price and channel policies;
  • Promote the demand for / or sales of the company’s products;
  • Promote the company’s image;
  • Neutralize competitors advertising.

Advertising is particularly useful under certain conditions.

These are:

  • When there are no government or professional regulations prohibiting the advertisement of the product (for example, poisons such as antibiotics cannot be advertised in the Nigerian mass media);
  • When the company is financially able and willing to underwrite the cost of advertising;
  • When the available infrastructural facilities (such as radio television, newspapers, etc) are capable of reaching the intended audience;
  • When the product has hidden qualities to which the producer wishes to draw consumers’ attention;
  • When the product has unique features that distinguish it from those of competitors;
  • When competitors are advertising their products; for example, beer, in Nigeria;
  • When consumers are many and spread over a wide geographical area such as Nigeria as a whole.

Personal Selling

This is the oral presentation in a conversation with one or more prospective purchasers, for the purpose of making sales. Its distinguishing features are:

  • The face-to-face nature of the presentation;
  • It involves communication with a few people at a time, unlike advertising;
  • It is usually aimed at making immediate sales.

As the above definition implies, it involves the use of salesmen or sales representatives who visit potential buyers in an attempt to persuade them to buy the product concerned. Its use is indicated:

  • When there are a few buyers as in the case of highly specialized, technical industrial equipment;
  • When there is need to complement other promotional efforts, that is, when other promotional efforts cannot be relied upon to do the entire selling job;
  • When the product on sale is complex, for example, computers and insurance policies;
  • When the cost of a single product is high, for example, cold storage systems, consultancy services, fishing trawlers, and computers.

Managing the personal selling component of the promotional effort is called sales management. It consists of the recruitment, selection, placement, motivation compensation and control of the sales force.

Publicity

This is the non-personal stimulation of demand for a product, service or business unit, by planting commercially significant news about it in a published medium or obtaining a favorable presentation of it upon radio, television or stage that is not paid for by the sponsor. Its distinguishing features are:

  • It is not paid by the sponsor;
  • It can use most of the printed and electronic media;
  • It is non-personal.

Advantages of Publicity

  • Correcting unfavorable impressions about the company;
  • Informing the public of the company’s programmes, policies, and contributions to society;
  • Disseminating information about new products and processes; and
  • Publicizing the company or its products.

Publicity may be in the form of news reports about the company, its personnel, or products. It may also be in the form of features such as supplement or focus columns featured regularly in newspapers and periodicals.

Sales Promotion

This is a term used broadly to refer to those marketing activities, other than personal selling and publicity, that stimulate consumer purchasing and dealer effectiveness, such as displays, shows and exhibitions, demonstrations and various non-recurrent selling efforts, not in the ordinary routine.

As the above definition implies, sales promotion covers a wide range of activities such as trade fairs, exhibitions, kobo-off sales (involving price reductions), free samples, sales contests and a host of other mediums of communication with the consumer, with the purpose of informing, educating and/or persuading him. It is an umbrella term for all promotional activities that do not fall under the ambit of advertising, personal selling or publicity.

Marketing Research

The small business owner who produces to order is in direct and constant contact with his customers. He knows them personally, understands their problems and can easily monitor their demand for his products.

To that extent, the need for complex marketing decision-making is greatly reduced. However, as the market expands, it becomes more difficult to understand, and the need for more sophisticated marketing decision-making increases. Marketing research, under this more complex situation, becomes a useful tool in making marketing decisions.

The three definitions below indicate the nature of marketing research:

  1. The function of marketing research is to provide information that will assist marketing managers in making decisions. It is a formalized means of obtaining information to be used in making marketing decisions.
  2. Marketing research gathers and analyzes data to help marketing managers make decisions.
  3. Marketing research is the systematic gathering, recording and analyzing of data about marketing problems to facilitate decision-making.

The difference between marketing research and more traditional methods of obtaining data for marketing decision-making is that marketing research attempts to make the data gathering and analysis exercise more scientific, systematic and therefore more reliable.

Marketing research covers the following possible areas:

Product Research, Concerning:

  • Product mixes;
  • Packaging;
  • Competing products; and
  • Feasibility of new products and product testing.

Price Research Promotional Research, Involving:

  • Advertising media research;
  • Studies relating to promotional appeals and advertisement copies;
  • Studies of the effectiveness of the advertisement.

Distribution Research:

Market Research:

  • Competition;
  • Profile of consumers; and
  • Consumer’s needs, wants, and complaints.

Marketing research’s usefulness is in its potential for improving the efficiency and effectiveness of marketing decisions. Through it, decisions can be made on the basis of systematically and scientifically gathered and analyzed data.

