Business distribution
When creating a business, you have a lot of things to take into account. As such, it’s very easy to forget some little things, even if they’re sometimes essential for the survival of your company. One of such details is the distribution of your products. If, like many, you’re one of those for who distribution was somewhat of an afterthought, reading this will get you up to speed with everything you need to know about distribution.
What you should remember for now is that choosing the distribution policy requires 2 things:
- To identify the classification of the different distribution networks,
- To analyze the support functions: sales force and merchandising.
Summary
- The typology of classic distribution networks
- The sales force
- Merchandising
1- The typology of conventional distribution networks
It is important to make the difference between circuits, channels, and intermediaries.
Distribution circuits
To reach consumers, the product will go through a circuit. It can be:
| Direct |
From Producer to consumer The company produces the product and sells it directly, without intermediary, to customers. |
| Short |
The company will supply directly at the source and then resell to the customer. There is only one intermediary is between the producer and the consumer. Be careful! A short circuit does not always result in low prices. The company often has to deal with incompressible costs: storage costs, transport cost, staff remuneration, etc.
|
| Long | Several intermediaries will forward the product consecutively to the customer. |
Distribution channels
One should make the difference between:
| Mass distribution | Integrating the roles of wholesalers and retailers by use of large quantities of products. |
| The wholesale trade | Purchasing products in large quantities and re-selling them to other intermediaries. |
| Retailing | Buying products and re-selling them to consumers. |
| E-commerce
Online sale Meeting sales Home Selling |
Using a direct or almost direct circuit to sell merchandise outside of stores. |
Intermediaries
Several types of intermediaries can be distinguished:
| Independent Business |
It refers to retailers and wholesalers working in isolation. A few examples would be: the neighborhood butcher, a computer wholesaler, etc. |
| Integrated trade |
These companies bring together wholesale and retail functions by intervening between producers and consumers. A few examples would be: hypermarkets, specialized supermarkets, department stores, etc. |
| Associated trade |
This refers to: – Franchises, – Cooperatives of retailers: they group together the purchases of their members to obtain better prices, – Wholesale groups: they make large volume orders from producers to negotiate purchase prices. |
In any case, it is necessary to know how to place your company in a circuit by taking into account the costs generated by the distribution: staff remuneration, transport costs, production costs, storage costs, etc. One should never forget to take this into consideration, and especially so when making a forecasting study.
Can a company afford to distribute its products on different circuits?
As long as the company’s customers have different purchasing habits and as long as the company has the financial, technical and human means to work with multiple circuits, then the answer is yes; but only in these situations!
To prove it, let’s take an example: a business specializing in the sale of “big size” shoes has a repair shop. To develop its market, the manager decides to engage in e-commerce and sells several different shoes on his site.
Requests are coming in from all over the world, but the trader has underestimated his sales, and is therefore under-supplied. As such, he is forced to place a quick order with his supplier.
The Short manufacturing times for fast delivery will increase purchase costs (extra staff, shipping costs), and in the end, the costs generated by this unexpected demand have weighed on the merchant’s margin. As such, its online business is not profitable despite generating a lot more sales.
2- The sales force
To be able to thrive, the company must be able to generate revenue and, above all, make a profit.
Of course, increasing sales naturally means making sure all components of Marketing Mix remain compatible (choosing the right product, setting the right price, etc.) with the market. However, another way to boost sales revenue is to have an efficient sales force.
Be careful, however! Most of the time, the company’s best salesperson is none other than the leader himself, (especially so for small businesses where he’s often the only salesperson).
Granted, it is often said that one has to be a “natural-born salesman” in order to be effective. However, this does not mean that a project leader who does not feel like a salesman will not succeed in developing his business. On the other hand, it does mean that he will need to train himself to become a better salesman (many techniques do exist), and especially that he will need to make sure that he is surrounded by competent staff members or relatives, who can be a large part of the sales force of the company.
An entrepreneur whose structure develops will indeed eventually wonder whether he should hire an employee or an independent commercial agent.
In order to choose between thee options, one should first take as much time as necessary to analyze the costs and legal implications.
Even with a large sales revenue, it is possible to only generate a small profit, or even to take losses.
It is thus necessary to find the right balance in order to make sure that wages and charges don’t eat all profits.
3- Merchandising
This refers to the act of showcasing a product or service to increase sales and profitability.
This involves the presentation and staging of the products, the animation of a point of sale, the management of the products … However, before doing any action, it is necessary to first ask oneself the following questions:
- What would be the ideal location for my products?
- How much surface should we allocate them?
- What would be the most appropriate way to present them?
- How and how much should I advertise on the sale site?
- How much should be invested?
- etc.
A young company cannot afford to choose the wrong distribution channel. As such it is necessary to choose the right intermediaries, the right sales team and to be well-prepared before the creation of a company.
Finally, the choice of distribution policy should always be consistent with the sales objectives.
