Deciding on a Distribution Channel

Deciding on a Distribution Channel

Distribution Channel The way a product reaches the consumer

Two categories of distribution channels Direct Indirect

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Deciding on a Distribution Channel

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 pricing structure 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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Deciding on a Distribution Channel

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 better quality 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 you pay 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 actual product or photographs? What is the pricing structure? What is the time frame for catalog production 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 from people 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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Franchise Agreements May Include Advertising Acquiring Supplies Management Training Protected Territory

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Franchise Agreements May Include 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 called sharing 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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Deciding on a Distribution Channel

Making Choices Consider: Opportunities available Appropriate for your business Delivery time frame Packaging for shipment Cost Keep up to date
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