Marketing Mix Elements (4P) - Distribution


Who are the Intermediaries We Hear in the Media?

  • Wholesalers
  • Marketers
  • Retailers


    What Do Intermediaries Do?

    • Direct marketing may not be financially viable.
    • Manufacturers prefer investing in production rather than marketing.
    • Intermediaries leverage economies of scale provided by mass distribution.
    • They reach a broader target audience, distributing products to the market more extensively.
    • They reduce the relationship between the producer and the end-user.


      What is Distribution?

      Distribution refers to all activities from getting the product or service to the sales channel to reaching the end-user.


      Distribution Channels

      Distribution channels are the paths through which products or services move from producers to consumers. To elaborate further, they are structures formed by internal units of organizations and external marketing firms that establish connections by establishing social and economic relationships.


      Classification of Distribution Channels

      Classification of distribution channels is based on the following criteria:

      • The type of relationships between channel members
      • Managerial relationships between channel members
      • Integration between channel members


        Distribution Channels by Relationship Type

        It determines whether distribution is direct or indirect based on how much of the distribution tasks the business undertakes itself and how much it passes on to legally and economically independent channels.


        1. Direct Distribution

        Direct distribution is when a producer delivers products and services to end-users without any intermediaries. The creation of a direct distribution channel depends on the characteristics of the product or service, the qualities of the producing business, the proximity of consumers to the production site.

        Factors Facilitating Direct Distribution:

        • Proximity to the production area and consumers
        • Matching supply and demand speeds
        • Limited number of consumers concentrated in specific areas


          2. Indirect Distribution Channels

          Indirect distribution channels involve independent commercial enterprises (intermediaries) that have economic independence between the producer's business and the end-user. Indirect distribution channels can be explained as commercial enterprises involved in different stages of distribution; wholesalers, semi-wholesalers, retailers, brokers, and sales representatives.

          Conditions Determining the Presence of These Organizations in the System:

          • Characteristics of products and services to be distributed
          • Goals of the business
          • Costs of transportation, storage, and financial operations incurred by the business conducting production
          • Size of the job's risk


            Intermediaries in the Distribution System



            Types of Distribution Channels



            Distribution Channel Options



            Distribution Channel Options for Industrial Products


            The length of the distribution channel varies according to the levels within the distribution channels.


            Why Is Indirect Distribution Preferred?

            • Even though direct distribution is done well, it usually exceeds the financial possibilities of the business.
            • Businesses want to increase their investment in their main areas of activity.
            • The expertise and experience of intermediary businesses, their relationships with other intermediaries and consumers, and their positions in the market make them advantageous.
            • The business may have to sell products produced by other businesses that complement its products.
            • Direct distribution may not be suitable for some products.
            • Working with intermediaries saves on commercial relationships.


              Distribution Policies



              1. Intensive Distribution

              • The aim is to reach all consumer segments.
              • Products are distributed to as many retailers as possible, covering all geographical areas.
              • Raw materials and products are easily available.
              • Distribution costs are high.
              • There is a high risk of losing control for the manufacturer.
              • Brand image may be adversely affected.


                2. Selective Distribution

                • Applied for high-liking, luxury products.
                • The manufacturer may not prefer to use every channel or institution.
                • Not every retailer is allowed to sell the products.
                • The distributor values the scale, technical capabilities, and service quality of the business.


                  Basic Drawbacks

                  • The entire target market cannot be reached.
                  • Since the success of new products is not proven, the distributor may be obliged to guarantee the business.
                  • Because limited product diversity can reduce the profit-making opportunities of the distributor, it may not be attractive for selective distribution.
                  • After-sales support services may require a long and expensive learning process.


                    3. Exclusive Distribution

                    • It is a method applied by the manufacturer to differentiate the product, create a product and service quality image, or maintain and strengthen the existing image.
                    • The number of intermediaries distributing the products is limited, and only one intermediary is authorized for distribution and sales in each region.
                    • It has similar disadvantages to selective distribution.


                      Factors Influencing the Structure of Distribution Channels


                      1. Product-Related Factors

                      • Unit value of the product: Products with a high unit value are delivered to consumers through shorter channels compared to those with a low unit value.
                      • Shape of the product: Products that need to be consumed quickly or are perishable or fashion-related are delivered to consumers through shorter channels.
                      • Post-sales service requirement of the product: In technical terms, products requiring support may require the manufacturer to provide services such as post-installation, operation, maintenance, and repair. In such cases, direct distribution is preferred.
                      • Standardization of the product: The length of the channel is not important in the distribution of standardized products.


                        2. Factors Related to Market Structure

                        • Number and geographical distribution of consumers: Direct distribution is preferred if the number of consumers is limited and concentrated in a specific geographic area. If the number of consumers and their geographic distribution are extensive, indirect distribution channels are used.
                        • Consumer behavior: Indirect distribution channels are preferred if purchases are made in small quantities and frequently; direct distribution channels are preferred if purchase frequency is low and quantities purchased are high.

                        3. Competition Situation

                        Distribution channels are decided considering the channels used by competing businesses in the market.

