Which Commodity Distribution Model to be used is the first key decision which a company has to take while entering a market. There are several models prevalent in the market. This decision dictates the marketing mix, logistics arrangement and often product specifications.
Selling Through Distributor/ Wholesaler
This is the most prevalent commodity distribution model, used by most of the conventional companies. Here the manufacturer appoints an Distributor for an area, who may or may not stock material in his godown. Together the Distributor and the company find potential retailers who can sell their material to the consumer.
The Distributor margins are set depending upon what costs are incurred by the company like secondary freight (freight from Distributor godown to Dealer shop), godown rent, material handling costs, etc.
The Distributor bears the risk of payment defaults by the Dealers. The Distributor, being small firms, are able to address the issues of the Dealers fast and keep the business running. Marketing is either directly done by the company or expenses are reimbursed to the Distributor. The branding guidelines are issued by the company for uniform message in the market.
Selling Directly to Retailer
In this commodity distribution model, the company does not have any Distributor. The retailers in an area are directly approached by the company and appointed as authorized stockists. These retailers sell the product to the consumer and company does the marketing activities in the area. This model is generally adopted in areas which are close to factory or depot of the company so that small load orders of the retailers can be serviced by the company. The Distributor margin, otherwise incurred by the company, is saved and spent on marketing or passed on to the customer.
Due to many retailers in the market and limited financial strength of the retailers, the churn rate in this model is high and companies have to keep looking for new partners.
Selling Direct to Consumer
This is a commodity distribution model in which the company opens retail counters on its own. In a few cases, company makes an existing shop in the marketplace its franchisee to sell its products exclusively in his shop. The franchisee shop cannot keep products of other brands and to a lay man, it will look like a company operated shop only. The engagement level of the company is very high and stock levels, branding and approaching the customers is done by the company personnel primarily.
Through online means, companies are trying to gather customer requirements and service them directly in areas close to their factories/ warehouses/ company outlets. The spend on digital marketing is significant. In this case, the role of logistics becomes very important.
It has been seen that companies do not adopt a single Commodity Distribution Model universally. Depending on the area, companies keep a mix of all three. It also acts as a deterrent from allowing any one player in the value chain to become dominating.
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