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Select your languageSuggested languages for you: Did you know that most companies don't sell products on their own or use intermediaries? These are the merchants who buy and resell the company's products to the end consumers. Intermediaries are also an important link in a company's distribution channel. To learn more about the role of intermediaries and how companies distribute their products, let's dive in and learn about distribution decisions. Distribution Decisions DefinitionThere are two main processes in supply chain management: downstream and upstream. The upstream process sources materials for production, while the downstream process focuses on bringing the product to consumers. Distribution decisions belong to the downstream process. Distribution decisions refer to all decisions that ensure the efficient delivery of goods and services to the end user. We often think of distribution as delivering physical products such as clothes, vegetables, and bakeries, but distribution also impacts services (e.g. consulting, dry cleaning) and digital content (e.g. streaming music, TV programs). While online distribution brings companies the opportunity to reach more people, it faces many same issues as offline distribution—for example, choosing the right product for sales or converting prospects into buyers. One major distribution decision is choosing distribution channels. Distribution channels are paths that a product goes through, from the manufacturer to the end-user. Main distribution channels include wholesalers, retailers, brokers, and delivery companies. The purpose of distribution channels is to ensure the timely arrival of goods and prevent delayed sales. Distribution channel decisions refer to selecting distribution types, levels, and strategies. Distribution is also one of the four marketing mix elements. As a result, it can significantly impact a product's positioning, pricing, and promotion:
International distribution decisionsInternational distribution decisions are one of the strategic decisions made by global companies. The decisions include choices of products to sell overseas, the difficulty in delivery, and the degree of control the company wants to have over the selling process. There are three ways to distribute your products in the foreign market:
Types of distribution decisionsThere are four types of distribution decisions: Direct sellingIn direct selling, the product goes directly from the producer to the customers. An example is a local bakery that sells bread directly to people in the neighborhood. It's hard for companies with a direct channel to scale quickly as a producer is the sole distributor. However, the perks are that they can offer faster delivery service and don't have to pay commissions for intermediaries. A commission is a fee for a service. It is often calculated as a percentage of the total cost. Indirect sellingIn indirect distribution channels, products are delivered by intermediaries. These intermediaries can be wholesalers, retailers, or brokers. An example is a chocolate maker distributing chocolates in grocery stores. The indirect distribution offers a wider customer reach while saving the producer a lot of time and effort in distribution. However, manufacturers will have less control over the selling process and must split pay commissions to intermediaries. Dual distributionDual distribution is the combined strategy of direct selling and selling through intermediaries to maximize product reach. An example is M&M chocolate which can be purchased at both M&M's own stores and retailers like supermarkets, department stores, gas stations, etc. Reverse channel distributionReverse channel distribution is the channel where products flow from consumers back to retailers and manufacturers. Examples of reverse channels include containers (e.g. bottles, wine glasses) being returned to the store after use, and faulty products being recalled (withdrawn from the market). Distribution Channel DecisionsDistribution channels can be split into 4 levels: Distribution: Zero-level channelA direct distribution channel is called the zero-level channel. Goods are delivered directly to the customers, without intermediaries. Some examples include selling in brand stores and taking orders through the hotline or the company's website. This strategy works well for perishable goods or expensive goods where the consumer point is close to the manufacturers. One-level, two-level, and three-level channels are indirect channels. In these channels, goods travel from manufacturer to consumer through one or many levels of intermediary: Distribution: One-level channelRetailers buy goods from the manufacturer and sell them to the customers. The one-level channel is often used for products such as clothing, toys, furniture, etc. Distribution: Two-level channelWholesalers buy the products in bulk from the manufacturer, and sell smaller batches to the retailer who later markets them to the end-user. The two-level channel applies to durable, inexpensive goods. Distribution: Three-level channelCompanies make use of three-level channels when there's high demand for a product throughout the country. Agentsare split into stockist agents, and carrying and forwarding agents. Stockist agents keep stock on behalf of the company and sell them to wholesalers in the area. Caring and forwarding agents only provide the warehouse and shipping expertise for the order process and they work on a commission basis. Distribution Decisions StrategyDepending on the level of penetration, are three main strategies to distribute a product in the market: Intensive distributionThe intensive distribution channel is used for distributing common consumer goods. Intensive distribution is when companies distribute their products through a large number of outlets. Intensive distribution works well for mass production and cheap-cost products such as milk, meat, clothes, or cosmetics. With this strategy, the company tries to cover as big a market as possible. An example is Heineken beer being sold in supermarkets, restaurants, and pubs. Selective distributionThe distribution of higher-value goods is often handled in selective channels. Selective distribution is when companies select a few outlets to distribute their products. The selective outlets are chosen for their reputation and are responsible for marketing the product to the customers. The strategy is suited for specialized products such as technology or fashion. Sony TVs and Zara are brands that adopt the selective distribution method. Exclusive distributionVery high-end products are distributed in exclusive channels. Exclusive distribution is when companies reserve the distribution to one store chain. Products for exclusive distribution are often expensive and target middle- or high-income customers. The producers are also well-established brands in the market. AT&T is the sole distributor of iPhones to the end customer. Gucci and Lamborghini also reserve exclusive distribution to one distributor.
