This information will allow you to describe what distribution is and what it means for a small business and the fundamental principles that govern it.
One of the purposes of marketing is to satisfy the needs of consumers, so how do the company's products reach the final consumer? We can say that distribution is the part of marketing in which the goods or services produced by the company are reached by consumers to satisfy their needs.
Well, to whom you deliver your products, how do you deliver them, what means of transport do you use for this purpose, in terms of packaging and storage, what needs does your company have. These and other questions are answered with what is called a distribution system.
Be aware that a large part of the stability of your company depends on distribution, therefore it is a fundamental activity for your success.
For a product, whatever it is, to reach its final destination, or better, its final consumer, it is quite likely that it will have to go through several hands, this is the route that specialists call the distribution channel, which in many cases it is the difference between permanence or exit from the market.
In short, the distribution channel is the path taken by the product to go from the company to the consumer, but it will not always be the same since, just as the product may arrive directly from the producer to the consumer, it may also use distributors. or to other producers and in other cases including institutional means.
When we speak of a direct path, we refer to the shortest between the producer and the consumer, that is, the distribution is direct, but at the same time that it puts the consumer closer to the producer, it is also distinguished by its high frequency of sales, but in few quantities.
A more complex channel is that of distributors, which are individuals or companies that are responsible for making the goods or services that the company produces reach the hands of the final consumer, with an increase in the cost of intermediation.
The distributors are of various types:
- Suppliers: are the people who are in charge of selling the product wholesale or retail. Intermediaries: characteristic of the agricultural sector. Consumer cooperatives: These are generally warehouses that distribute basic necessities.
As already mentioned, there are also institutional channels, which are made up of representatives of institutions that purchase products for the benefit of their group of consumers, including schools, hospitals, etc.
When we talk about other producers, we mean that if the company produces semi-finished products, others are in charge of finishing the product to deliver it to the final consumer. The options for the micro company can be reduced to two:
1. Sell directly to the final consumer (direct)
2. Sell through distributors. (hint)
Both options have advantages and disadvantages, depending on the type of product, the nature of the companies, the needs of the consumers, the sales volumes that it handles or that it needs, the periods of which it is speaking, it may be more advisable than the other.
In an analysis of your company, you may find that at an equilibrium point for a given volume of sales, the costs are the same for both types of distribution, but above or below this, a decision must be made to minimize costs.
On the other hand, if you consider the geographical location of your clients, you can make a combination so that locally it is direct and in remote places it is indirect. Another alternative is the association with other producers to decrease the fixed costs of leasing services and others and increase the variety and volume of goods, thereby increasing sales and applying direct sales.
As we have already seen, distribution channels are limited by the characteristics of:
- Consumers: such as the number and geographical location of these, which affects sales volumes. Products, since size, durability, unit value, standardization, demand special qualities from distributors, such as the ability to storage, economic solvency. The ability of distributors to transport, advertise, credit. The competition, if you want to be competitive must be on par with your competitors and that means that at least you will use the same channels as them.
Now let's talk about responsibilities. Each member of a distribution channel assumes responsibilities, makes commitments, and performs tasks to achieve the goal of distribution. The tasks, commitments and responsibilities are around the payment terms, the prices, the transport of products, their storage and security, the packaging, the promotion, the granting of credits, the delivery conditions, etc.
This requires absolute clarity among the channel's constituents regarding responsibilities. If possible to avoid misunderstandings or misunderstandings, it is best to keep everything in writing.
The company must indicate very clearly and precisely the basic prices and discounts it provides. This will save you trouble. Since arbitrary discounts are a source of discord and a detriment to the company. In fact, discounts are justified when they come from a reduction in costs or increases in company income.
On the other hand, prices and discounts must show the same transparency, and much more in terms of payment, which should not be the most onerous, but once accepted, must be met. Remember to make reservations about defective items when agreeing on these deals to seriously respect and trust your company.
Keep in mind that the conditions must be the same for all distributors, it is unethical to sell to others nearby under different conditions, apart from that this will not please their distributors and will surely even discourage them from continuing to sell their product when what is looking is just the opposite.
Lastly, it is vitally important that you periodically evaluate your distributors in order to support them if this is the case or outright change them for others that offer better performance.
An easy way is calculating the total cost of production, which is what it costs us to produce the good that we sell to the distributor, plus the direct and indirect marketing costs, and to this we subtract the sales revenue that the distributor represents to us by multiplying the number of products. for the sale price and so we get to its performance.
