Marketing

Chapter 11
Distribution

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Learning Objectives

After studying this chapter you should be able to:

11.1 Describe the concept and value of distribution in

marketing
11.2 Analyze distribution channel strategy decisions
11.3 Understand distribution channels
11.4 Understand supply chain and logistics management

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The Value of Distribution (1 of 7)
• Describe distribution in marketing
Figure 11.1 The Evolution of Distribution and Communication
in the Modern World

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The Value of Distribution (2 of 7)
• Understand elements of distribution

– Distribution

– Intermediary
1. Third-party intermediary
2. Wholesaler
3. Warehousing
4. Distributor

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The Value of Distribution (3 of 7)
• Understand elements of distribution (continued)
•
– Intermediary (continued)

5. Retailer
6. Rack jobber
7. Agent
8. Broker
– Sales force
– Supply chain
– Logistics

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The Value of Distribution (4 of 7)

• Analyze the value of distribution

– Form value
– Place value
– Time value
– Access value
– Control value
– Promotional value
– Financial value

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The Value of Distribution (5 of 7)
• Analyze the value of distribution (continued)

– Customer service value

– Information value
– Price/margin value
– Expertise value
– Legal/regulatory/licensing value
– Security value
– Storage value

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The Value of Distribution (6 of 7)
• Analyze the cost of distribution

– Form cost
– Place cost
– Time cost
– Access cost
– Control cost
– Promotional cost
– Finance cost

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The Value of Distribution (7 of 7)
• Analyze the cost of distribution (continued)

– Price/margin
– Customer service cost
– Information cost
– Expertise cost
– Legal/regulatory cost
– Loss, damage, theft cost
– Storage cost

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Distribution Channel Strategy (1 of 10)
• Discuss choosing a distribution system

– Product considerations
– Organizational considerations
– Customer considerations
▪ Industry/company control
▪ Government control
▪ Regulatory control
▪ Special handling conditions
– Consumer considerations

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Distribution Channel Strategy (2 of 10)
• Understand intensity of distribution

– Intensity of distribution — How focused, widespread, or

exclusive marketers choose to be in using distribution to
further their marketing goals (see Figure 11.2)

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Distribution Channel Strategy (3 of 10)
• Understand intensity of distribution (continued)
Figure 11.2 Categories of Distribution Intensity
Level of Definition Characteristics
Intensity
Broad or Mass Widely available in through different forms of • Large or varied consumer target
distribution. • Well-known products and brands
• Little service, education, or
handling required
• Many third-party intermediaries
required
• Lots of competition
• Producers have little power
• Producers invest very little in
making the distribution system
• a key part of the marketing
activities
• Wide range of product categories
available
• Distribution strategy is designed
to make as much product
• available to as many consumers
Helen Sessions/Alamy Stock Photo as possible everywhere.

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Distribution Channel Strategy (4 of 10)
Level of Definition Characteristics
Intensity
Selective Limited, tightly controlled • Generally large consumer target
• Products are more highly valued
than others in category, with a
strong brand presence and loyalty
• Producers may be able to wield
significant power when product is
in demand; however, in other
cases the distributors may hold
significant power due to the value
of each limited point of distribution
• Producers invest resources in the
distribution plan to improve its
value as part of the marketing
plan
• Less competition than for mass
distribution, but still very intense
• Offers a less broad range of
product categories to a narrower
Deborah Baic/The Globe and Mail/The CP Images consumer target
• Usually high levels of service,
exclusive products, or first
availability of certain products
• Distribution strategy is to make
the product available but use
select intermediary partners to
add value.

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Distribution Channel Strategy (5 of 10)
Level of Definition Characteristics
Intensity
Exclusive Very small number of distribution points • Very select group of consumers
• Product line is unique, custom,
limited
• Producers have significant role
and power, and often have full
control over the channel
• Usually very “high touch”—a lot of
personal service required and
provided
• Often distribution is handled by
the manufacturer/producer with
no third-party intermediary
• Consumers expect extremely
knowledgeable staff
Cummins, Richard/SuperStock/Alamy Stock • Product may have no competitors
Photo (or a very select few) and likely no
other product categories available
• Distribution strategy is designed
to add value to the product
through its scarcity, limited
availability, and exclusive access.

