Distribution - origin and destination of product
Distribution is a profit-orientated activity embracing:
planning;
realization
and control of physical flow of materials and final products from the place of their origin (production) to the place of selling them.
Distribution includes many kinds of activities. First sales level is predicted, on the basis of which production level is planned and appropriate amount of materials is collected. This raw materials are stored in warehouse, than used in production process to create final products. These products are packed, sent to a company warehouse for final products. Then are transported to the outside warehouses (sometimes located hundreds of kilometres away from the company) to reach customers finally.
The cost of distribution is a sum of transport costs, fixed and variable warehousing costs and costs of sales decreases caused by distribution delays. Sometimes it accounts for 30-40% of total costs in a company, so there are great possibilities of improving situation even by slight decrease in these costs. Distribution however is not only the matter of costs, but if it is well-organised it may be important means of attracting new clients by offering them better services or lower prices due to improvements in the area of distribution.
The simplest definition of distribution aim states that it should provide proper goods to proper places in proper time and at the lowest cost. Unfortunately there is no system of distribution in which quality of services might be maximized and simultaneously costs minimised. The better standard of services, the higher cost of it, so the company policy cannot focus only on minimising costs. The quality and system of distribution should be defined in a given company on the basis of analysis of customers' needs and standard of competitors services. The company have to minimise costs and remain a stable standard of service.
Distribution is a step in economic process which brings goods and services from those who make them - manufacturers to those who use them - consumers. Many steps lie between the making of a product and its delivery to the consumer. All means by which the goods are sent from manufacturers to customers are known as channels of distribution.
Channels of distribution are usually made up of manufacturers, middlemen [pośrednicy], wholesalers, retailers, exporters and importers. They may be shorter or longer. A manufacturer may avoid dealing with middleman by direct deliveries to final consumers or selling in shops located in the close neighbourhood of the factory, however in this situation the number of customers will be much smaller. Such a channel is the shortest one. If a producer decides to use wholesalers, retailers and other middleman, the channel becomes longer but products can reach a greater number of customers.
Taking into consideration the number of middlemen we can say about wide and narrow channels:
wide channel of distribution is for example when there is a large number of wholesalers who deal with distribution of fruits;
a narrow channel is when there is a small number of wholesalers who handle the distribution of jewellery.
So manufacturers should choose such channel of distribution which is well suited to the type of products they produce.
Nowadays the Internet creates a channel of distribution especially for goods and services which can be written in a digital form [forma cyfrowa], namely books, newspapers, music, photographs, movies or computer games and programmes. Internet enables cheap, quick and simple distribution of such goods.
It has many advantages also from the producer point of view. The most important is that it lowers costs because middlemen are omitted and manufacturers don't have to spent money on: printing catalogues, promotional leaflets, brochures, warehousing stocks or keeping many retail outlets and employing sales people. Electronic commerce through the Internet simplifies and shortens channels of distribution and, what is more, encourages international trade regardless of borders.
The elements of distribution process:
dealing with orders - the main tendency is to make the period between placing an order by customer and getting payment shorter. Of course it depends on the speed of supplying ordered goods, but also on administrative procedures, which can be shortened by the extensive use of computers and Internet
warehousing - every company has to warehouse its products, because the production cycle isn't usually the same as consumption cycle (especially in seasonal production of food). A company may have its warehouse in the production site or away from its factories, one or many spread all over the country. These warehouses may be the ownership of a given company or they may be rented. Of course the more warehouses, the higher distribution costs, but at the same time, the shorter time of supplying goods to customers.
stocks - sales people in the company would like to have as many stocks a s possible to fill the orders immediately. On the other hand it increases warehousing costs. So the level of stock should be at a such height to maximise the difference between additional profits and costs from keeping more products in warehouse. The important decisions connected with stocks, as far as production materials are concerned, refer to the high and frequency of orders. If orders are less frequent their amount is bigger, so quantity discounts may be offered to the company. On the other hand, variable costs of warehousing increase and company has to spend more money on products which will be used in the future, which is an alternative cost (company could spend this money on more profitable activities). There is a growing number of companies using just-in-time system of production, in which materials are delivered just at the time when they are needed to production. This system is especially popular in Japan.
