Distribution

Updated on March 26, 2024
Article byRutan Bhattacharyya
Edited byRutan Bhattacharyya
Reviewed byDheeraj Vaidya, CFA, FRM

Distribution Meaning

Distribution is a process of making goods and services available to end users or customers who require them. Its primary objective is to efficiently store and handle the products and supply them in the best possible condition to consumers in different locations.

Distribution

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Although a distribution channel’s length may vary, it usually includes a distributor, retailer, wholesaler, producer, and consumer. Companies must build an effective channel to form a long-standing relationship with the end users. To fulfill their objective, they can utilize indirect and direct distribution strategies. Choosing the right strategy is crucial for a business’s success.

Key Takeaways

  • Distribution refers to spreading products throughout a marketplace so consumers can purchase them in different locations.
  • There are primarily two types of distribution methods — direct and indirect. These two methods have certain sub-types, like selective and exclusive. Businesses must choose the right strategy to maximize sales.
  • A distribution channel’s length depends on the number of third parties or intermediaries required to get the products to consumers. The more intermediaries in a distribution network, the higher the company’s cost.
  • Distribution management involves specific activities, such as logistics and warehousing.

Distribution In Marketing Explained

Distribution refers to the flow of goods and services from the producer or manufacturer to the buyer or consumer. It is an element of place, a crucial marketing mix component. Businesses can improve customer retention by ensuring that the products reach the end users efficiently and easily.

The distribution channel is the chain of intermediaries or businesses through which the goods and services flow. This channel can be long or short, depending on the number of intermediaries necessary to make the goods and services available to consumers in different regions. That said, manufacturers earn lower profits if the channel is longer, as they must pay every intermediary involved in the distribution network.

Distribution management is fundamental to any business’s sales and involves various activities. Let us look at such activities in detail.

  • Warehousing: Warehousing means storing physical goods before further distribution or sale. Usually, large businesses rent a space particularly designed for storing goods. On the other hand, small businesses use a spare room, garage, or basement as a warehouse.
  • Packaging: Efficient packaging is crucial to ensure that the products reach the consumers in proper condition.
  • Order Processing: When a customer places an order, the distribution management must plan the delivery, which involves collecting the goods, loading them, and delivering them on time. Also, the distributor must generate an invoice after receiving the order.
  • Inventory Management: A company’s expenses can increase owing to overstocking. Moreover, an organization can lose customers if they do not have sufficient stock to fulfill orders. Hence, proper inventory management is crucial for any business.
  • Communication: All parties in a distribution network, for example, retailers and wholesalers, must communicate with each other to ensure that they are sending the right products. Moreover, clear communication also enables a company to provide consumers with an estimated delivery date.
  • Logistics: The mode of transport is one of the most crucial aspects that all companies must consider. If international shipping is necessary, they must get the required approvals as soon as possible. Also, businesses must plan the loading and unloading processes to have the required equipment available onsite.

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Distribution Types In Marketing

There are mainly two types of distribution strategies in business. They are as follows:

#1 – Indirect

In this case, the manufacturers or producers utilize intermediary entities and businesses that help logistically. In other words, these entities help the manufacturers get their products to the end users.

#2 – Direct

When manufacturers choose this strategy, they sell and ship their goods directly to the consumers without any third-party or intermediary involvement. That said, producers often need a warehouse to store the goods. Moreover, they may require a delivery process to get the products to the consumers.

There are multiple subdivisions of these two strategies. Let us take a look at them in detail.

  • Intensive – In this case, the producers aim to penetrate the market and reach as many customers as possible by selling their products to different sales outlets. Usually, manufacturers choose this strategy to sell affordable goods like household products, drink items, etc.
  • Exclusive – This strategy involves a manufacturer selecting only a few sale outlets to establish a certain level of exclusivity for a brand or item, for example, luxury goods or exotic vehicles.
  • Selective – This is a combination of exclusive and intensive strategies. This method gives manufacturers more locations to sell goods. At the same time, they can pick which stores to sell within. For example, a premium apparel manufacturer can select a certain retail department store to increase customer reach.
  • Reverse – In the case of this strategy, products flow back from consumers to the company. Additionally, businesses may use this method for refurbishing or recycling used products.   
  • Dual – This strategy combines direct and selective strategies to maintain direct sales with the consumers and expand market influence.  

Companies must consider certain factors to decide which strategy will be ideal for increasing customer reach and maximizing profit through sales. Such factors are as follows:

  • Product characteristics
  • Company characteristics
  • Competitor characteristics
  • Market characteristics

Examples

Let us look at some distribution examples to understand the concept better.

Example #1

In October 2022, American Airlines signed long-term contracts with three major distribution systems, Sabre, Travelport, and Amadeus. The main purpose of signing the new agreements is to offer customers straightforward ways to book airline tickets.

In addition, the contracts and the Fort Worth, Texas-based company’s New Distribution Capability or NDC technology will offer its customers more opportunities to access the organization’s content, including its elevated offers and ancillary products. As a result, customers can experience modern retailing.  

Example #2

Suppose an apparel company named XYZ wants to sell its products, which include t-shirts and shorts, at as many locations as possible to increase customer reach. Hence, it chooses to opt for the intensive distribution strategy via indirect and direct sale outlets.

XYZ sells its products online via its official website and ships them directly to consumers. Moreover, the company uses indirect methods to sell its products and maximize sales. In other words, it makes its products available to consumers via wholesalers and retailers. The following are some places from where individuals can buy XYZ’s products:

  • Retail stores
  • E-commerce websites
  • Supermarkets, etc.

Frequently Asked Questions (FAQs)

1. Why distribution channel is important?

Such a channel is crucial for delivering goods and services to consumers smoothly. A company needs to set up a network with efficient wholesalers and retailers to fulfill its orders on time.

2. What is distribution in business?

In business, this term means a payout of a company’s equity to the owners. This means that the amount comes from a business’s accumulated profits or the money that the shareholders previously invested in the organization.  

3. What is distribution policy?

This policy includes the measures taken by businesses from the stages of production to transport. It ensures that goods reach the correct channels and sale outlets within the product replenishment time and the planned launch.

4. Why is distribution management important?

It helps a company manage its supply chain, ensuring the products reach consumers faster. Moreover, it decreases the organization’s shipping charges. Therefore, companies must adopt an effective distribution management strategy for corporate longevity and financial success.

This article has been a guide to Distribution and its meaning. Here, we explain the distribution in marketing, its types, and examples. You can also go through our recommended articles on corporate finance –

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