Definition: The manner in which goods move from the manufacturer to the outlet
where the consumer purchases them; in some marketplaces, it's a
very complex channel, including distributors, wholesaler, jobbers
and brokers.
When deciding how to distribute your product, use the
traditional distribution model as a starting point. The
conventional distribution model has three levels: the producer, the
wholesaler and the retailer. This is a time-tested system with many
well-established members at all levels.
The conventional distribution model, however, calls for all
parties in the channel to protect their own best interests. Thus,
retailers are pitted against wholesalers, and wholesalers try to
best producers. This web of conflicting interests sometimes works
to the detriment of the entire system. For instance, a producer may
try to bypass the wholesaler and go straight to retailers,
prompting the wholesaler to retaliate by dropping the producer's
products.
The primary alternative distribution channel is direct
distribution. This is the model Dell, Avon and many other
successful companies use. It calls for you to sell and deliver your
product yourself, using your own salespeople and warehouses. Going
direct can cut significant costs from the system because you don't
have to provide a profit for intermediaries such as wholesalers and
retailers. But slicing two steps from the traditional distribution
channel tends to alienate wholesalers and retailers. Before you
decide to go direct, make sure you don't need these other channels
of distribution--because if you decide to use them later, they may
not be available to you.
There are many ways to modify traditional distribution. For
instance, as in the above example, a producer could use a two-level
distribution framework by selling direct to retailers and cutting
out only the wholesalers. A retailer could do the same thing by
going directly to manufacturers--this is one of the strategies
Wal-Mart has used so effectively. Look around at the many ways your
competitors and people in other industries set up their
distribution channels. One of these models may well be right, with
some modification, for you.
Often, your choice of a distribution plan will be dictated--or
at least strongly influenced--by various factors relating to your
product, your customers and the way they'll use it. For instance,
if your product--or the new one on which you hope to build your
growth plan--is perishable, then the need to provide refrigerated
storage and transport will significantly restrict your choices of
distribution methods. Size is another issue. If your product takes
up a lot of display space, this consideration will weigh heavily
when you're selecting ways to transport and display it. That's why
automotive dealerships are usually located outside central business
and shopping districts, where costs for display space for cars and
trucks would eat up profits.
Another concern when it comes to selecting a distribution method
is the way the product is purchased by consumers. For instance,
clothing shoppers usually want to try garments on before purchasing
them. So your means of distribution is going to have to include a
nearby fitting room, like the ones found in department stores. Many
products are best sold with the help of a live demonstration, so if
yours is one of those products, your distribution plan will have to
include some way of conducting these demonstrations. Multilevel
network marketing plans, for instance, often include excellent
opportunities to demonstrate products in front of live audiences.
If your product is often bought on impulse, then it will be better
off distributed in a manner that will display it in a high-traffic
area such as in the checkout line at a grocery store.
The characteristics of your customers may also dictate
distribution. If customers buy your product frequently, there'll be
more outlets for its distribution. Videotape rental stores
outnumber swimming pool contractors, for example, because people
may rent several videos a week but only build a new pool every few
years. The distance the customer is willing to travel to purchase
your product or service is another key consideration. If you have a
one-of-a-kind item in short supply and high demand, you may be wise
to limit distribution to your own location. This will give you
ultimate control over costs and pricing because highly motivated
customers will be willing to travel to you to get what they
want.