Physical distribution is concerned with the ways organizations get the physical product to a point where it is most convenient for the consumer to buy it. Logistics takes a wider view: originally based on military terminology, logistics is concerned with the process of moving raw materials through the production and distribution processes to the point at which the finished product is needed. This involves strategic decision-making about warehouse location, materials management, stock levels and information systems. Logistics is the area in which purchasing and marketing overlap.
In some ways the physical distribution of a product is part of the bundle of benefits that make up that product. For example, a jacket bought through mail order offers convenience benefits which a chain-store jacket does not. Conversely, the chain-store purchase may include hedonic benefits (the fun of shopping around, the excitement of finding a real bargain), which the mail-order company does not supply. Even when the actual jacket is identical, the benefits derived from the distribution method are different.
The purpose of any physical distribution method is to get the product from its point of production to the consumer efficiently and effectively. The product must arrive in good condition, and fit the consumer's need for convenience, or cheapness, or choice, or whatever else the particular target market thinks is important.
Thus, from a marketing viewpoint, the subject of distribution covers such areas as transportation methods, wholesaling, high street retailing, direct mail marketing and even farm-gate shops.
Physical distribution is to do with transportation methods; distribution strategy decisions are about which outlets should be used for the product.
Transportation methods vary according to speed, cost, and ability to handle the type of product concerned. As a general rule, the quicker the method the more expensive it is, but in some cases it may be cheaper to use a faster method because the firm's capital is tied up for less time. For perishable goods such as fruit, standby airfreight can be as cheap as sea transport, when the lower incidence of wastage is taken into account.
The transportation method chosen for a particular product will depend on the factors listed below –
In all these cases, there will be trade-offs involved. Greater customer service will almost always be more expensive; greater reliability may increase transit time, as will greater traceability because in most cases the product will need to be checked on and off the transport method chosen. As with any other aspect of marketing activity, the customer's overall needs must be taken into account, and the relative importance of those needs must be judged with some accuracy if the firm is to remain competitive. Transportation method is also affected by the channel of distribution, or marketing channel. Products are rarely delivered directly from producer to consumer, but instead pass through the hands of wholesalers, agents, factors or other middle men.
‘Cutting out the middleman’ is popularly supposed to be a way of buying things cheaper. In fact, for most products where agents and wholesalers are used, the savings made by greater efficiency more than cover the cost of the extra markup on the product. This means that cutting out the middleman is more likely to increase the cost of the product.
Direct producer-to-consumer channels are typical of personal services such as hairdressing, where use of intermediaries would be impossible, and of major capital purchases such as houses or home improvements. This is because these products cannot be broken down into smaller units, or assorted, or accumulated.
There is therefore no function for the middlemen to fulfil. If the distribution network is efficiently managed, goods come down the channel and information goes up. Retailers can feed back information about what consumers need, either formally (by carrying out a monitoring exercise and passing the information to the manufacturer or wholesaler) or informally (since retailers order only what is selling, producers can infer what is required by the consumers). A good salesperson will also act as an information channel, and will find out from the retailers what they think consumers want, as well as convey information from the manufacturers to the retailer. Major manufacturers often have several distribution channels, catering for different market segments. Food processing firms will usually have separate channels for caterers and for retailers, car manufacturers may deal directly with large fleet operators rather than operating through their retail dealer network, and electronics manufacturers may have one channel for consumer products and another for defense products.
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