Chapter – 13 Distribution

Learning Objectives
 Distribution Channels: Four Stage, Three Stage and Two Stage
 Changes in Distribution Channels
Distribution
 The delivery of goods from the producer to the consumer
Distribution Channel
 The route taken by a product from the producer to the consumer is called a distribution channel.
Distribution Channels for Consumer Goods

E.g., Fast moving goods such as potato crisps and breakfast cereals

E.g., Supermarkets, clothes producers and travel companies

E.g., Producers selling online, banks, dentists, hairdressers and restaurants

Wholesaler
 The business buying goods from manufacturers and selling them in smaller quantities to retailers.
Retailer (breaking bulk)
 The business buying foods from manufacturers and wholesalers and selling them in smaller quantities to
consumers.
 Sell in locations that are convenient to consumers
 Add value to products by providing other services (packing or delivery, repair services and information about
products, warranties and wrapping products as gifts)
Consumer behavior varies in different countries. As a result, the demand for the different
types of retail outlet will vary.

RETAI DESCRIPTION
LER
Independents Mainly small shops, though some can be quite large, such as convenience stores, grocers and
specialists (e.g., jewelers).
Supermarkets Large chain stores selling up to 20,000 lines, including food and non-food products (e.g., Mercardo in
Spain and Carrefour in France).
Department Stores Large stores divided into separate departments, such as men’s clothes, electricals and cosmetics.
Multiples Chains of stores selling common goods, (e.g., Croma and Big Bazaar in India and Casa Ideas and Mall
Sport in Chile).
Online Retailers Wide-ranging, from giants such as Amazon and Alibaba selling many goods, to small independents.
Superstores Sometimes called hypermarkets - very large stores selling a wide variety of goods, often very cheaply.
Kiosks/Street vendors Small outlets, usually specialists, selling limited ranges in airports, stations, malls, etc.
Market Traders Usually, small businesses selling from market stalls in streets, squares and market halls- can be
temporary or permanent

Two Stage Distribution (Direct Selling)

 Intermediaries are not required so producers are able to make more profit. Producers can also reach
customers do who do not like going to shops.
o With some methods people cannot physically see the products until they have been purchased. Some people
object to direct mail, door-to-door salespeople and unwanted telephone calls.
The internet; business selling their products online
Direct Mail; where Suppliers send promotion through the post direct to consumers
Door- to-door Selling; where salespeople visit households directly
Mail Order Catalogues; where catalogues are distributed to customers who may buy the products
illustrated
Direct Response Adverts; newspaper, magazines or on televisions
Shopping Parties; having the opportunity to buy products while attending a social occasion organized
by representatives
 Telephone Selling & Robocalls; automated telephone call that delivers a message

Agents or brokers
 An intermediary that brings together buyers and sellers
e.g., travel agents, estate agents and insurance agents.
 Agents can reduce the risk of selling overseas because they have knowledge of the
country and the market.

Choosing the appropriate distribution channel

The nature of a product;
 Most services are sold directly to consumers like hairdressers because unlike goods, services cannot
be held in stock.
 Fast-moving consumer goods like toilet paper because such goods could not be sold effectively by
manufacturers in single units.
 high-quality 'exclusive' products, such as perfume and designer clothes
 Products that need explanation or demonstration, such as technical products or complex financial
products might need to be sold by expert salespeople or specialists.
Cost;
 Businesses will normally choose the cheapest distribution channels and prefer direct channels. (if
intermediaries are used, they will take a share of the profit.) Many producers now sell direct to
consumers from their websites.
 Large supermarkets will try to buy direct from manufacturers as they can bulk buy and get lower
prices.
 Independents are more likely to buy from wholesalers and will have to charge higher prices as a
result.
The Market;
 Producers selling to mass markets are likely to use intermediaries
 businesses targeting smaller markets are more likely to target customers directly.
 Producers selling in overseas markets are likely to use agents because they know the market better.
Businesses selling goods to other businesses are likely to use more direct channels.
Control;
 Producers of exclusive products do not want to see them being sold in less prestigious outlets as this
might damage their image.
 Some products, such as heating systems, require expert installation and need to comply with health
and safety legislation. Producers of such products might prefer to handle installation themselves and
deal directly with customers because they can ensure safe installation more easily.
Many businesses use a combination of different channels to widen the distribution
network and reach a larger number of potential customers.