Retail and Wholesale outlets - competition between small shops, supermarkets.
Difference between retailer and wholesaler
Theoretically there is an essential difference between retailers and wholesalers. In the chain of production wholesal shops
There are different kinds of retailers in trade - from small traders, department stores to multiply shops.
Selling goods by the small traders is the basic and the oldest way of trading, in which one person (the owner of a shop) deals with all the aspects of business - supplying the shop with products, selling them and making all the paperwork. Usually such shops offer one kind of product, for example groceries or greengroceries.
Department stores become popular in the 19th century, offering complex set of products in one, big building, located usually in the centre of a city. Shopping in such department shops was a sign of high social status because of high quality of products and service and high prices.
Multiples are chains of stores which usually specialise in one particular group of products, like furniture or household products. In many cases the multiples have their own factories where they produce goods under their own name or directly employ small factories to manufacture for them under the multiples name or brand.
Finally there are supermarkets and hypermarkets. Supermarket, introduced after 2nd World War is a big building with vast (extremely large) parking place, in which usually food products are sold.
Hypermarket is even bigger than supermarket and has on offer products of different groups including consumer durables - furniture, households products or gardening equipment. These shops fulfil the function of retailer and wholesaler at the same time in many cases, because it is often that some products are manufactured especially for a given supermarket or hypermarket, though these products are still sold to individual customers.
The competition between small shops and supermarkets can be observed since the introduction of supermarkets.
The main advantage of small shops is that
they are more flexible and can change their profile according to the customers' preferences.
Though such shops usually buy small amounts of products and aren't allowed discounts, they can keep prices low because of low overheads connected with rent, electricity bills and salaries (very often there is only one worker - the owner him/herself in a small shop).
But supermarkets have more advantages:
they are bigger and order in bulks with trade discounts;
they have a self-service of buying , appealing to many customers;
opportunities to organise promotions on some products selling them even without profit or with loss but balancing their income from more expensive products of other kinds.
consumers are attracted (lured away) by rich choice of products, which can be bought in the same place and by the nice layout of a shop. The plan of supermarket isn't accidental - the most expensive products situated at the level of people's eyes, lower there are toys and sweets for children, sweets and cigarettes are available at the cash desks to remind customers of buying it.
In Poland there are lots of protests of small traders against supermarkets. After the system and economic change in 1989 hypermarkets began their activities in bigger towns of Poland . They are owned especially by foreign companies and benefit from special law regulations - they don't have to pay some taxes during the period of many years. Many small traders feel to be in danger when new supermarkets are opened. Small traders are afraid of going bankrupt. But from a customer point of view, supermarkets have a lot of advantages, of course lower prices is the most important of them.
Personally I don't feel like buying in small shops because from my point of view supermarkets have more advantages. Apart from lower prices and many promotions, they offer vast range of products and most of my needs can be met in one convenient time-saving trip. They offer parking facilities and well-known brands.
Declining markets and new markets
The understanding of a role of new and declining markets is important in activities of many different companies. This make them able to prepare appropriate marketing policy and adjust research and production level to current needs of customers according to its estimations.
New and declining markets are parts of market evolution cycle, which is similar to product life cycle, covering 4 phases:
launch,
introduction,
maturity,
saturation.
Of course instead of talking about new and declining markets we can divide market evolution cycle into 4 phases:
start phase
At this level there is only potential demand for a certain kind of products. Such goods haven't been produced yet because of not sufficient technological development or because of the lack of demand for unknown products (for example before bicycle was invented there was no demand for it). On the basis of customers needs a company defines the features of a future product (in case of bicycle the shape, technical features, size, number of functions) conducting opinion polls. If those preferences are concentrated in one point , a company should launch the product with such most desirable feature. If preferences are dispersed equally, a company ha a choice of 3 strategies:
a single niche strategy - the product is adjusted to the one specific needs, number of customers is lower;
a few niches strategy - to acquire more than one segment of the market;
mass market strategy - appealing to the biggest amount of potential customers with different tastes. It can be chosen by big companies, which can afford differentiation in its products and are able to keep their share in the mass market despite the hard competition.
development phase
After a successful launch of new product other companies follow this way. They have also 3 possibilities: single niche strategy, a few niches strategy, mass market strategy which means the direct competition with the first company.
