Meaning of Place/Physical Distribution Mix
It is essential to make the product or service available to the customer at the right place and at the right time, then only the customer would be able to purchase the product or service. Place is an element of marketing and is a process of transferring goods from the place of production to the place of consumption. Therefore, Place Mix is an important decision and is related to the physical distribution of the goods and services to the customers. The decisions under place mix include deciding the market for distribution, the channel of distribution, etc. Hence, the place mix consists of Channels of Distribution and Physical Movement of Goods. The two different channels of distribution are direct channel and indirect channel. And the components of physical distribution include order processing, transportation, warehousing, and inventory.
Channels of Distribution
A set of middlemen or intermediaries who help an organisation in the flow of goods and services from the manufacturers to the consumers are known as Channels of Distribution. As customers for a product are scattered all over a country and they are produced in one place, it becomes difficult for the companies to distribute the products to the customers at the place of consumption. For example, spices are produced in Kerala but are consumed all over the country, which makes it difficult for the manufacturer to distribute them all over the country. Therefore, the producers take the help of some intermediaries or middlemen who can supply the products to the consumers. The intermediaries along with the help in the physical movement of goods, also help in the movement or title or transfer of ownership.
The common types of channels of distribution that helps an organisation in the transfer of goods from one place of manufacturing to the customers are wholesaler and retailer.
The channels of distribution make it easy for the customers to shop and manufacturers to distribute. For example, if there is a retailer between the manufacturer and the customer, then the customer can get a variety of products in one place. However, if there is no retailer between the manufacturer and the customer, then the customer has to reach different manufacturers for different products, involving a lot of effort. The middlemen make the distribution process efficient by providing the manufacturer with facilities like warehousing, transportation, etc.
Customer situation with or without the channels of distribution:
Case 1: When there is no middlemen or distribution channel.
In this case, the consumer has to reach different manufacturers for different products.
Case 2: When there is a middlemen involved.
In this case, the consumer can purchase a variety of products from one place.
1. Direct Channel (Zero Level)
As the name suggests, a direct channel or zero level is a distribution level through which an organisation directly sells its products to the customers with the involvement of any intermediary. For example, jewellers use direct channels, Apple sells its products directly to the customers through its stores, Amazon sells directly to the consumers, etc. Some of the most common types of direct channels of distribution are Direct sales by appointing salesmen, through Internet, teleshopping, mail order house, etc.
2. Indirect Channels
When a middleman or intermediary is involved in the distribution process, it means the organisation is using Indirect Channels of Distribution. The indirect channels of distribution can be classified into three categories; viz., One Level Channel, Two Level Channel, and Three Level Channel.
i) One-Level Channel
One level channel means that there is only one intermediary involved between the manufacturer and the customer to sell the goods. This intermediary is known as a retailer. In simple terms, under one level channel, the organisations supply their products to the retailers who sell them to the customers directly. For example, goods like clothes, shoes, accessories, etc., are sold by companies with the help of a retailer.
ii) Two-Level Channel
A most commonly used channel of distribution that involves two intermediaries for the sale of products is known as Two Level Channel. The intermediaries involved are wholesalers and retailers. The producer sells their products to wholesalers in bulk quantity, who sells them to small retailers, who ultimately supply the products to the customers. This channel is generally used to sell convenient goods like soaps, milk, milk products, soft drinks, etc. For example, Hindustan Unilever Limited sells its goods, like detergent, tea leaves, etc., through wholesalers and retailers.
iii) Three-Level Channel
Three level channel means that there are three intermediaries involved between the manufacturer and the customer for the sale of products. The three intermediaries involved are Agent Distribution, Wholesalers, and Retailers. It is usually used when the goods are distributed across the country and for that different distributors are appointed for different areas. For example, wholesalers purchase goods from different distributors like North India Distributors and then pass the goods to the retailers, who ultimately sell the goods to customers.
The factors which determine the choice of channels of distribution are as follows:
1. Product Related Factors
The selection of distribution channel is affected by the products manufactured by a company. Some of the related factors are as follows:
- Industrial/ Consumer Product: As industrial products are usually technical, expensive, bulky and purchased by few buyers, direct or short channels should be used. In the case of consumer goods, long or indirect channels are used because such goods are standardised, less expensive, less bulky, non-technical and frequently bought products.
- Perishability: Perishable products like fruits, vegetables, milk, etc., must be sold through short channels, whereas for non-perishable items like toothpaste, soap, etc., long channels are preferred.
- Unit value of Product: When the unit value is high for a product as in the case of expensive products, direct or short channels should be used, whereas, for products with low unit value, long channels should be used.