Changes in Distribution Methods

A huge growth in online shopping

The building of large US-style shopping malls
Sellers using call centers to sell products, such as financial services
Supermarkets extending their product ranges and opening hours
Shopping becoming more of a leisure activity for many people
A growth in the use of television shopping channels

Online Distribution (E-Commerce)

 It involves the use of electronic systems to sell goods and services.
 Business to Consumers (B2C);
 This is the selling of goods and services by businesses directly to consumers.
 Most web-based retailing involves ordering goods online and taking delivery at home or work.
  However, new 'click & collect' services are being developed where people order goods online and
then pick them up from a store or a central hub.
e.g., tickets for air, rail and coach travel, cinemas and attractions, holidays, weekend breaks and hotel rooms

 Business to Business (B2B);

 This involves businesses selling to other businesses online.
 Businesses can also use specialist software to purchase resources. The software helps to find the
cheapest supplier and carries out all the paperwork.

Benefits & Drawbacks to Consumers of ONLINE DISTRIBUTION

Consumers can shop 24/7. People can shop from People are not able to physically inspect goods before
anywhere if they have access to the Internet. purchase and the risk of a poor after-sales service.

There is generally a huge amount of choice. Fake businesses may be more difficult to identify online.

It is cheaper because online retailers often have People may have problems taking delivery of goods, for
lower costs. instance if they are at work all day.
Benefits & Drawbacks to Businesses of ONLINE DISTRIBUTION

Online retailers may not have to meet the costs of They face increasing competition, since selling online is a
operating stores. relatively cheap method of distribution
Businesses can serve their customers 24/7. As it can be organized from any location in the world, at any
time of the day, businesses will face more competition from
overseas.
Less paper is needed for documents, such as a lack of human contact, which might not suit some
invoices and receipts. customers
B2C businesses can offer goods to a much wider heavy dependence on delivery services where online retailers
market - e.g., global. often lack control on the quality of delivery.
Lower start-up costs - both fixed and variable technical problems online. For example, websites can crash
costs are lower. Lower costs when processing or be attacked by viruses, and Internet connections can be
transactions - many systems are automated. unreliable.
Businesses have more choice of where to locate security risk as computer hackers might gain access to
their operations. sensitive information
Payments can be made and received online using Some people do not have access to the Internet or may not
credit cards or PayPal®. use credit cards.

Changing From Product to Service

  Businesses that once sold products (goods) are now selling services and have to consider how these
impacts on their distribution and range of distribution channels that are available. Businesses have had
to adapt to changes in technology and consumer buying habits.
E.g., streaming or downloading music via the Internet, film channels that stream films that can be viewed via the Internet, a
subscription service which allows consumers to view news online.

Financial methods of motivation refer to monetary rewards to

motivate/drive workers
• According to Taylor employees are motivated by pay and
monetary
rewards
• Google are in a very competitive market, and it may be important
that they pay similar wages to other technology businesses such as
Apple and Microsoft. Otherwise, employees may feel
dissatisfied/unhappy and leave Google to work for competitors
• Providing financial benefits such as healthcare and pensions may
help employees to fulfil their security needs. This may make them
feel happy at work and encourage them to stay at Google
• Employees may feel appreciated and cared for as the business
provides food and gym equipment for them at work. This will help to
make them feel happier at work and content with the working
environment
• However, not all employees are motivated by financial benefits.
According to theorists like Mayo and Herzberg employees may be
motivated by non-financial factors
• Google employees may feel a sense of happiness at having a
degree of freedom and flexibility whilst working at Google. They may
feel more relaxed and content working from home and not having
the stress of the commute to work
• Employees at Google may get more satisfaction at having unpaid
time off to pursue their personal aspirations and work on
community
projects than focus on the financial benefits of work
• Some employees may feel happy at being able to bring their dog to
work and this may bring more personal satisfaction than higher pay
or retirement benefits in the short term
• Other factors will also contribute to how happy people feel at
work,
such as the leadership style adopted or the day-to-day pressures
employees experience at work
• It depends on what motivates employees at Google. Some
employees will be motivated by financial benefits whilst other will
be
more concerned with non-financial perks of the job
• Overall, it is likely that most employees will be well paid, and it
may
be that the financial needs of most employees will be fulfilled.
Therefore, the non-financial benefits may become more important
to
the happiness of employees in the longer term

