A distribution channel is a series of business or intermediaries through which goods and services go through until it reaches the end consumer (Cravens, 2011). A direct channel allows the clients to purchase the products from the manufacturer, while the indirect channel enables the client to buy the goods through a wholesaler or retailer.
Distribution Channel Strategies
The company uses a distribution channel so that they may maximize the sale products as they venture in the market. The companies focus more on how the products will get to the end-user or final consumer who in turn increases the sales revenue of the company.
How does a company decide how their products will be sold?
The company decides how their products will be sold through determining the price of the products they intend of selling (Peter, et al 2013). Pricing is one of the factors that shape business in the perspective of the customers who are in the market. There are three ways a company will use to decide how the products will be sold in the market through pricing strategy.
What the Company will Gain in terms of Revenue
Companies usually employ pricing strategies that are geared towards ensuring they can make sales and optimize profits and most companies choose to do this in markets with little or no competition. The company sets out the price of the products based on the maximum cost of related or similar products from other companies. This is a strategy that companies use if they want to realize profits within the shortest period and companies can be able through this strategy to recover the high start-up costs they may have incurred such as R&D and marketing expenses.
"Gross Profit Margin Target"
This is the second strategies that the companies use when trying to determine the products to be sold in the market using the pricing strategy. Companies are always hell-bent on ensuring they achieve maximum sales return once they sell a product. Companies use this strategy to sell products which can make them achieve maximum profits which will help them meet their expenses and gain positive net income or cash flow.
Most companies employ the strategy known as "Most Significant Digit" pricing when they are trying to decide the products which they will sell in the market. Most companies ensure if they are selling products that have the price of $30, they provide to set the price to read like $29.50 or $29.25 that much small difference will make more clients to consider buying their products and thereby the company will be able to make maximum profits from sales.
When distributing the products, the companies should be able to get the knowledge on demand for the product that is there in the market. For example, when managing inventory, the retailers should purchase the goods in bulk and be able to sell them through sales estimation strategy. The other way the company can also ensure the distribution channel is effective is through proper marketing of the products they want to stock, and they may even record the pre-orders so that they may know the exact production and quantity ordered and through this they will be able to meet the demand of customers in the market. The other strategy the companies uses is known as Drop-Shipping model which reduces the overhead, where the "drop shipper" sells the products using the catalogs of the wholesalers and this will help them to manage and practically deliver inventory.
How does the place where the products will be sold impact on the success of the company?
The place where the company sells its product is significant and it defines the success of the company in terms of sales optimization and maximum sales returns. The companies always employ place strategy which is a fundamental role that helps them to decide where their products and services will be sold in an attempt to gain market share and consumer purchases, which defines the success of the company. For instance if a company has both online and offline places to sell their products , it will help the company maximize the sales on the online platform since the clients will be able to get more access to different variety of products and they should be able to place their distribution outlets in strategic locations which will help the company to gain market share and usually the company will be successful since it is defined through the profits it makes after all the expenses are deducted. The company should sell their products to places where there are a lot of customers who and with proper pricing the company will increase its leverage within the company. For example, Amazon Company usually has an online store, and offline stores or physical stores which are located in different regions and nations and the company gains market share, and that is how the company can gain more revenue and profits within the market.
A company employs a variety of pricing strategies to be able to sell a product effectively. The price can be set by the company with the view of maximum profitability through the units they will be able to sell. The company should be able to have effective proper marketing strategies to be able to thrive within an industry; the other view is to increase the market value and share of the company within the market.
The company should be able to come up with elaborate pricing system of their products and some of the characteristics that define the pricing system of a product in the market economy.
Price is neutral
Prices are neutral since they cannot be impacted by either producers or consumers, which means that consumer can purchase whatever they need and producers can make and sell the products they have uniquely within the market. The prices are undecided by many interactions between the producers and consumers.
Prices are driven by forces of demand and supply in the market
The costs of goods are determined by the forces of demand and supply within the industry, whereby the demand decreases the prices will also decrease so that the customers may be motivated to buy the products. When the demand increases the prices of the goods, the prices will increase since their lot of consumers within the market, and the company will gain market share and increase the sales revenue.
