Swarovski crystals displayed at tastefully decorated and lighted exclusive outlets convey an image of the product that is very different from that created by crystal trinkets sold at discount stores. And the image determines the prices that can be charged and the loyalty customers feel. The distribution channel thus becomes an integral part of strategic positioning and branding exercise.
Distribution Channels
Companies can market their products directly to final consumers through methods such as setting up a chain of company outlets or employing their own sales force. However, this option is likely to prove more costly than selling through distributors when a large number of sales are involved.
Distributors are the chain of intermediaries who get the product from the producer to the final consumer. They can be broadly classified into:
- Distributors or wholesalers who sell to retailers
- Retail outlets that sell to the final consumers
- Agents who secure orders against a commission
Distributors also make their own contributions:
- Finance the company's inventories by buying and stocking merchandise
- Use their familiarity of local markets and their contacts to generate sales volumes
- Complement a producer's products with products from other producers to make up lots more preferred by retailers
Distribution Channel Management
Distribution channels need to be managed actively. Producers' task does not end once the merchandise is sold to the distributor. The distributors need to be motivated to focus on selling the company's products, and their performance monitored to check that sales volumes are adequate. Distribution management can take different forms such as adopting a mix of distribution channels (such as own sales force for larger customers and agents for smaller prospects), providing training and incentives to the the distributors and their personnel, and supporting their efforts through publicity campaigns.
Distributors have their own needs and the producer who sells through them have to meet these as well as the final customer needs. In fact, producers who can create an attractive channel value proposition, which is essentially a business model that helps the distributor operate with excellent profit potential, will be more effective in selling through them. Franchising can be seen to be such a business model.
Selling direct to consumers through mail order and Internet marketing is also an option provided an adequate back-end is in place to service all the numerous orders. Distribution on a global scale has been made feasible by the Internet. For small operations, even door-to-door selling might prove a worthwhile option.
The distribution business has become a major business with increasing globalization. In addition to supply chain distribution operators such as Blue Dart and DHL, there are players like Amazon and eBay who are facilitating distribution of products all over the world.
In the case of Business-to-Business marketing, direct selling is more likely to be used with the producer's sales executives selling direct to the business customers.
Channel Marketing for Services
Distribution channels are used not only for products but also for services, particularly for certain industries like hotels. Hotel rooms are booked through travel agents, tourist operators, airlines and others concerned with the travel industry. Often, the arrangement goes beyond mere distribution into an integration of services with each partner promoting the business of others.
Deciding on distribution channels is thus a strategic planning decision in modern commerce which is global in scale. Wholesalers and retailers relieve the producer of numerous tasks involved in getting the product to the final consumer. Distribution logistics is a major problem and only specialists with full facilities and contacts can do justice to the task of getting the right quantities of products to the right places at the right time on a global scale. In addition to logistical services, distributors provide other services such as financing inventories and using their local contacts
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