                        4. Factors Related to the Business

                        • Financial strength of the business: Businesses that are financially strong require less dependence on intermediaries. Therefore, they tend to use more direct distribution channels.
                        • Position of the business in the market: Businesses with high visibility and easy access to buyers in the market can more freely choose their distribution channels.
                        • Marketing objectives of the business: If the business aims to increase market share, it establishes relationships with more and different types of channel intermediaries. If the goal is to maintain market share, existing channels and relationships with the same level of intermediaries are strengthened.
                        • Type and quantity of products produced by the business: If the variety and quantity of products produced are extensive, the business conducts distribution through its own retail stores (direct distribution).

                        5. Factors Related to Intermediaries

                        • Level of service provided by intermediaries: Indirect distribution is preferred if intermediaries perform services that the producer cannot or if their service level is superior.
                        • Availability of intermediaries that match the desires and needs of the business.
                        • Ability of intermediaries to comply with the demands and policies of producers.
                        • Cost.

                        Physical Distribution

                        All efforts to ensure the flow of products or services to the market, ready for consumers at the desired time and place, constitute physical distribution. This includes transportation, loading, unloading, storage, inventory control, packaging, etc. All functions of physical distribution should be coordinated, and the cost of physical distribution should be minimized.

                        The costs of physical distribution should be evaluated with a total cost approach. In other words, instead of calculating the costs of functions separately, the total cost of all functions is considered.

                        Well-planned physical distribution:

                        • Increases sales.
                        • Creates time and place utility.
                        • Reduces distribution costs.
                        • Maintains price stability.

                        Institutions in the Distribution Channels System

                        • Producer: The producer can handle both production and distribution.
                        • Wholesaler: Businesses that buy and stock products in large quantities from producers without engaging in retail sales, and supply the needs of professional users regularly.
                        • Retailer: Businesses that purchase ready-to-use products and sell them to end users.

                        1. Wholesaler

                        They facilitate the relationship between consecutive industries and between producers and retailers.

                        Benefits provided by wholesalers to producers:

                        • By purchasing large quantities from the producer, wholesalers take over the storage function, thereby reducing the producer's inventory costs.
                        • They buy seasonal products during off-seasons, allowing producers to maintain year-round operations.
                        • They continuously monitor the market, provide information to producers, and guide them regarding demand fluctuations.
                        • They ensure product distribution to areas where transportation is difficult and retail businesses are inadequate.

                        Benefits provided by wholesalers to retailers:

                        • They sell products from multiple producers to retailers in one go, facilitating the purchasing process for retailers.
                        • Due to their stock availability, they can deliver goods very quickly.
                        • They assist in selecting producer businesses and products.
                        • They facilitate credit for retailers.
                        • They advertise private-label products to facilitate sales for retailers.
                        • They provide market information to retailers and guide them accordingly.

                        Types of Wholesaling

                        • Buying centers
                        • Independent wholesalers
                        • Voluntary chains

                        Buying centers

                        These are distribution organizations that engage in wholesaling activities. Only members and partners can benefit from wholesale services. These members and partners are bound to the buying center by a fixed-term contract. The expenses of the buying center are covered by its members and partners, and the buying center receives commission in three ways:

                        • From purchases made by members or partners.
                        • As a percentage of turnover volume of members or partners.
                        • Predefined fixed fee.

                        Benefits provided by buying centers to their members:

                        • Reduction of producer prices.
                        • Reduction of distribution costs.

                        **Voluntary chains

                        At the end of the year, profits will be shared in accordance with the turnover volume of their members.

                        **Integrated retailers

                        • Independent retailers: These are businesses operating on a small scale, with a limited number of customers, and can be established anywhere and operated by individuals lacking professional knowledge.
                        • Integrated retailers:
                          • Department stores
                          • Public markets
                          • Chain stores
                          • Consumption cooperatives
                          • Supermarkets
                          • Hypermarkets

                          3. Direct Marketing


                          Interactive marketing method aiming to achieve measurable results using one or more advertising channels based on a database and aiming to transact business anywhere.

                          • Direct sales
                          • Direct mail
                          • Telemarketing
                          • E-commerce




                            Inventory Management

                            Inventory refers to the products or product groups in the possession of the business, which have physical or monetary values to be used or introduced to the market in the future. The fact that production and consumption points are often separate makes it necessary to maintain sufficient inventory throughout every stage of the logistics system. Raw materials, semi-finished products, and finished products are all included in the concept of inventory.

                            Inventory, which provides place and time utility to consumers and users, is a balance between purchase, sale, and production from a financial perspective. On the other hand, since it requires a significant amount of investment, its quantity should always be well adjusted. The increasing distance between production and consumption significantly affects both the transportation requirement and the stocking policies pursued by the business.

                            In theory, a business can maintain an equal amount of inventory for each product it produces in all its facilities. In practice, only a few businesses engage in such luxury stocking without considering total costs. Therefore, the primary goal should be to maintain inventory at the lowest possible level while complying with customer service levels and production targets. Holding excessive inventory can compensate for design flaws in the primary system and weaknesses in the management of physical distribution. On the other hand, excess inventory used for support purposes can result in a higher cost than the expected total cost. For this reason, the distribution program should aim to start with as little inventory as possible.