Prices are flexible
Prices are subject to constant fluctuation rates as a result of interaction between the sellers, buyers and economic environment and prices can be able to change are not fixed.
The primary management challenges that may be caused by pricing strategies is how they will be able to come up with effective strategies which will guarantee them to get high market share and value within the industry. The cost related challenges which the management will be required to invest in to come with new pricing strategies which will be able to ensure the company gains a lot of revenue. The company will be able to respond to challenges in their distribution strategy through securing they embrace direct distribution channels which will help them to reduce the barriers within the chain that affects the quantity and quality of the product this will help the company solve the problems that may be caused by brokers.
The management of any company is also tasked with solving challenges that may be brought about by poor pricing strategies. They do so by first doing research on the pricing strategies of their rival companies and strategizing theirs along in an even better way. The company should also be aware of how the forces of demand and supply affect how they make prices and should develop policies which will help them cope up in such market situations. Like developing game marketing to be able to lure more consumers into purchasing their products.
The pricing strategies are more effective in selling set. In a free market price are set by demand and supply of commodities while in some markets the government influences the cost of goods and services since they have some shares in that company. Discounts and incentives is another strategy used by the company to lure customers into buying products and offering services that have stalled or in goods that are almost becoming obsolete. It helps in reducing inventory in the organization, by allowing the movement of stocks through sales.
Place strategy deals with how an organization will distribute their product or service to the end customer. Efficient and effective distribution is vital in ensuring the company meets its objectives in marketing. A company can employ two distribution strategies; indirect and direct placement.
Indirect Distribution will involve several intermediaries before the goods reach the final consumer. For example, the retailer and wholesaler who make sure the products reach the final customer (Luca, 2013). Each component plays an integral role in the marketing field. The manufacturer is the person who makes the goods. Wholesalers sell goods to other businesses and not directly to the customer. Retailers will sell the products to the end customer. Direct distribution will deal with the final consumer directly, and no intermediaries are involved.
There are several places and supply strategies.
Concentrated Distribution: applies when the company wants to market cheap products, e.g., soft drinks.
Limited Distribution: applies when a company wants to market expensive products and also reducing the number of distribution outlets to a single outlet.
"Selective Supply": This involves reducing the number of retail outlets to specific outlets in strategic places in the marketplace. This type of supply involves electrical products and house appliances.
According to (Luca, 2013), creating an effective marketing plan involves having an appropriate place strategy. This will ensure there is a flow of goods from the point of manufacture to the marketplace where the client is. The location of the business should be strategic to allow customer easily access the company and if it will involve transportation ensure there is sufficient flow of goods and ensure they reach the customer at the shortest period. The buying decisions of a company depend on where its products are sold. Place strategy will be critical in ensuring the reduction of inventory in the organization, as the manufactured goods will be transported to the market quickly and the company can employ production method based on the number of demands placed (Westerbeek, 2012). An example of a company with such strategic plans includes Amazon which uses this strategy for marketing its products and also employs both online and offline methods. In terms of making a company have a competitive edge, the place will play a significant role in creating a good impression on its clients.
Place and Price plays a significant role in ensuring the organization has an effective marketing strategy and thee two components are essential in the four marketing mix. Effective and efficient place and price strategies are critical to ensuring the company thrives in this competitive business environment.
Cravens, D. W., & Piercy, N. (2011). Strategic marketing (Vol. 6). New York: McGraw-Hill.
Peter, J. P., Olson, J. C., & Grunert, K. G. (2013). Consumer behavior and marketing strategy (pp. 329-48). London: McGraw-Hill.
Luca, N. R., & Suggs, L. S. (2010). Strategies for the social marketing mix: A systematic review. Social Marketing Quarterly, 16(4), 122-149.
Westerbeek, H. M., & Shilbury, D. (2012). Increasing the focus on "place" in the marketing mix for facility dependent sports services. Sports Management Review, 2(1), 1-23.
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