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Roberto Vona » 12.Retail distribution policy

Lesson content

Learning outcomes

Provide an overview of the way distribution choices facing manufacturers have evolved.

Lesson content

  • Relationship between manufacturing companies and distribution companies revisited;
  • Distribution choices available to manufacturing companies;
  • Procedure for planning the whole distribution system;
  • Choosing the right distribution channel for the product;
  • Evaluating distribution channels: cost and level of investment;
  • Management of multiple distribution channels;
  • Factors influencing the choice of commercial partners;
  • The possibility of not having to “choose” a distribution channel: production for commercial brands, marketing consortiums, producers’ distribution networks;
  • Micro and macro measures of distribution channel performance;
  • Increased specialization on part of operator and their role in overall channel performance.

Evolution of the manufacturing-distribution relationship

The role of channel leader is increasingly in the hands of larger retailers.

Collaborative relationships set up between subjects at different points along the chain. Distribution has evolved from being a means of transferring information collected during the sales process, to becoming one of the creators of the information. Manufacturers are trying to gain greater control over information sources, with downstream integration or ICT sharing with operators further down the chain.

Manufacturing distribution policy

Within the manufacturing industry, distribution policy is more or less free depending on the market structure served by the company and the strength of its brand:

  • Smaller, weaker companies struggle to gain access to distribution;
  • Distribution companies fight for the custom of larger, more famous manufacturers;
  • Distribution policy needs to interact with other marketing policies.

Fundamental decisions for manufacturing companies

The process of defining a distribution policy rests on three fundamental decisions:

  • the level of contact with the market (as far as wholesale, as far as retail, directly to the end consumer);
  • the intensity of distribution (selective or extensive);
  • the selection of the specific companies to entrust the product to.

The process of determining the whole distribution chain, therefore, can be broken up into three consecutive phases:

  • determining the most suitable type/es of distribution to respond to the need for goods or services on the part of a/the particular market segment/s chosen in accordance with corporate objectives.
  • Finding and choosing the individual operators to constitute the channel.

Evaluation of distribution alternatives

To evaluate the different alternative forms of distribution, companies use a set of criteria, as well as quantitative (economic-financial) and qualitative (checking demand, prestige and notoriety) indicators for effectiveness and efficiency.

  • Cost and investiment are fundamental indicators.

Evaluation needs to take the economic potential of the alternatives into account.

  • It should be remembered that any distribution policy may require the use of multiple channels, and each of these may involve a number of “tributary” operations, with relative costs associated with all the different components.

An analysis of the different channels based on economic-financial criteria, forms the quantitative basis on which the business can make its choice. Other more qualitative considerations can then come into play. One of the most important of these is the extent to which changes in consumer patterns are followed, and the variety and variability of market needs.

Evaluation of distribution alternatives (cont.)

The choice of distribution formula may also be dictated by the need for promotion (prestige and notoriety to be gained from logo-brand sharing) or for differentiation (better quality of sales service).

Computer use

Multiple distribution channels tend to be used in the following circumstances:

  • goods included in the product range are different in character (type, quality, life-cycle phase);
  • different market segments which require different mixes of goods and services;
  • plurality of brands (premium brand, one or more secondary ones);
  • different sales areas have different economic potential.

Study material

Business partners and market coverage

Factors generally taken into consideration when choosing distributors are:

  • financial reliability;
  • image and commercial competence (trust, technical competence, market knowledge and position);
  • marketing policies most commonly-adopted;
  • market area served (market coverage), and minimum amount of guaranteed business.
The level of market coverage

The level of market coverage

Distribution channels

Combining  trade marketing with consumer marketing allows for new forms of collaboration within distribution channels based on new and efficient management approaches, that aim to increase the value that can be derived from distribution. Every channel is a system made up of linked and interconnected parts whose coordinated, non-conflictual working towards the same goals, means that the whole system can gain competitive advantage over the competition based on cost leadership and differentiation.

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Progetto "Campus Virtuale" dell'Università degli Studi di Napoli Federico II, realizzato con il cofinanziamento dell'Unione europea. Asse V - Società dell'informazione - Obiettivo Operativo 5.1 e-Government ed e-Inclusion

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