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Distribution Channel Strategy (6 of 10)
• Understand vertical distribution systems

– Vertical distribution — The process and structure

through which products pass from the producer or
supplier to the consumer

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Distribution Channel Strategy (7 of 10)
• Understand intensity of distribution (continued)
Figure 11.3 Independent Vertical Distribution Model

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Distribution Channel Strategy (8 of 10)
• Understand vertical distribution systems (continued)

– The independent model is common for the following

reasons:

1. Vision/mission
2. Capabilities/resources
3. Risk
4. Speed to scale
5. Legal/regulatory
6. Industry structure

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Distribution Channel Strategy (9 of 10)
• Understand vertical distribution systems (continued)

– There are three other alternatives:

▪ Integrated vertical distribution (see Figure 11.4)

▪ Contractual vertical distribution
▪ Administered vertical distribution

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Distribution Channel Strategy (10 of 10)
• Understand vertical distribution systems (continued)
Figure 11.4 Integrated Vertical Distribution Pros and Cons

Pros Cons
• Full control • Requires broader skill set
• Better management of inventory • Requires commitment of greater
financial resources
• Competitive advantage • Fewer back-up options
• Better control of pricing • May be legally challenged if
considered unfair
• Strengthens brand identity • May inhibit speed of growth,
allowing competitor an advantage

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Managing Distribution Channels (1 of 13)
• Understand managing distribution channel conflict
Figure 11.5 Examples of Distribution Network Options

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Managing Distribution Channels (2 of 13)
Figure 11.6 The Nature of Distribution Channel Conflict
Conflict Issues Possible Resolutions
• Supplier Is • When producers or suppliers • Fair and equitable—
also sell directly to consumers ensure all players
Competitor through their own physical (including owned
retail outlets, a factory store, or channels) offer
company website: identical pricing and
• They compete with their product offerings
distributors • Develop special deals,
• Distributors are concerned that offers, or products
the organization might offer exclusive to a
better pricing and product particular channel
availability
• Distributors resent the role they
have played in helping to
develop the market for the
product, and feel that their
efforts are being undermined

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Managing Distribution Channels (3 of 13)
Conflict Issues Possible Resolutions
Distinction • Some channels want suppliers or • It is possible to offer other
between producers to support their channels similar but not
Channels – channel “identity” with unique identical product size
Product products and offerings. offerings so that their needs
• For example, big-box “club” are served.
stores, like Costco, offer • In some cases the problem
consumers lower pricing per unit resolves itself, as channel
on products by offering large members may find that their
sizes. They may wish to use their customers are not looking
channel power to maintain these for the sizes available in
unique items for their stores other channels.
alone.
• Similarly, in some parts of the
world, where people have little
disposable income, unique
single-serve or smaller packages
are required.

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Managing Distribution Channels (4 of 13)
Conflict Issues Possible Resolutions

Distinction between • A channel that emphasizes low Fair and equitable pricing
Channels – Pricing pricing may seek to negotiate prices regulations preclude charging
that allows it to claim competitive different prices to different
pricing compared to other channels. customers, but there are legitimate
ways to deal with it:
• Setting price brackets by volume
so larger channel members all
share better pricing
• Applying “in-kind” funds typically
used for promotional or other
activity to pricing instead
Distinction between • Not every channel promotes in the • Similar to the pricing solution,
Channels – same ways or to the same extent “in-kind” payments or activities
Promotion (e.g., there are no “displays” in an may be offered so all channel
online store). members get equal treatment.
• Even where channels do promote, • Sometimes unique promotional
they may seek distinction from other offerings need to be created for
competitors. each channel. The difference
can be as small as offering a
different destination for a
vacation sweepstakes or a
different in-store giveaway.