As a rule small companies chose niche strategy and big ones the remaining two strategies.
Procter & Gamble company benefited from “surroundings tactics” going into e few niches with different kinds of products the market occupied in its central segment by a strong competitor. Taking over some of its clients , the company was finally able to launch a successful product into the central segment of the market, beating the competitor.
maturity phase - “market fragmentation”, “market consolidation”
Competitive enterprises serve all the main segments of the market, also trying to take over customers from other companies. The development of the market is slowed down. The market is divided into small segments due to strong competition.
The second possible phase is consolidation, which appears after an innovation has been introduced. If this product is positively accepted by customers, the producing company takes over a large segment of the market, which becomes consolidated. However other companies also try to follow the initiator and fragmentation increase.
saturation phase
The demand for existing product begins to sink due to the decrease in global demand or replacement by new goods, technologically advanced. The old technology is abandoned and new demand and technological cycle appears.
Of course the description of a market evolution can be based only on showing 2 general phases of new and declining market.
Stage of new market refers to situation when there are a few companies which begin to sell particular goods. Their activities are the same as described in the start and development stage.
Stage of declining market begins when the demand is fully met and fulfilled and lasts till the decrease in demand. It can be caused by creation of new needs, growing competition or development of technology.
A successful company should always try to introduce new products satisfying new desires of customers, as well as make adjustments to existing products to improve their attractiveness to customers and gain advantage against competitors. A company should always be seeking for a new solutions to explore potential markets and benefit as much as possible from existing ones.
4. Consumer protection
In market economy companies and sellers generally are for customers and their satisfaction, but there are exception. The basic rule for a successful company should be to treat its customers as the most important factor of their achievements. In a market economy, a customer-orientated company adjust all its activities to the needs and desires of clients, so that the quality of products and after-sales service is on the high quality. Of course it is always possible that company doesn't care about the quality and customer satisfaction in a long term. On the other hand even in the most carefully controlled production processes it is impossible to avoid some faults. It ma changing it for a good product without faults.
Voluntary guarantee given by a producer.
Producer or seller obliges that a given product will function well for a given period of time (usually one year) and if not- a producer will repair or exchange the equipment. Such kind of guarantee is used especially while selling equipment , which faults can be noticed in use - like cars, TV sets, CD players, videos, refrigerators, washing machines, vacuum cleaners. The terms of such guarantee are stated in a document enclosed to the sold product.
Of course the most frequent way of realising the rights by a client is to bring the damaged product to the shop with receipt and wait for a repair or exchange.
The other regulation of Polish civil law says that client has a possibility of using any kind of guarantee if 2 of them are available. So if he/she isn't satisfied with the producer conditions he/she may still use the basic regulations stated in the civil law. so the producers tend to offer better terms of guarantee and try to stick to them in order to avoid conflicts
If it isn't possible to solve the problem with faulty product dealing with seller or producer there are some other solutions for customers.
Firstly there are Spokesmen for Consumer Rights Protection in every district of Poland (so there should be about 310 people, however the institution has been introduced recently and in some districts this positions are still not occupied). Having problems with faulty products and producers unwilling to help, a customer can contact such person to get help - which actions should be taken and what are consumers rights.
There is also an institution of courts of conciliation, where both sides meet (seller and buyer) and try to reach an agreement. Those meetings are organised with help of the local Spokesman
Another institution which is devoted to help citizens in different problems, not only connected with conflicts with producers, is Spokesman for Civil Rights, having his/her office in Warsaw.
There is also a possibility of giving the matter to the hands of a lawyer and trying to win with producers in court, which can be used if any other steps haven't been effective. Such a method is used very rare by customers because it takes a lot of time to get a sentence (because of backlogs in Polish courts). It would be advisable if only the responsibility which the producer is trying to avoid was of great value.