The Distribution Mix
From the CEO's Desk
The Distribution Mix
Getting Your Product to Market
Let’s assume that you’ve got a product and it’s a good one, and you must decide the best way to get it to market. If you have an existing sales force in place, one question that arises is whether to give your present sales force a new product with which they may not be familiar. If they do not feel comfortable in the field, and if it takes away from their normal “bread and butter” sales, they will choose to ignore the product by not showing or selling it. Another important factor that can impact your distribution is whether your organization is a product or market-oriented company.
Means of Distribution
Some familiar means of distribution include:
Direct Sales Force – This method is used when the company has the financial, manufacturing and support services, offers varied, broad product lines, and has an established market share. Often, the competition uses the same method of distribution. Since a company’s direct sales force devotes most of their time to selling one product, one product line for one market, the closer customer contacts enable them to be sensitive to customer attitudes and loyalty. The disadvantages are fixed costs such as salaries, offices, training, paperwork, and possibly inventory storage. It is also time- consuming to recruit, train and supervise a direct sales force.
Manufacturer’s Representatives (Middlemen) – These people do not take title to goods; they have the manufacturer ship and bill directly. They usually sell a narrow range of products (often related to lines they already carry), work under a contractual agreement, and often must meet a specific quota in order to maintain the right to represent that company. They are paid on fixed commission or fee, and have limited authority over pricing and terms of sale. These are best utilized by smaller companies, smaller divisions of larger companies with a limited product line, where the existing sales force is overloaded with existing business or where the company is not well known.
Pros and Cons
Other types of middlemen include brokers, commission merchants, resident buyers and sales agents, each of whom operate slightly different from one another. The disadvantage of using manufacturer’s agents are a lessening control over the sales operation by the company and the absence of scarcity of written reports. This leaves a void in customer communications and information that could be helpful to the organization if known. Many manufacturer’s representatives insist that all customer dealings go through them to protect their accounts.
Distributors/Wholesalers are usually independent firms offering sales and other services and are structured vertically (carrying one product for one industry) or horizontally (carrying products used in many industries). They are a ready-made sales force, providing quick, national entry into a market with their experience and knowledge of local market conditions.
The disadvantages are again obvious—diminished control over sales activities by the manufacturer, and the offering of special “perks” (e.g. discounts, incentives, etc.) to keep them interested. There is also little control over market feedback, local promotion and inquiry handling.
In addition to the distribution channels previously discussed, there are other specialized channels available that meet specific marketing and company objectives. They include retailer cooperatives, franchise operations, private labeling, door-to-door, “club” plans, telemarketing and automatic vending.
Checklist for Selecting a Distribution Channel
- Match capabilities and resources of each channel with your company and your marketing objectives
- Target your markets and identify market segments you want to reach
- Determine your market and sales potential
- Solicit opinions of market and channels from executives within your company and from your customers
- Evaluate distribution channels used by competitors and why they were chosen
- Calculate the estimated cost per unit of each type of distribution method
- Analyze distribution channel mixes
- Determine the importance of each market to your operation