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Managing Distribution Channels (5 of 13)
Conflict Issues Possible Resolutions
Too Many • Not only do channel members • How concentrated or broad
Channels fear too many competitors in their the producer/supplier wishes
own channel, the are concerned its distribution to be is a
about a product being too widely strategic decision (see
available, thereby reducing the section 11.2.2).
power and influence of any one • Organizations must be very
channel and spreading the conscious and considerate
product availability so broadly of the implications, benefits,
that no channel feels distinct. and risks of broadening their
distribution base.
Internal Conflicts • In a large organization, different • It is critical that organizations
sales or account groups may be develop channel strategies
responsible for different internally to identify and
channels. distinguish the role that each
• A group may feel that other channel plays as part of the
members of their own organizational plan, and to
organization impede the success ensure that their strategies
of their objectives. can work in harmony, not
conflict.

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Managing Distribution Channels (6 of 13)
• Identify distribution channel issues

– Technology ― product movement (see Figure 11.7)

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Managing Distribution Channels (7 of 13)
• Identify distribution channel issues (continued)

Figure 11.7 Technological Changes Impacting Product

Movement
Speed All modes of transportation have seen dramatic improvements in the speed of
operation, from sailing ships to powerful supertankers, and from reliance on
human or animal power to automobiles, trucks, trains, and airplanes.
Efficiency Standardization, discoveries, and innovations in transportation technology
have improved efficiency, lowered costs, and improved the overall quality of
distribution, allowing more goods to be sent to more places for less money with
less damage.
Distance By improving speed, size, and efficiency of modern transportation techniques,
and improving transportation routes—better roads, more railways, canals that
allow large ships to cut days or weeks off their routes—technology has
improved access among points of distribution.
Volume Speed and efficiency have not been achieved by reducing size and scale.
Better technology, higher quality materials, and improved production methods
mean that modes of transportation have all increased their abilities to handle
large quantities of items to better satisfy demanding markets.

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Managing Distribution Channels (8 of 13)
Safety/Security While the distribution channel is still targeted by robbers and thieves,
improvements in security, counterintelligence, and weaponry have greatly
reduced the impact of criminal activity on the distribution system.
Interconnectivity Modes of transportation and components of the distribution system are now
structurally and technologically connected
Reliability While weather, labour strikes, natural disasters, and the like continue to impact
the speed and reliability of distribution, great technological strides have been
made to improve the reliability of transport, including reliable delivery times.
Product Handling One of the most important factors in distribution is ensuring that products arrive in
a consumer-sellable state—undamaged, unbroken, fresh, uncontaminated, and,
in the case of food, compliant with health regulations. Advances in handling
products have reduced the damage, destruction, and wear and tear on distributed
items.
New Product One of the most interesting challenges that developers and marketers of new
Categories products consider is how best to distribute. It may seem odd now to think that
photocopiers and computers would be considered as part of the same category,
but when the first of each of these machines came out, they were marketed and
distributed along with typewriters and paper shredders as “Office Equipment.” At
the time, no one considered a consumer channel for computers. (There is still no
consumer channel for photocopiers and typewriters are extinct.) The distribution
function needs to determine and adapt their strategies when considering new
categories.

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Managing Distribution Channels (9 of 13)
• Identify distribution channel issues (continued)
– Technology – connectivity

Figure 11.8 Technological Changes Impacting Connectivity

Tracking Increased use of computer technology—bar codes,
scanners, GPS tools, radio frequency identification tags,
and the like—have made it easier for those in the
distribution network to track items—where they are, where
they are going, and whether there are any issues or
delays.
Integration among It has become much easier through the use of web tools,
Players shared software, and integrated systems for different
players in the distribution network to communicate, align,
plan, coordinate, and communicate with one another,
increasing efficiency and reducing errors.