Table 1. Intensive, selective, and exclusive distribution, StudySmarter Originals Factors affecting distribution decisionsFactors influencing distribution decisions can be grouped based on the product, market, customer, manufacturer, and middlemen (intermediaries). The nature and type of product that influence distribution decisions include:
Based on the type of market, different distributions decisions may be made:
The type of customers may also impact how a product is distributed:
The size and position of the manufacturer are other factors influencing the middle choice:
Finally, the middle's cost and effect on sales should be considered when determining distributing channels:
This is quite a long post, but we hope you've learned something new about distribution decisions and channels in the business. Before you go, why not take our quiz to test your knowledge of distribution? Distribution Decisions - Key takeaways
Frequently Asked Questions about Distribution DecisionsA distribution decision is a decision that ensures the efficient delivery of products to the end consumer. An example of a distribution decision is a company choosing the distribution channel for distributing its products. For example, Heineken uses an intensive channel for distribution. Heineken beer is distributed in many places such as stores, restaurants, pubs, etc. The four types of distribution are:
Commission paid to middlemen can affect the price of the goods. Also, local goods may be less expensive than foreign goods as they have a shorter distribution channel. When making decisions regarding distributions, a business has to consider aspects such as the product type, market conditions, customer demand, the company's size and financial position, and the effectiveness of middlemen. Final Distribution Decisions Quiz
Question What is a distribution channel? Show answer Answer A distribution channel is a path that a product goes through from the manufacturer to the end user. Show question
Question What is the purpose of distribution channels? Show answer Answer The purpose of distribution channels is to ensure the timely arrival of goods and prevent delayed sales. Show question
Question Give examples of distribution decisions Show answer Answer
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Question International distribution decisions are one of the strategic decisions made by... Show answer
Question What are 3 ways to distribute products in foreign markets? Show answer Answer
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Question Sales and distribution are closely related processes. Show answer
Question Name 4 types of distribution decisions Show answer Answer
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Question Direct selling means selling products through an intermediary. Show answer
Question The combined strategy of direct selling and selling through intermediaries is called... Show answer
Question In reverse channel distribution, products flow from consumers back to retailers and manufacturers. Show answer
Question Give an example of reverse channel distribution. Show answer Answer recycling containers such as bottles and wine glasses are sent back to the manufacturer by the customer. Show question
Question What type of distribution channel does a 'product recall' belong to? Show answer Answer Reverse channel distribution Show question
Question How many levels of distribution channels are there? Show answer
Question What is the difference between intensive and selective distribution strategies? Show answer Answer Intensive distribution is when companies distribute their products through a large number of outlets. Selective distribution is when companies select a few outlets to distribute their products. Show question
Question Selective distribution is suitable for... Show answer
Question Name 3 types of distribution strategies. Show answer Answer
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Question Intensive distribution method aims to release products in as many stores as possible. Show answer
Question Give examples of 2 companies that use selective distribution Show answer
Question Give examples of 2 companies you know that use exclusive distribution Show answer
Question Milk, meat, everyday clothes, and cosmetics are examples of products that are distributed intensively. Show answer
Question Products for exclusive distribution tend to be ... Show answer Answer high-end or produced by reputable brands. Show question
Question Selective distribution means distributing products in ... Show answer Answer one or few stores in each country Show question
Question Exclusive distribution is served for ... Show answer
Question What does exclusive distribution mean? Give an example! Show answer Answer Exclusive distribution is when companies reserve the distribution to one store chain. AT&T is the sole distributor of iPhones to the end customer. Show question
Question What are the responsibilities of agents in Level 3 distribution channels? Show answer Answer Agents are responsible for keeping stock on the company's behalf, carrying, and forwarding goods. Show question Discover the right content for your subjectsNo need to cheat if you have everything you need to succeed! Packed into one app!Study PlanBe perfectly prepared on time with an individual plan. QuizzesTest your knowledge with gamified quizzes. FlashcardsCreate and find flashcards in record time. NotesCreate beautiful notes faster than ever before. Study SetsHave all your study materials in one place. DocumentsUpload unlimited documents and save them online. Study AnalyticsIdentify your study strength and weaknesses. Weekly GoalsSet individual study goals and earn points reaching them. Smart RemindersStop procrastinating with our study reminders. RewardsEarn points, unlock badges and level up while studying. Magic MarkerCreate flashcards in notes completely automatically. Smart FormattingCreate the most beautiful study materials using our templates. Sign up to highlight and take notes. It’s 100% free. This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Privacy & Cookies Policy Which distribution consists of the manufacturer placing the goods or services in as many outlets as possible?An intensive distribution strategy involves selling a product in as many outlets as possible.
Which method is used to distribute directly from the manufacturer to the customer?In a direct distribution channel, the manufacturer sells directly to the consumer. Indirect channels involve multiple intermediaries before the product ends up in the hands of the consumer.
What are the 4 main distribution channels?There are four types of distribution channels that exist: direct selling, selling through intermediaries, dual distribution, and reverse logistics channels. Each of these channels consist of institutions whose goal is to manage the transaction and physical exchange of products.
What is the path of distribution when a product is sold from the manufacturer to the consumer?A distribution channel is the path used to get a product from the manufacturer or creator to the end user. In other words, how the customer gets their product after purchase, which often include intermediaries. Distribution channels can be long or short, direct or indirect.
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