Concept
Distribution is the logistical steps to get a product from the producer of the product to the
end customer. When considering distribution one should consider the channel. The channel is a
system of interdependent relationships among a set of organizations that facilitates the exchange
process (Marshall & Johnston, 2023 p.323). The distribution channel is extremely important
because it has a direct impact to the pricing the customer will end up paying. When there are
agents, middlemen, distributors, wholesalers, and retailers involved in the channel each hop will
add percentage points to the cost of the product. Companies will need to choose between the
direct and indirect distribution channels. Direct channels have no intermediaries and operates
from the producer to the end-user consumer (Marshall & Johnston, 2023 p.324). Indirect
channels contain one or more intermediary levels between the producer and the end-user
consumer (Marshall & Johnston, 2023 p.324).
Another aspect of distribution is the physical distribution functions or logistics which
deals with moving of goods and inventory through the distribution channel (Marshall &
Johnston, 2023 p.325). When dealing with physical distribution companies need to decide how
they will package their product and service. Will they leverage individual packaging, bulk
packaging, or creative assortments. In many cases the industry of product category will dictate
the distribution packaging. In the consumer goods markets like electronics, many producers will
use creative assortments like bundling a TV with the cables needed for connection and the
batteries need for the remote control.
While it may seem counterintuitive, adding intermediaries into the distribution channel in
most cases reduces costs (Marshall & Johnston, 2023 p.326). By leveraging local retailers,
customers will save on travel costs. In some cases, using outsourced manufacturing can also
reduce costs to the end consumer. As it relates to value though, channel intermediaries remain in
the channel only as long as they are adding efficiencies and reducing costs to the end-user
consumer (Marshall & Johnston, 2023 p.326).
There are some great examples of successful direct channel engagement to the end-user
consumer. Tesla is one of these examples where they own the entire channel from design, to
build, to sell. They have perfected direct channeling and their main reason for this method is to
own every step of the customer experience and to collect the vital data produced. This is a costly
motion, and Tesla continues to lose money, but they have secured customer loyalty and premium
product status (Pereira, 2024).
Application/Example
In the following paragraphs we will look at the agriculture industry and how it leverages
distribution channels to get food produced in the fields to end-user consumers. The United States
Department of Agriculture (USDA) recently conducted a study of food supplied at local
convenient stores. They found that the vast majority of options were unhealthy foods that lacked
fresh fruits and vegetables (Thomas et al., 2024). The USDA in partnership with John’s Hopkins
Bloomberg School of Public Health conducted an additional study specifically in the Charles
County, MD area. The goal was to determine what obstacles there were in the distribution
channel to getting healthy food direct-to-retail. After the initial surveys were complete, a mobile
application, that was developed to connect small food retailers with local producers, began a
pilot.
Farmers in the study, expressed their barriers to the wholesale distribution channel. They
mentioned COVID-19 relief policies that favored large producers over small local producers,
inability to compete with the price and convenience of large food distributors, time consuming
nature of direct-to-retail sales, and the seasonal nature of their products that may not have a
market at small stores (Thomas et al., 2024). The farmers did express their desire to leverage
their relationships in the local community and to leverage the technology to reduce barriers.
They also agreed they committed to provide healthy food options in small local stores. While
pricing is still a barrier for the farmers, they want to find a reasonable way to solidify the direct-
to-retail distribution channel so that end-user consumers will have healthy affordable food in
their local store (Thomas et al., 2024).
Question for Classmates
What unique ideas do you have to leverage distribution channels to improve the
availability of healthy food options at small convenient stores while not adversely impacting the
small farmers that produce the goods?
References:
Marshall, G., & Johnston, M. (2023). Marketing Communications. In Marketing Management
(4th ed.). essay, McGraw Hill Education LLC.
Pereira, D. (2024, July 11). Tesla Marketing Strategy (2024). Business Model Analyst.
https://businessmodelanalyst.com/tesla-marketing-strategy.
Thomas, A., Lewis, E., Poirier, L., Williamson, S., Xie, Y., Lightner, A., & Gittelsohn, J. (2024,
November 1). Exploring barriers and facilitators to direct-to-retail sales channels:
Farmers’perspectives on wholesaling produce to small food retailers in Charles County,
Maryland. foodsystemsjournal.org.
https://foodsystemsjournal.org/index.php/fsj/article/view/1301/1278
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