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Managing Distribution Channels (10 of 13)
• Identify distribution channel issues (continued)
– Consumer trends

Figure 11.9 Consumer Trends Impacting Distribution

New Markets Nothing has had a greater impact on the distribution world than
the changing nature of markets around the world. The rise of
wealthy and middle-class groups in historically underdeveloped
nations like China and India (which, combined, account for one-
third of the world’s population) are changing both what and where
products are distributed.
E-commerce The impact of e-commerce on distribution has been dramatic. The
changing nature of retail (covered in Chapter 12) has had a
related impact on the nature of distribution. Most significantly, the
increase in online sales increased distribution directly to
consumers, causing the rise of large, centralized, warehouse hubs
over smaller, regional distribution centres and retail outlets.

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Managing Distribution Channels (11 of 13)

Consumer The distribution expectations of the new generation of

Expectations consumers are much higher with regard to where and
when products are available. Consumers are also much
more comfortable with the concept of distribution being
“two way”— they expect the ability to return items to be as
seamless and efficient as the delivery.
Lifestyle Overall, it is not surprising that the richest man in the world
is in distribution; more consumers are getting more
products distributed (delivered) directly to them than ever.
Busier, not at home, and with no time to shop or cook,
consumers look to distribution to help make their lives
easier.

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Managing Distribution Channels (12 of 13)
• Identify distribution channel issues (continued)
– Societal issues

Figure 11.10 Societal Issues Impacting Distribution

Environmental While distribution involves much more than just
Impact transporting goods, the physical act of moving products
from one place to another is the central component of the
activity. The more goods that are transported, the farther
they go, the greater number of consumers they reach—
these all contribute to the environmental impact associated
with distribution: pollution from vehicles, pipeline and oil
tanker leaks, the environmental impact on the sea and land
of building ports, canals, train tracks, and roads. Airline
transport has the environmental impact of noise in our
environment. All such factors affect a broader range of
individuals than the key players in the organization.

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Managing Distribution Channels (13 of 13)
Traceability One of the most creative and impactful uses of distribution technology is in
product traceability. Whether it is a food consumer who wants to trace the
source of their produce and animal products back to a particular farm in
order to assess the ethics and quality of its handling and raising, or a
buyer of a valuable diamond seeking to ensure that it has not been
sourced in a manner that supports brutal political regimes and
unimaginable working conditions, the distribution system is being
challenged to not just make product available, but to be able to trace its
source.
Impact on Local One of the major criticisms of global distribution is its impact on traditional,
Industry local, or regional distributors. In many cases, these distribution systems,
set up decades ago when all parties relied much more on personal
relationships than technology, have found themselves poorly positioned to
compete against large, efficient, technologically advanced competitors. As
a result, as distribution grows, it also tends to be concentrated on fewer,
dominant players.
Outsourcing/ Outsourcing or offshoring, whereby major manufacturers and marketers
Offshoring seek places in the world to produce their goods that offer cheap, available
labour with less rigorous oversight, benefit requirements, and overall
working standards, does not only affect the nature of local production. It
has social implications for consumers who care about the quality of the
working conditions under which their products are produced.

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Supply Chain and Logistics
Management (1 of 9)
• Discuss the supply chain
– Key areas of focus of the supply chain function
Figure 11.11 Overview of Supplier’s Relationship to the
Producer

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Supply Chain and Logistics
Management (2 of 9)
• Discuss the supply chain (continued)

– Forecasts
– Timing
– Transportation, distribution, and warehousing
– Order processing
– Disruptions
– Inventory management

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Supply Chain and Logistics
Management (3 of 9)
• Discuss supply chain logistics

– Logistics ― The managerial process of tracking,

coordinating, planning, and executing all parts of the
supply chain, from materials and ingredients ordering
through production and distribution

– Logistics management ― Encompasses everything from

scheduling to ordering to transportation, physical
distribution, storage, inventory management, and all of
the elements that make each of those phases work

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Supply Chain and Logistics
Management (4 of 9)
• Discuss supply chain logistics (continued)

– Methods of transportation

▪ Data entry/order processing

▪ Tracking
▪ Handling
▪ Customs
▪ Brokers/agents
▪ Clearances
▪ Insurance
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Supply Chain and Logistics
Management (5 of 9)
• Discuss supply chain logistics (continued)

