Chapter 9 – Place (Distribution) Strategy
- Describe the factors that affect a company’s channel decisions.
- Explain how intensive, exclusive, and selective distribution differ from one another.
- Explain why some products are better suited to some distribution strategies than others.
Channel Selection Factors
Selecting the best marketing channel is critical because it can mean the success or failure of your product. One of the reasons the Internet has been so successful as a marketing channel is because customers get to make some of the channel decisions themselves. They can shop virtually for any product in the world when and where they want to, as long as they can connect to the Web. They can also choose how the product is shipped.
Type of Customer
Online stores aren’t the best channel for every product and for all customers. Some customers shopping for fruits and vegetables want to examine them before they buy to make sure these products are ripe enough or not overripe. These customers won’t trust someone else to make the selection for them. If the customer description presented here fits how you feel about your produce, then online grocery shopping might not be for you. Clearly, how customers want to buy your products will have an impact on the channel you select. In fact, it should be a prime consideration.
Consider whether you are selling to consumers or businesses? Generally, these two groups must be sold to differently. Most consumers are willing to go to a grocery or convenience store to purchase toilet paper. The manager of a hospital trying to replenish its supplies would not. The hospital manager would also be buying a lot more toilet paper than an individual consumer. They would expect to be called upon by a distributor, but perhaps only semiregularly. Thereafter, the manager might want the toilet paper delivered on a regular basis and billed to the hospital via automatic billing systems. Likewise, when businesses buy expensive products such as machinery and computers, or customized products, they generally expect to be sold to, via salespeople. Larger companies or those buying large quantities will expect special payment terms.
Type of Product
The type of product you are selling will also affect your marketing channel choices. Perishable products often have to be sold through shorter marketing channels than products with longer shelf lives. For example, a yellowfin tuna bound for the sushi market will likely be flown overnight to its destination and handled by few intermediaries. By contrast, canned tuna can be shipped by a slower transportation method and handled by more intermediaries, because it is less fragile and perishable due to its packaging. Valuable and fragile products tend to have shorter marketing channels. Automakers generally sell their cars straight to car dealers (retailers) rather than through wholesalers. The makers of corporate jets often sell them straight to the buyer because they built to that company’s specifications.
Channel Partner Capabilities
Your ability versus the ability of other types of companies that operate in marketing channels can affect your channel choices. If you are a massage therapist, you are quite capable of delivering your product straight to your client. If you produce downloadable products like digital books or recordings, you can sell your products straight to customers on the Internet.
One company that has been very successful in expanding the number of channels it uses as its operations grew is Allbirds. Allbirds is a footwear company which began selling its products on Shopify as a small business funded by a Kickstarter campaign. It is now a global business worth over a billion dollars (Rood, 2021). Starting with one channel, Shopify, Allbirds products are sold online and in major retail stores such as Nordstrom and the Bay. In order to make the transition to retail, Allbirds engaged intermediaries, such as hiring an agent or a distributor who convinces the corporate buyers of retail stores to carry their product. In 2018, Allbirds opened its first stand-alone Canadian retail store to better offer new products to customers and to better control its brick and mortar retail presence (Patterson, 2018b). ‡
The Business Environment and Technology
The general environment, such as the economic factors, can also affect the channels chosen by companies. For example, think about what happens when the value of the dollar declines relative to the currencies of other countries. When the dollar falls, products imported from other countries cost more to buy relative to products produced and sold in the United States. Products made in countries with lower production costs can become less attractive because the production has now gotten more expensive. As a result, some companies can look closer to home for their products and channel partners when their national currency takes a downfall.
Another factor in the general environment that can affect marketing channels is technological changes. The Internet and social media have changed how products are bought and sold. Many companies like selling products on the Internet as much as consumers like buying them. An online sales channel gives companies more control over how their products are sold and at what prices. A company selling their products online has a digital footprint, or record, of what shoppers look at, or click on, at its website. When this information is added to that collected by Facebook or Google, the result is the ability for the company to recommend other products that the customer may be interested in, and target the customer with special offers and prices.‡
Competing Products’ Marketing Channels
How your competitors sell their products can also affect your marketing channels. Dell moved away from primarily selling direct to consumers to also selling its computers to companies like Best Buy so the computers can be available when customers at the retail store are making their selection among different computer brands.
Companies don’t always have to choose the channels their competitors rely on, though. Netflix is an example. Netflix turned the video rental business on its head by coming up with a new marketing channel that better meets the needs of many consumers. Beginning with direct mail, and then moving to Internet delivery, Netflix was an early entrant into the streaming video market. While sports and other live events are watched at the time of broadcast, television content is increasingly offered an “on-demand” model, where you will watch what you want whenever you want. However, upon seeing the success of this new channel structure, most major television networks are now offering streaming services as well, some for free while other services are offered for a monthly fee. Another example of companies within the same industry that operate through different channels is cosmetics. For example, whereas L’Oréal products are sold primarily in retail stores, Mary Kay and Avon use salespeople to personally sell their products to consumers and both have added online sales to assist their consultants in growing their business.
Factors That Affect a Product’s Intensity of Distribution
Distribution intensity is the number of intermediaries used by a manufacturer within its trade areas. A company would like the brand available widely enough to satisfy, but not exceed, target customers’ needs. The use of too few intermediaries can limit a brand’s exposure to customers, however, too many can negatively impact the brand’s image. By design, some brands are distributed intensively, whereas others in the same category are distributed selectively or exclusively (Frazier & Lassar, 1996). Note that with the advent of the internet, manufacturers and consumers are not limited to physical geographic trading areas. The choice to distribute intensively, selectively, or exclusively is a strategic decision based on many factors such as the nature of the brand, the types and number of competitors, and the availability of retail choices.
An intensive distribution strategy (offering their products in as many outlets as possible) typically sell products with many competitors or weak brand loyalty such that customers won’t go to another store to buy the product. Soft drinks and chocolate bars are two examples. You see them sold in many locations from gas stations to grocery stores to book stores. Retailers also use an intensive distribution strategy. Best Buy, in addition to its online and brick and mortar retail presence, also sells electronic equipment from vending machines. The machines are located in airports and hotels where people are on the go and need to quickly replace certain types of products such as ear-buds or headphones.‡
By contrast, selective distribution involves selling products at select outlets in specific locations. For instance, Sony TVs can be purchased at a number of outlets such as Best Buy, or Walmart, but the same models are generally not sold at all the outlets. The lowest-priced Sony TVs are at Walmart, the better Sony models are more expensive and found in stores such as Bloor Street Video, a specialty electronics store. By selling different models with different features and price points at different outlets, a manufacturer can appeal to different target markets. You don’t expect, for example, to find the highest-priced products in Walmart; when you shop there, you are looking for the lower-priced goods.
Exclusive distribution involves selling products through one or very few outlets. Most students often think exclusive means high priced, but that’s not always the case. Exclusive simply means limiting distribution to only one outlet in any area, and can be a strategic decision based on applying the scarcity principle to creating demand. Certain items from the Ellen Degeneres furniture line are sold at Wayfair while other more expensive and exclusive pieces are sold at upscale retail furniture stores such as Ethan Allen. To purchase those items you need to go to one of those retailers.‡ In these instances, retailers are teaming up with these brands in order to create a sense of quality based on scarcity, a sense of quality that will not only apply to the brand but to the store.
Distributing a product selectively or exclusively can help protect a company’s brand from deteriorating, or losing value. It may prevent products from being sold cheaply in gray markets. A gray market is a market in which a producer hasn’t authorized its products to be sold (Burrows, 2009).