- Degree of Complexity: Products which are complex and require technical advice or guidance, direct channels should be used, but for simple and non-technical products, long channels should be used.
2. Company Characteristics
Some of the most important factors which influence the choice of channels are:
- Financial Strength: If a company is financially strong, then it can easily opt for direct channels. But if a company is not financially strong, then indirect channels should be used.
- Degree of Control Desired: Short or direct channels are used if a company wants to exercise full control over distribution. But, if a company does not want to exercise control over the distribution, then indirect channels should be preferred.
3. Competitive Factors
The choice of channel also depends on the channel selected by the competitors. A company can select the same channel as selected by its competitors. For example, Most e-commerce shopping apps opt for similar distribution channels. Sometimes, companies adopt entirely different channels than their competitors. For example, Urban Company provides customised services which are available at the doorstep of the customers, unlike usual salons in which customers have to go to avail services.
4. Market Factors
The choice of the channel also depends upon the market. Some of the prominent factors are:
- Size of Market: It is economical to use more intermediaries if the size of the market is large with numerous customers. Direct or short channels are preferred if the market size is small with a limited number of customers.
- Geographical Concentration: It is better to go with direct or short channels of distribution if buyers are concentrated in a small geographical area. But if buyers are scattered over a wide geographical area, then companies should opt for indirect channels.
- Quantity Purchased: If the average size of the order is small, then longer channels should be preferred, but if the size of the order is large, then direct channels should be used.
5. Environmental Factors
The choice of channel is also affected by environmental factors, like economic conditions, government policy, statutory provisions, technological development, etc. For example, shorter channel is used during depression to achieve economy in the distribution of goods.
The process of physical movement of goods involves the following four managerial decisions:
1. Order Processing
The time and steps involved between receipt of an order from customer and delivery of goods is known as order processing. A customer always ants prompt, punctual, safe and reliable delivery services. If the processing of an order is delayed, then consumers may lose interest and switch over to competitors’ products which are available in the market. So, in order to enhance customer satisfaction, a good distribution system should be used, which provides for accurate and speedy processing of orders. Marketers are now using a computer system, which is an information technology-based system of order processing to speed up the order handling process.
2. Transportation
The movement of goods from one place to another is known as transportation. It is one of the most important elements of physical distribution as it adds value to the products by making them available at the required place. For example, Dry fruits are transported from Afghanistan to other parts of the world. Different modes of transportation like airways, railways, waterways, pipelines, etc., are used to transport goods from one place to another. Different modes are compared on the basis of cost, speed, capacity, availability, etc., and then the best mode is selected.
3. Warehousing
The process of holding and preserving goods till they are delivered to the buyers is known as warehousing. Warehousing is needed when there is a time gap between production and consumption of goods. This time gap is bridged by warehousing and time utility is created. When production is seasonal and consumption is continuous(agricultural goods), or production is continuous but consumption is seasonal (AC and cooler), then the need for storage arises. For products requiring long storage, warehouses are located near production sites, and for bulky and perishable, warehouses are located near the market. The efficiency of the firms in serving their customers is directly affected by warehousing. For example, if the number of warehouses is more, then better services are provided to customers, as less time is required to serve customers at different locations. A firm has to maintain a balance between the cost of warehousing and the level of customer service as warehousing involves cost of storing goods.
4. Inventory Control
Inventory includes maintenance of stock of goods held for distribution. The process of deciding about the level of inventory comes under Inventory Control. A higher inventory level ensures better service to customers, but it also increases the cost of carrying inventory, as a lot of capital is blocked in the form of stock. If there is a shortage of inventory, then it may lead to loss of customers to competitors’ products. Therefore, inventory control requires maintenance of inventory at an ideal level in order to maintain a balance between cost and customer satisfaction. Marketers are now using concepts like Just-in-Time Inventory (JIT) or correct forecast about the product to reduce the need of maintaining a high level of inventory.
Factors determining Inventory Level
The factors determining the level of inventory are as follows:
1. Policy on level of Customer Service: The firm must keep large stock if the firm’s policy is to offer a higher level of customer service. Customers are satisfied when there is no delay in supply of goods.
2. Accuracy in Sales Forecasts: If accurate forecasts are available, then firms can manage with less stock. But if accurate forecasts are not available, then large stock has to be maintained by the firms to meet unexpected demand.
3. Responsiveness of Distribution System: The need for inventory will be low if a firm can meet additional demand for products in less time, whereas large stock will be required if the firm takes more time in responding to additional demands.
4. Cost of Inventory: Cost of storage, investment in capital, etc., are included in cost of inventory. If the cost of inventory is high, then less stock is maintained by the firm, whereas if the cost of inventory is less, then higher inventory can be maintained by the firm.
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