– Modes of transportation (see Figure 11.12)

▪ Reliability
▪ Cost
▪ Speed
▪ Accessibility
▪ Capability

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Supply Chain and Logistics
Management (6 of 9)
• Discuss supply chain logistics (continued)

Figure 11.12 Overview of Various Modes of Transportation

and Distribution
Mode Reliability Cost Speed Accessibility Capability
Truck Moderate Moderate Moderate Great Great
Air Moderate High High Limited Limited
Ship Moderate Low Low Limited High
Rail Good Low Moderate Limited High
Pipeline Excellent Low Moderate Very limited Very limited
Online Excellent Very Low Very High High Limited

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Supply Chain and Logistics
Management (7 of 9)
• Discuss the future of distribution

• To understand the future of distribution, we must look at its

current challenges (see Figure 11.13)

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Supply Chain and Logistics
Management (8 of 9)
• Discuss the future of distribution (continued)

Figure 11.13 Challenges of Distribution

Challeng Issues Possible Solutions
e
Reach • Consumers demanding • Drone and robotic cart delivery—while the
greater access to goods issues are huge, some organizations and
• Cost of housing in major areas are already experimenting with direct
cities forcing many delivery using drones or smart sidewalk
consumers into outlying robots
areas • Currently being implemented to deliver
emergency medical supplies to stranded or
isolated patents
Costs • Any way to reduce • Driverless vehicle technology may one day
distribution costs makes it make it possible for trucks (and even trains)
more profitable and more to operate without people, allowing for
viable for more applications reduced costs and longer runs

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Supply Chain and Logistics
Management (9 of 9)
Challeng Issues Possible Solutions
e
Speed • Getting product to online • 3D printing can reliably reproduce (or custom
consumers is still slowest make) an increasing variety of products
part of process • Consumers may soon be able to download
designs and have their home printer produce
the product immediately
Shopping • Less physical retail • More delivery options, including secure
• More consumers seem less delivery boxes and doors in homes
interested in a physical • The rise of pick-up depots where consumers
shopping experience can retrieve the products they have ordered
online
New • Traditional sources for • Increasingly, Asian companies look to Africa
Markets, cheap finished goods, like as the next area for development as a source
New China and India, are of finished goods
Sources increasingly becoming • Smart global marketers look to China and
consumers of finished India as growth markets for their products
goods
• New sources of cheap
goods need to be found

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Summary

• The elements, value, and costs associated with distribution

have been explored
• Issues associated with choosing a distribution system have
been discussed
• Intensity of distribution has been discussed
• Vertical distribution systems have been explained
• Managing distribution channel conflict has been explored
• Distribution channel issues have been identified
• The supply chain and supply chain logistics have been
discussed
• The future of distribution has been explored

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Mini Case: Everything old is new
again
1. The case discusses how many of the concepts of
distribution that we think are quite new, are actually quite
old, just updated. Speak to a family member who has
used an older distribution method like a catalogue. What
was their experience? How different or similar is their
experience from your own experience using modern digital
technology for distribution?

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Mini Case: Ever dreamed of opening a
franchise?
1. Students should work in their groups to review how many
of their favourite distribution outlets are part of a franchise.
Pick one or two and research what it takes to become a
franchisee – costs, experience, training, time, etc.

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Mini Case: Virtual/ghost restaurants
1. It is arguable that COVID-19 has impacted not just the
health of Canadians, but how we relate to our suppliers. At
the height of the Spring 2020 wave, many points of
distribution closed, and those that stayed open had many
restrictions. Do you foresee these trends continuing into
the future – will we see more “ghost restaurants” as
people not only seek variety and convenience in their food
choices, but safety and social distance?

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Mini Case: Shipping containers
1. Seems like this little box is hardly worth any attention at
all, let alone being characterized as the most important
factor in modern distribution. Yet, if you think about it and
do research, it is clear that shipping containers have far
reaching impacts. Can you discuss them?

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