On-the-job training is a hands-on method of teaching the skills

needed for employees to perform a job. Employees learn this
new knowledge and skills in their work environment
• Off-the-job training is when employees are given training away
from their normal job environment, often in a classroom
• Walt Disney is a global business and likely to employ some of
the most talented professionals in the entertainment and
tourism sector. On-the-job training by its executives and senior
managers is likely to be of high quality
• Training in the hotel restaurants is likely to be the less
expensive option for Walt Disney which will keep costs down
and improve profitability
• Whilst employees are being trained in the hotels, service to the
clients can be maintained. If employees go to the training
centres additional staff will need to be employed at the hotels,
adding to costs
• However, off-the-job training might lead to more efficient
employees if they undertake the specialist training or get a
university degree
• If the employees responsible for on-the-job training are
inefficient and poor at their jobs, then their bad habits will be
passed onto new employees This may negatively impact
customer service at the hotels and in the restaurants
• Whilst being trained away from the work-place, employees can
focus on their learning. This avoids disruption to the training
and prevents customers receiving poor service from untrained
staff
• Walt Disney would have to look at the effectiveness of the
different types of training to see historically which trainees
have performed the best and contributed the most to the
company
• The impact may depend on the employee and how they best
learn
• Walt Disney is likely to use a combination of both types of
training. Perhaps every-day housekeeping tasks will benefit
most from on-the-job training whereas specialist skills may
require training courses at the specialist centres

Primary market research is new data collected, which is specific to

the needs of the business. It is referred to as field research
• Using a survey to gather data may have helped Mindful Chef
to gain an insight into consumer preferences. This may have
helped them to improve the recipes before launching on a
larger scale and so prevent costly mistakes
• Rather than surveying the general public, using family and
friends to gather research is likely to be a cheaper and
quicker option. This would have saved costs for the three
friends. It may have allowed them to enter the market
quicker and benefit from first mover advantages
• The feedback from family and friends could possibly be more
reliable than from the general public as they may be honest in
their feedback
• However, using surveys could result in biased results. Family
members may not be honest in their feedback if they fear this
will cause conflicts in the family. This may have resulted in
launching the wrong recipes
• The owners may not have been experienced in writing and
conducting surveys or analysing the results. This may have
led to wasted time/resources and inaccurate data
• Results from surveying only family and friends may not be
conclusive as the feedback may not be representative of other
groups of customers
An organisational structure shows the roles, responsibilities, and
hierarchy of employees in an organisation
• A matrix structure organises employees from different disciplines or
divisions into projects/teams
• A flat structure has fewer levels of hierarchy, and a wider span of
control
• Creating business groups may allow teams and managers to focus their
attention on one specific area of the business. This responsibility may
motivate the employees to succeed in their business group
• Flattening the structure will reduce labour costs which may result in
lower prices or increased profitability, enabling Unilever to be more
competitive
• Reducing the number of senior managers will shorten the chain of
command and allow ideas and instructions to be communicated quickly,
enabling Unilever to be more responsive to customer needs
• However, moving from a matrix structure may have its
disadvantages; one advantage of having a matrix organisation is
that it encourages the sharing of ideas and good practice which may
have helped the business to be more effective
• Removing 15% of the senior managers from the hierarchy may create
skills shortages within the business and Unilever may lose managers
with valuable experience
• Job losses can have a negative impact on motivation and employees
may seek other employment. Unilever may encounter high recruitment
and redundancy cost, reducing its profitability
• Managers remaining after the re-organisation will have a wider span of
control which, may damage communication within the business
• Replacing the senior managers with junior managers may result in
lower efficiency if the junior managers do not have sufficient knowledge
and experience
• It depends on whether the changes can be made effectively, and staff
are not demotivated in the process.
• Overall, the structure should give focus to specific business areas and
enable managers to focus on the strategy of the business group. The
new structure should be introduced carefully to ensure a smooth
transition and prevent key skills being lost to competitors

