How does a product manufactured by a producer reach the consumers.
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Manufacturer -> Retailer -> Consumer
Here the producer sells his product to a retailer who in turn sells the product to the consumer.
Manufacturer -> Wholesaler -> Retailer -> Consumer
This process involves two types of middlemen that is wholesalers and retailers, where the producer sells their final product through these intermediaries.Daily use products like beans, soaps, cosmetics are generally sold through this channel.
Manufacturer Agent -> Wholesaler -> Retailer -> Consumer:
One of the longest channel of distribution is where the producer sells their entire output to a sole selling agent who in turn allots them to a wholesaler. Given below is an example as to how Nestle follows this distribution channel (Nestle 2016).Source: Nestle 2016, Transport and Distribution, retrieved 14/05/2016, http://www.nestle.com/csv/environmental-sustainability/product-life-cycle/transport .
Dual distribution:In this type of channel, a company may use a combination of direct and indirect selling. Here the product may be sold directly as well through different intermediaries. This type of distribution channel may have different user experience and an inconsistent image for either the product or the related services. For eg, Ralph Lauren brand sells their polo shirts through their retail store as well through other traditional retail stores (Argosino 2014).Source: Argosino, L 2014, Chapter 6 Legal and Ethical Behavior in Retailing Power Point, retrieved on 15/05/2016, http://www.slideshare.net/wualankcloy/chapter-6-legal-and-ethical-behavior-in-retailing.
Reverse Channels:The last and the most non – traditional channel is where consumers send a product to the producer like when a consumer returns a product back to the producer for different reasons(Logistics 2005).Source: Logistics, L 2005, Reverse logistics, retrieved 16/05/2016, http://www.thomasjhubert.com/lindner/aboutus/rev_logistics.htm .
Thus a company may need to use and adopt different strategies for different kinds of products. There are three main strategies that can be used to help decide what channel suits the company. They are:
Intensive distribution-
May be used to distribute lower priced products that may tempt consumers to purchase products. Item like chocolates, basic supplies and other necessities need to be in stock in larger numbers.
Selective Distribution –
Products may be sold at limited number of outlets, they may be items that are priced at a slightly higher rate but still needed for daily use like computer appliances, home appliances, etc.
Exclusive Distribution-
These products may be sold at a single or lesser number of outlets. Rolex, sports cars are some of the examples of this type of strategy.
Why is it important?
Even though it may seem easy for company to directly distribute its own products to the consumers without the help of any intermediaries, in reality however, it may not be that simple and beneficial. A simple reason being geographical limitation and business volume of distribution, it can be considered counterproductive and costly for a company that produces daily use products like soaps and toiletries to try and open manufactory stores in many locations to accommodate the large demand. It could also incur an additional burden for shipping costs, transporting costs and opportunity cost in terms of waiting for the product to reach the customers after placing the order. These may not favor the growth of company. Hence it is important for a company to carefully plan on what kind of distribution channels best suits their products.
Here the producer sells his product to a retailer who in turn sells the product to the consumer.
Manufacturer -> Wholesaler -> Retailer -> Consumer
This process involves two types of middlemen that is wholesalers and retailers, where the producer sells their final product through these intermediaries.Daily use products like beans, soaps, cosmetics are generally sold through this channel.
Manufacturer Agent -> Wholesaler -> Retailer -> Consumer:
One of the longest channel of distribution is where the producer sells their entire output to a sole selling agent who in turn allots them to a wholesaler. Given below is an example as to how Nestle follows this distribution channel (Nestle 2016).Source: Nestle 2016, Transport and Distribution, retrieved 14/05/2016, http://www.nestle.com/csv/environmental-sustainability/product-life-cycle/transport .
Dual distribution:In this type of channel, a company may use a combination of direct and indirect selling. Here the product may be sold directly as well through different intermediaries. This type of distribution channel may have different user experience and an inconsistent image for either the product or the related services. For eg, Ralph Lauren brand sells their polo shirts through their retail store as well through other traditional retail stores (Argosino 2014).Source: Argosino, L 2014, Chapter 6 Legal and Ethical Behavior in Retailing Power Point, retrieved on 15/05/2016, http://www.slideshare.net/wualankcloy/chapter-6-legal-and-ethical-behavior-in-retailing.
Reverse Channels:The last and the most non – traditional channel is where consumers send a product to the producer like when a consumer returns a product back to the producer for different reasons(Logistics 2005).Source: Logistics, L 2005, Reverse logistics, retrieved 16/05/2016, http://www.thomasjhubert.com/lindner/aboutus/rev_logistics.htm .
Thus a company may need to use and adopt different strategies for different kinds of products. There are three main strategies that can be used to help decide what channel suits the company. They are:
Intensive distribution-
May be used to distribute lower priced products that may tempt consumers to purchase products. Item like chocolates, basic supplies and other necessities need to be in stock in larger numbers.
Selective Distribution –
Products may be sold at limited number of outlets, they may be items that are priced at a slightly higher rate but still needed for daily use like computer appliances, home appliances, etc.
Exclusive Distribution-
These products may be sold at a single or lesser number of outlets. Rolex, sports cars are some of the examples of this type of strategy.
Why is it important?
Even though it may seem easy for company to directly distribute its own products to the consumers without the help of any intermediaries, in reality however, it may not be that simple and beneficial. A simple reason being geographical limitation and business volume of distribution, it can be considered counterproductive and costly for a company that produces daily use products like soaps and toiletries to try and open manufactory stores in many locations to accommodate the large demand. It could also incur an additional burden for shipping costs, transporting costs and opportunity cost in terms of waiting for the product to reach the customers after placing the order. These may not favor the growth of company. Hence it is important for a company to carefully plan on what kind of distribution channels best suits their products.
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