Distribution policy

Distribution policy is an element in marketing-mix strategy, also known under term "place", alongside the price, product and promotion. Distribution policy refers to all the processes of goods acquisition, which also includes all undergoing logistics activities. One of the main focuses is to make sure that all the services company provides are always best quality for the consumers.

This strategy main goal is to achieve high customer satisfaction. To achieve this, the company have to make sure it pays high attention to their distribution channels, like online trade, wholesale trade or direct selling, on the same level as operating methods.

Policies and strategies of distribution

It is very important for the company to choose best distribution channel. A manufacturer should review his channel policies all the time, ensuring they are always adequate to his situation. Another crucial element is deciding on the amount of the middlemen in distribution channels.

There are 5 main policies that can be adopted:

1. Intensive Distribution Policy - Producer of the goods wants to use as many outlets in as many places as it is achievable. With this policy, company focuses on mass distribution of their goods, which commonly are cigarettes, sweets, juices, etc., which are available for purchase in wide range of stores and retail shops like food shops, variety markets, restaurants, etc. This policy is usually adopted for products with low base price and high purchase frequency.
2. Selective Distribution Policy - In this case, producer of the goods chooses a specific number of shops he will cooperate with closely, to achieve faster sales of the product. This policy if often adopted for goods that are from well known brands or with high base unit price. Goods like those aren't usually selling frequently. They are often: cars, washing machines, TV's, etc.
3. Exclusive Distribution Policy - Producer of the goods chooses one single distributor in the area and enters a contract with him. The distributor is then appointed as sales agent for a specific product the company supplies. Under the contract he is obliged to not sell goods supplied by the competition, while producer agrees to not supply to anyone else besides the chosen distributor. This kind of policy can help create a unique image of a product or brand.
4. Consignment Selling - Under this distribution policy, title and control over the goods are in the hands of producer, while goods are being handled by a distributor (middleman). He is in a position of an agent, while not being a wholesaler or retailer. Distributor often receives commission form the sales. Producer is still the owner of the goods and can specify on the distributor his actions in terms of investing money or taking any risks. It's very uncommonly chosen policy in current times.
5. Franchise Selling Policy - Final policy, franchise, means the owner of a brand or a producer gives someone right to distribute goods under his name. It's a whole system, where the producer or owner chooses a person from received applications, grants that person rights to distribute products or services under his name, in specifically defined area, for a promise, that the distributor will adopt specific behaviours and rules. Good example here can be McDonald's restaurants: chosen person has to suit the place with correct colors and food menu, while still having free hand here and there.

Examples of Distribution policy

• Retail Distribution: This is a common form of distribution and is the direct selling of products to consumers through outlets such as supermarkets, convenience stores, and department stores. Products are stored in warehouses and shipped to retail outlets.
• Direct Distribution: This type of distribution involves selling products directly to the consumer either through mail orders, the internet, or through a sales force. Companies that utilize this form of distribution are often able to offer lower prices by cutting out the middleman.
• Wholesale Distribution: This type of distribution involves buying products in bulk from manufacturers and then selling them to retailers. This allows retailers to buy products in large quantities, which can result in a lower cost for the consumer.
• Franchising: This type of distribution involves a company granting the rights to a franchisee to sell its products in a specific area. The franchisee then pays the franchisor a fee for the right to do so.
• Export Distribution: This type of distribution involves selling products to foreign markets. Companies that use this type of distribution must become familiar with the regulations and customs of the countries they are selling to.

Advantages of Distribution policy

A distribution policy can be beneficial to a company as it can:

• Help to expand their customer base by making their product more accessible. In addition to this, it can also increase their market share as it can help to reach more potential customers.
• Ensure customers receive the best quality products and services. This is because distribution policies make sure that customers have access to the right products and services at the right time.
• Provide a greater level of control over the logistics and supply chain. This means that companies can better manage their inventory and ensure that products are available when needed.
• Reduce costs associated with distribution. By streamlining the distribution process, companies can reduce their overall costs and improve their bottom line.
• Help to build customer loyalty. A reliable distribution policy can establish trust and credibility with customers, which can lead to repeat purchases and customer loyalty.

Limitations of Distribution policy

Distribution policy is an essential element in marketing-mix strategy, that has many limitations. These are:

• Cost: Distribution policy can be costly to implement, as it involves transportation, storage, warehousing and other logistics costs.
• Time: Distribution policy takes time to implement, as it involves multiple processes that need to be done in a certain order and timing.
• Sustainability: Distribution policy must be sustainable, as it involves the use of resources and energy.
• Geography: Distribution policy is limited by geographic boundaries, as it is difficult to transport goods over long distances.
• Technology: Distribution policy is limited by technology, as it is difficult to coordinate many different processes without proper technological infrastructure.
• Regulations: Distribution policy is limited by regulations, as certain regulations must be followed in order to transport goods across different countries.
• Competition: Distribution policy is limited by competition, as different companies’ distribution policies can be similar or even identical.

Other approaches related to Distribution policy

Distribution policy is an essential element of marketing-mix strategy which is responsible for how goods are acquired and logistics activities are conducted. Other approaches related to distribution policy include:

• Logistics - This involves the management of the flow of goods and services between the point of origin and the point of consumption in order to meet customer requirements. This includes the planning, implementation, and control of all movement and storage of products.
• Inventory Management - This involves the management of the stock levels of products in order to ensure that the right product is available at the right time in the right place and at the right cost.
• Distribution Channel - This refers to the means of getting products from the manufacturer to the customer. This includes retailers, wholesalers, and distributors.
• Supply Chain Management - This involves the integration of all the activities involved in the production and delivery of products from the supplier to the customer.

In summary, distribution policy involves the management of the flow of goods and services from the point of origin to the point of consumption, including logistics, inventory management, distribution channel, and supply chain management.

Footnotes

Distribution policy — recommended articles

Direct distribution — Aggregator model — Sales agent — Dual distribution — Exclusive distribution — Selective distribution — Channel width — Sole distributor — Product line pricing

References

• Kaspers C. (2018), Analysis of the psychological effects of communication policy in consideration of a consumer brand, GRIN Verlag
• Mathirajan M., Manoj K., Ramachandran V. (2011), A design of distribution network and development of efficient distribution policy, "International Journal of Logistics Systems and Management", Vol. 9, p. 108-137
• Sharma F.C. (2016), Sales Management: Latest Edition, SBPD Publications
• Terao T., Otsuka K. (2016), Development of Environmental Policy in Japan and Asian Countries, Springer

Author: Jakub Urban