A niche market is a subset of a larger market where consumers have

specific needs and wants
• A business selling folding phones is likely to have less competition.
Samsung sells the popular Galaxy Z Flip3 phone and may have a
larger market share of this niche segment
• There is the possibility of charging premium prices in a niche market.
Samsung’s selling price for the ZFlip3 of $1 000 may increase the
profitability of the business
• The folding phone has a USP which helps differentiate it from other
products. This may enhance Samsung’s reputation and recognition
• However, the sales volume of folding phones is a small percentage of
the smartphone market. This may lead to higher unit costs and lower
profit margins on the folding phones
• Niche businesses can be risky as they are more vulnerable to market
change. Changes in fashions and trends may result in declining sales
• Premium prices charged for niche products are impacted by factors
such as changes to the economy. If there is a downturn in the
economy customers may choose cheaper substitutes. This may lead
to a decrease in demand for businesses selling folding phones
Market share is the percentage of an industry/market's total sales
earned by a particular company over a specified time period
• Increasing global market share from 6% is important to Realme
because it is a measure of the consumers' preference over other
brands such as Apple and Samsung. Increased market share is likely
to mean more sales/profit for Realme
• Realme’s market share is an indicator of how well it is performing in
relation to its competitors. An increase in its share will attract new
customers who may become loyal to its business
• Higher market share may give Realme a competitive advantage.
Companies with higher market share have increased buying power
and may benefit from economies of scale which may allow them to
possibly reduce its prices/or increase profitability
• However, it may be very difficult and unrealistic to take market share
from leaders such as Apple and Samsung who have been established
in the market for many years, unlike Realme that was only founded
in 2018
• Realme may have to spend considerably more than established
brands in order to compete for market share. This could increase its
costs and reduce its profitability
• Other objectives may be more important to Realme such as profit
maximisation or the innovation of its phones
• It depends on the growth of the global smartphone market as to
whether Realme should pursue this objective
Test marketing involves trialling the product in a small area or to
a limited number of users to assess the suitability of a product
• Cory’s mother trialled the cookies in the local community to test
the cookies. This allowed the business to determine the potential
success of its products
• Mr Cory’s Cookies were able to gather feedback from the local
community and make changes to products such as the popular
choc-chip cookies. This may have resulted in improvements in
the taste and quality of the product
• Trialling a product reduces the risk of a full-scale launch. Changes
could be made to the marketing of the cookies before launching
on a larger scale and so prevent costly mistakes
• However, a disadvantage of test marketing is the cost which can
be expensive and time consuming
• Testing the new products in a limited area may delay the launch
of the product which may mean losing first-mover advantages
• Products that sell locally might not sell well in other geographical
areas. Mr Cory’s Cookies ran the risk that the findings from the
test marketing in its local community were not representative of
other groups of customers
Online retailing is the sale of goods and services using the
internet
• The advantage to Mr Cory’s Cookies is that because it is not selling
to supermarkets or wholesalers, it may be able to increase its
profit margins
• Not having a physical shop to sell the cookies reduces operational
costs which may enable them to sell the cookies at a competitive
price
• Due to changing social trends more people prefer to shop online
and following this trend may lead to increased revenue for the
business
• However, the cookies are now only sold online and may not be as
accessible to the local community who were initially the main
customers of the business. This may lead to a decrease in
sales/reputation in its local area
• If the online service is not reliable and/or connectivity is poor this
will impact the service and discourage customers from using the
service
• Some consumers may prefer to buy food items such as cookies in
a store where they can see, smell and taste the cookies
• The costs of distribution may be high for a small business due to
the need to manage a high volume of smaller orders of cookies
rather than larger orders direct to supermarkets and wholesalers
Flexible working relates to a variety of working arrangements in
terms of working hours, working locations and job variety
• Employees working from home can reduce costs for Toyota as it can
save on the cost of office overheads which helps it remain
competitive in the motor industry. In addition, the employees may
be more productive if they do not have to spend long periods of
time travelling to and from work
• Offering part-time hours may attract employees who have families
and other commitments which may result in higher employee
morale and increased productivity for Toyota
• Allowing the employees to choose working hours is aimed at
balancing personal needs and job requirements. This may help
Toyota to retain its best employees which may reduce recruitment
costs for Toyota
• Offering part-time hours contracts allows Toyota to keep employee
costs low as it does not have to pay full-time wages to these
employees. Lower costs will contribute to Toyota’s competitiveness
in the market
• University graduates are trained to be multi skilled, rotating
between sales, marketing, product marketing, and social media
departments. This will give the business the flexibility of transferring
employees to areas of high demand in the business
• However, it is likely that in the 52 manufacturing businesses around
the world certain flexible working arrangements may be difficult to
achieve. Factory employees will generally need to work specific
hours to meet production requirements
• Home working could result in lower productivity if staff abuse the
trust and freedom given to them. This may increase unit costs for
Toyota and make it more difficult to maintain its position in the
motor industry
• There may be additional administrative work involved in setting up
and running flexible working arrangements
• Overall, it depends if the business is able to manage the flexibility
and fulfil its business needs. Flexible working may be more
appropriate for employees working in offices rather than those
working in car factories

