Distribution and Pricing Strategies for Businesses
Distribution Management Strategies
There are several key distribution strategies:
- Direct Channel: This involves selling directly to the consumer without intermediaries. While it offers lower costs, its market reach is limited. Direct channels are typically used by utilities or when dealing with a small number of business clients. Most manufacturing companies rely on intermediaries (wholesalers and retailers) due to the complexities of distribution.
- Multiple Channels: This involves using various channels or selected establishments. However, using different distribution channels can lead to conflicts, as retailers may reject a product distributed through competing channels.
When assessing a foreign channel, consider these aspects:
- Scope/Market Penetration: The number of customers they can reach, point of sales, etc.
- Market Knowledge: Their understanding of the target market.
- Brand Alignment: Ensuring their image matches the company’s strategy.
- Service Quality: The level of service they provide.
- Pricing: Their pricing structure.
- Payment Terms: The payment conditions they offer.
- Negotiation Skills: Their ability to negotiate effectively.
Manufacturers must collaborate with distributors to ensure products reach consumers in optimal condition. This may involve incentives like promotions and discounts.
Pricing Policy
Pricing is crucial as it has short-term effects, influences buyer psychology, directly impacts demand, and serves as a comparison tool between products and brands. Key pricing strategies include:
- Pricing based on policy objectives.
- Strategies based on the product life cycle stage.
- Price discrimination strategies.
- Promotional strategies.
- Pricing based on competitive pressures.
- Psychological pricing strategies.
Price Fixing Methods
Factors influencing price fixing:
- Price perceived by buyers.
- Internal factors like cost or expected return.
- Methods based on competition and distribution channel characteristics.
If the average competitor’s price falls within the maximum and minimum prices determined by factors (a) and (b), the company can compete. If not, cost reduction or other actions are necessary. A higher price than the competition must be justified by consumer perception.
Distribution Functions
Distribution involves the actions needed to deliver products/services to the consumer, considering place, quantity, time, and manner. Key functions include:
- Transportation: Moving the product to the consumer.
- Storage: Managing inventory to align production with consumer demand.
- Timing: Matching production and consumption periods.
- Market Feedback: Informing manufacturers about consumer preferences.
- Consumer Contact: Providing information, advertising, and promotions.
- Cost Reduction: Streamlining the supply chain.
Distribution Channels
Channels can be direct or indirect, involving wholesalers, retailers, agents, and representatives. They can also be short or long. Wholesalers purchase in bulk from manufacturers and resell in smaller quantities, potentially focusing on origin or destination (producer or consumer proximity). Retailers then sell to the final consumer.
Types of Retail Establishments
- Traditional Trade: Small, family-run businesses, often specializing in food and cleaning, located near consumers. They have been losing market share.
- Supermarkets: Medium-sized, self-service businesses offering a wider range than traditional stores, with greater bargaining power with producers.
- Hypermarkets: Larger than supermarkets, located in shopping centers or industrial areas.
- Department Stores: Located in large cities, offering a wide variety of consumer products, divided into sections, with higher prices.
- Specialist Establishments: Small and medium enterprises specializing in a few product categories, offering a wide range within those categories, staffed by specialized vendors, and are more competitive.
- Markets, etc.