Consumer Behaviour

With the emergence of the marketing concept and the need to understand the consumer, consumer behavior studies have sought to provide answers to the following and other questions:

  1. Why do consumers behave the way they do? Why does the housewife, for example, prefer one brand of milk to another? Why does the beer drinker, who cannot distinguish between beer brands in a blind taste test, prefer and insist on one brand rather than another? Why do people prefer shopping in one store to shopping in another?
  2. What are the consumers’ buying habits? Who does the buying? What makes buying decisions? Who uses the products? What brand do consumers buy and to what uses do they put them? Where do they buy? Where do they use the product? At what time of the year week and day do they buy? At what time of the year, week and day do they use the product? In what quantities do they buy? In what size and how often?

The first set of questions define the consumers buying and patronage motives, while the second set defines the who, what, where, when and how of consumer behavior, otherwise known as a consumer buy habits and patterns?

There are various theories been advanced to explain consumer behavior. Economists attempt to explain in its terms of rational or economic considerations since the consumer is viewed as an economic man who weighs the costs and benefits of alternative courses of action before making a choice.

Psychologists seek to understand buyer behavior by focusing on personality and psychological factors such as perception, learning, repetition, and motivation. Sociologists and social psychologists look up to social and cultural factors for explanations of consumer behavior. While none of these groups has a comprehensive and perfect explanation of consumer behavior each has contributed immensely to the present state of the knowledge on the issue.

Marketers understandably, therefore, adopt a multi-disciplinary approach to the study of consumer behavior. Available evidence indicates that buyer behavior is a function of economic, demographic, psychological and socio-cultural variables such as income and income distribution, learning, basic needs, reference groups, sex, age, family size, self-concept, and social class. These are only some of the influences. Complex theories have been developed in an attempt to explain the impact of the various variables on the consumer.

As more knowledge is gained in consumer behavior, the marketer is expected to be more effective in serving consumers, since a knowledge of the behavior of potential customers is very useful in product design and modification, price setting, choice of advertisement appeals and media, and the selection of distribution channels.

Criticisms of Marketing

The criticisms of marketing and marketers in Africa have come from individuals and organizations. The major ones are outlined below:

  1. Marketers are accused of selling unsafe products, such as expired drugs, impure goods, damaged products, and shoddy products.
  2. It is claimed that marketing costs too much and that marketers deliberately hoard goods and inflate prices. Some middlemen are known to make up to 100% margins on certain products, especially scarce essential products.
  3. Marketers are also accused of indulging in deceptive practices. For example, misleading advertisements are said to be a common feature of our society.
  4. Marketers, it is claimed, manipulate people to buy products they really do not need. For example, advertisements are irresistibly persuasive, and salesmen engage in hard, aggressive selling.
  5. Marketers are said to constitute a corrupting influence in society (especially on children) in their use of half-nude people in advertisements and the introduction of foreign products and values into the African market.
  6. The omnipresence of marketing is seen by some as a nuisance. Billboards disfigure the beauty of our towns, advertisements disrupt interesting television and radio programme and fill up 75% of some newspapers and magazines. Moreover, advertisements are broadcast on radio and television at almost all times of the day.
  7. Marketing is said to be responsible for the materialism that is evident in Africa. Africans are good at consuming the best brands of any product one can name, although they can hardly make any. Marketing is to blame.
  8. African’s high taste for foreign-made goods has created foreign exchange problems for the country. Africans go to many cities abroad to shop. The result is excess importation of foreign goods, dumping of foreign products on African and low demand for African-made goods. Marketing contributes to this situation.
  9. Marketers are said to be insensitive to the needs of consumers. They are charged for being selfish, exploitative and unmindful of the welfare of consumers. Consequently, no effort is made by the producer or seller to determine what consumers want. A marketer once claimed that with most African manufacturers, the consumer is such an elusive and unidentifiable animal.

While most of these claims are true in Africa, it must be noted that some of the criticisms are the product of a lack of understanding of the role of marketing. Marketing shoulders the responsibility of moving goods to where they are needed, and promoting the goods, all to the benefit of the consumer. For this, consumers must expect to pay a price which will offset the marketer’s costs.

Marketers also respond by arguing that, rather than invent or create needs for people, they merely study consumer needs and inform the consumer of his needs and how to satisfy them. They contend, therefore, that marketers are not overly manipulative. Also, it cannot be said that they created materialism; they merely attend to the urge for materialistic acquisition on consumers, they argue.

Finally, we must note that most of the criticisms are really not criticisms of marketing, but of marketers. Just as a weapon can be used to protect or take one’s life, so also can marketing be used to advantage or abused. It is, however, expected that as the African economy becomes more competitive and consumers become more educated and aware, the incidence of abuse of marketing will reduce.

 

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