A focus group is a group of people who participate in a discussion as

part of market research to give feedback about a product or service
• The researcher can interact with the participants and ask the panel in-
depth questions about their views on the ranges of shoes. This may lead
to
Birkenstock having a better understanding of consumers needs and
meeting the demands of its customers
• The researcher can get information from non-verbal responses and
recording people’s reactions to new styles and the comfort of shoes.
This may help
Birkenstock judge if the new styles are likely to be
favoured by the public and lead to an increase in revenue
• However, disadvantages of a focus group include the possibility that
the members may not express their honest and personal opinions
about the topic at hand leading to biased results
• Respondents may be hesitant to express their thoughts, especially
when their thoughts oppose the views of another participant. This
may lead to
Birkenstock designing shoes that may not be popular with
the target audience
• The small sample size of a focus group means the results may not be
representative of the larger population. Birkenstock may prefer to use a survey to gather opinions
of its shoes from a larger proportion of its target audience.
Product life cycle describes the stages that a product goes
through from introduction to decline
•
Birkenstock has a wide variety of shoes in its portfolio and the
product life cycle will help focus its marketing effort
• A benefit of using the product life cycle is that it can help devise
promotional strategies. New shoes in the range, which are in the
growth stage, will benefit from advertising and promotion
• The model will help make decisions on the established products. Those
shoes in the maturity stage, such as Arizona may benefit from extension
strategies to prolong the life of the sandals
• The product life cycle may help
Birkenstock make decisions on those
shoes with low sales in the decline stage. It may help them to make
decisions on which ranges to discontinue to maintain the reputation of
the business
• However, the product life cycle is a simplistic model. Whilst there are
many products whose sales follow the classical shape of the model,
many others do not. It is very difficult for
Birkenstock to predict the
life of a shoe due to changing fashions
• The model does not take account of competitors’ actions. Some of
the
Birkenstock shoes may move into the decline stage quickly if
competitors introduce a superior shoe or sandal
• Whilst the model is a good visual tool for analysing a portfolio of
products,
Birkenstock would need to take account of other research
findings on competitors, the economy, changing trends etc before
decisions were finalised on the product range.

