The Stages of Product Distribution
From the time a product is ready for sales to target customers it goes through various wholesalers and agents before landing at the retail stores. Depending on the product type and target customers, manufacturers choose a distribution line which will bring them highest profits and also help compete with others in the market. Along with convenience store brokers and agents, manufacturers use specific distribution channels and distributors best suited to their products. During distribution and sales of products through convenience stores, manufacturers also have to keep in mind the cost factor when their product reaches the store as selling products through convenience store is more expensive than supermarket.
To retain a hold over the distribution and sales of their products in the initial stages, manufacturers take the responsibility of distribution during the initial years of business within local markets which helps them understand customer feedback instantly. This exercise enables manufacturers to improve their product at the local level itself and with minimal loss in marketing and distribution. Food distribution requires a specialized group of distributors as these products have to be transported and consumed within a short period of time. When other convenience goods like cigarettes, cosmetics and other household products are distributed which do not have a limited shelf life then transportation and distribution can take longer time.
Every channel of product distribution comprises of producers, retailers, distributors and wholesalers before it reaches the end consumers. Every producer/manufacturer/creator can choose from numerous avenues of distribution to get the products before consumers across state and national boundaries. To keep the product in demand and make it available to buyers at a competitive price, manufacturers have to constantly maintain feedback from users and improve the product.
Every distribution channel contains four essential individuals namely manufacturer, wholesaler, distributor and retailer before it reaches the consumer. While small retailers directly deal with wholesalers as they require limited quantities, large warehouse retailers directly work with manufacturers as they are able to buy in large quantities and use their own warehouses and transportation for moving the products across their stores.
Product distribution stages according to product type
Though manufacturer/producer has the option of distributing the product himself or selling it directly to end users it is not always possible as he would have to divide attention between sales, distribution and manufacturing. In view of the numerous products that convenience stores have to handle on a regular basis it is difficult for them to retain products which have limited supply or are of poor quality. It is at this time that producers of convenience items need the services of an experienced distributor to effectively distribute and market products to target customers.
- Producer to consumer – Though this distribution channel is the shortest and completely eliminates middlemen it is generally limited to high value industrial products which have limited manufacturers and users. Sometimes manufacturers of exclusive gourmet and confectionery products try to limit their deliveries to online orders to retain their image. Producer of products like fruits and vegetables can also sell his products directly to consumers through farmers markets or door to door deliveries based on online orders. This category of producers generally form societies to sell their produce directly to buyers through their own retail stores which are located at strategic market areas.
- Producer-retailer-customer – This distribution channel has recently become more prominent with the growth of large retailers like Walmart and Safeway followed by warehouse retailers like Costco and Sam’s Club which directly work with manufacturers to source their convenience items. The retailer is the only middleman in this distribution process which saves the manufacturer the burden of distribution as the ready goods are picked up from their warehouse by retailer and distributed to their c-store chains. This system is ideal for small manufacturers who have limited production capabilities and produce goods of high value and quality which requires special transportation facilities.
- Producer-wholesaler-retailer-customer – This is regarded as the traditional stage of product distribution which flows from producer to wholesaler to distributor to retailer before finally reaching the consumer. It has more than two middlemen in the distribution stages and price goes up at each stage as every middleman adds his costs to the final price. The manufacturer under this traditional product distribution system has to constantly worry about how to get products into c stores and find strong distributors to reach target stores and customers.
In this product distribution structure the middlemen are most powerful as the entire distribution channel is dependent on them. Retailers use wholesale grocery distributors for a wide variety of grocery products and also convenience store brokers in this product distribution cycle. These wholesalers break the bulk goods received from manufacturers and wholesalers into smaller pallets and distribute it to their retail clients.
- Producer-agent-wholesaler-retailer-customer- This lengthy distribution structure has various stages as the manufacturer wants to be absolved from the responsibility of looking for distributors and wants to concentrate entirely on production. In this product distribution structure the agent takes on the ownership of product and see it to wholesalers who in turn distribute it to retailers in their zone. The wholesalers are generally designated to sell the produce within specific state boundaries to avoid conflict of interest with other distributors. All the middlemen work closely in sync with each other to distribute products to wide range of retailers who in turn sell it to customers.
The different stages of distribution taken by a manufactured product to move from manufacturer’s warehouse to retailer add to the cost that is charged from ultimate customer which consists of cost incurred by each distributor. Though the manufacturer may sometimes prefer to enjoy all the fruits of his labor, it is difficult to manage both production and distribution in a stable manner unless it is a collaborative effort or the market for his products is limited. Middlemen are required in the distribution cycle as they are experienced and know the market well enabling them to profitably distribute the product to retailers. To have a profitable business, a manufacturer has to carefully choose the most cost efficient distribution channel to present the product to customers at a competitive price.
