"Distributors must provide security and maintain product quality while in storage or in delivery to several carries and destination points, all at a cost effective price for both the supplier and customer." -American Fast Freight, Inc.
'Distribution' is one of the four aspects of marketing. A distribution business is the middleman between the manufacturer and retailer or (usually) in commercial or industrial the business customer. After a product is manufactured by a supplier/factory, it is typically stored in a distribution company's warehouse. The product is then sold to retailers or customers. The other three parts of the marketing mix are product management, pricing, and promotion.
The distribution channel
Frequently there may be a chain of intermediaries, each passing the product down the chain to the next organization, before it finally reaches the consumer or end-user. This process is known as the 'distribution chain' or, rather more exotically, as the 'channel'. Each of the elements in these chains will have their own specific needs; which the producer must take into account, along with those of the all-important end-user.
A number of alternative `channels' of distribution may be available:
- Selling direct (via a salesforce)
- Mail order (including Internet and telephone sales)
- Agent (who acts on behalf of the producer)
Distribution channels may not be restricted to physical products. They may be just as important for moving a service from `producer' to consumer in certain sectors; since both direct and indirect channels may be used. Hotels, for example, may sell their services (typically rooms) direct or through travel agents, tour operators, airlines, tourist boards, centralized reservation systems, and so on.
There have also been some innovations in the distribution of services. For example, there has been an increase in franchising and in rental services - the latter offering anything from televisions through to DIY tools. There has also been some evidence of service integration, with services linking together, particularly in the travel and tourism sector: for example, links now exist between airlines, hotels and car rental services. In addition, there has been a significant increase in retail outlets for the service sector; outlets such as estate agencies and building society offices, for example, are crowding out the traditional grocers and greengrocers from the high street
Distribution channels can, thus, have a number of `levels'. Kotler defined the simplest level, that of direct contact with no intermediaries involved, as the `zero-level' channel.
The next level, the `one-level' channel, features just one intermediary; in consumer goods a retailer, for industrial goods a distributor, say. In recent years this has been the level which, together with the zero-level, has accounted for the greatest percentage of the overall volumes distributed in, say, the UK; although the very elaborate distribution systems in Japan are at the other end of the spectrum, with many levels being encountered even for the simplest of consumer goods.
In the UK, a second level, a wholesaler for example, is now mainly used to extend distribution to the large number of small, neighbourhood retailers.
To the various `levels' of distribution, which they refer to as the `channel length', Lancaster and Massingham also added another structural element, the relationship between its members:
- 'Conventional or free-flow - This is the usual, widely recognized, channel with a range of `middle-men' passing the goods on to the end-user.
- Single transaction - A temporary `channel' may be set up for one transaction; for example, the sale of property or a specific civil engineering project. This does not share many characteristics with other channel transactions, each one being unique.
- Vertical marketing system (VMS) - In this form, the elements of distribution are integrated.