A centralised structure is an organisational structure where business

decisions are made at the top of the hierarchy by senior
management/or at the headquarters of a business
•
Hilton Hotels has a centralised approach as its headquarters is in the
US where major business decisions are made
• A benefit of having a centralised structure is that
Hilton Hotels can
keep control over the new hotels by implementing common policies
for the business.
Hilton Hotels has a customer care service which
handles reservations across the world. This provides consistency for
the business, its employees and customers
•
Hilton Hotels can benefit from economies of scale if the hotel rooms
are standardised and the marketing can be organised centrally. A
reduction in unit costs may help reduce prices of hotel rooms or
increase profitability
•
Hilton Hotels operate a centralised loyalty scheme where members
can collect points and use the points for rooms around the world. This
is likely to encourage repeat purchase and brand loyalty
• A centralised approach usually speeds up the decision-making process
which may be important in an industry that is customer focussed
• However, lack of authority lower in the hierarchy may demotivate the
mangers in the new hotels in the Asia Pacific region. This may lead to
lower productivity and/or a lower level of customer service in the
hotels
• A centralised approach may lead to slow decision making if most
problems need to be referred to head office. This may damage
customer relations if customer service suffers
• Local managers in the new hotels in the Asia Pacific region may have a
better understanding of cultural needs of the hotel guests in China and
Japan and be in a better position to make decisions in the new hotels
• Overall,
Hilton Hotels have successfully built and grown the business
using a centralised approach. However, it may be of benefit to
decentralise some of the decision making to respond to its customers’
needs and preferences at a local level
Ethical sourcing is when a business buys materials/products that are
produced using fair working conditions and/or with no negative impact
on the environment
•
GoPro expects its suppliers to treat its employees fairly and provide a
safe working environment. This may provide good publicity and
enhance the reputation of
GoPro leading to an increase in its sales of
cameras
• The ethical conduct may attract new investors who are ethically
minded, which will help to continue to grow the business and compete
with businesses such as
Sony
• However, sourcing ethically can be costly. Suppliers paying fair wages
for example may push up the cost of the camera parts.
• It is important that the
GoPro cameras remain competitive with
Sony
and
DJI. If the cameras become too expensive more people will revert
to taking videos on smartphones rather than buying a specific camera
• It is debateable whether consumers are concerned with ethical
sourcing or whether they are more concerned with the performance
or price of goods
• Consumers may not even be aware of the ethical stance of the
business when they make a decision about buying a product

Product orientation is where the business develops products based

on what it is good at producing, rather than researching the market
to find out what a consumer wants
• A market orientation approach means a business researches the
market and reacts to customer feedback
• One advantage is
GoPro can save time and money by not
researching customer opinions. This keeps costs lower which may
lead to a lower price for the cameras
•
GoPro was the first to create and sell the new technology. Collecting
consumer opinions on a new product/technology may not have
yielded significant insights from consumers
• Some products are argued to create a need or want in the customer,
especially products with a very high technological content like the
cameras
• However, new competitors such as
Sony have put more pressure of
GoPro to react to consumer wants and become more market
orientated
• Market research identified new groups of people to sell to such as
firefighters and parents. Therefore, consumer research is important
to the growth of the business
• In the short term, a product orientation approach is likely to have
given
GoPro first mover advantage and helped to establish the brand
• However, as competitors entered the market and consumers became
more knowledgeable about the technology, a market orientation
approach is a safer approach for
GoPro

Democratic leadership is a type of leadership style in which members of

the group take a participative role in the decision-making process.
Group members are encouraged to share ideas and communication is
two way
• There are several leadership styes including autocratic, democratic,
paternalistic and laissez-faire
• The
Virgin Group is diverse with many different businesses and requires
a wide range a skills and expertise. A democratic style of leadership
should encourage more viewpoints. Drawing on a wider pool of
experience and opinion may have helped the business make better
decisions about its products and services
• Allowing participation of team members encourages more efficient
problem solving. Branson alone is unlikely to be able to solve the
problems of its many businesses
• Branson uses encouragement and praise in his leadership style which is
likely to motivate employees. If the employee ideas are listened to, then
they are likely to be more committed to the business
• Democratic leadership helps to build team relationships. Branson
encourages teamwork which should increase morale and job
satisfaction, resulting in higher productivity for the
Virgin Group
• However, decision making takes more time under a democratic
leadership style. When any of the businesses were in trouble, such as
Virgin Cola, it may have been more appropriate for Branson to take an
autocratic leadership style. An autocratic style may have led to quick and
decisive actions taken on a failing business within the
Virgin Group
• If Branson consults team members on all major decisions this may delay
important decisions being made. This may have led to losing competitive
advantage and the failure of some of the businesses
• A democratic leadership style does not guarantee the best possible
solution. Experts in space travel are likely to be best able to make
decisions on technologically advanced projects. Perhaps a more laissez-
faire style of leadership may be needed for such businesses Richard Branson is a successful
entrepreneur and perhaps a
paternalistic approach is required as he is likely to have gained a wide
knowledge base of many sectors and may be more suited to making the
final decisions
• Democratic leadership may be effective when starting new ventures or
where workers are motivated and enjoy teamwork.
• However, this style of leadership may not be ideal for all situations
especially where there is lack the knowledge or experience to make
effective decisions
• It is likely that a combination of styles is required depending on the
type of business and the employee skills and needs