Distribution Strategies: Automobiles vs. Soup Compared

Introduction to Distribution Strategy

Distribution strategies are an essential part of the marketing mix. Without a suitable strategy, the process of effectively bringing together customers with the goods or services they wish to purchase may be inefficient and potentially unsuccessful, costing the firm both lost sales and unnecessary expenses. To assess the way distribution strategies may be developed effectively, two products that would require very different approaches are examined here: automobiles and soup.

The distribution strategy adopted by any firm is the strategy of getting goods from the firm or supplier to the customer. Whatever product is being sold, before developing a distribution strategy it is necessary to consider the characteristics of the product, the characteristics of the potential purchasers, the goals of the firm, and the cost of the item. These common considerations — and the ways in which distribution strategies may differ based on products, marketplaces, and resources — are explored through the lens of these two contrasting products.

Automobile Distribution: Franchises and Showrooms

When examining a potential distribution strategy for automobiles, the first consideration is the product itself. This is a large, heavy product that will be an infrequent purchase for the majority of customers. Regardless of whether it is at the upper or lower end of the market, the target market is likely to undertake a highly considered purchasing approach, given the high ticket value and the relatively large proportion of disposable income involved (Kotler and Keller, 2011). The purchase process is likely to weigh many influencing factors — not only initial cost, but also style, running costs, and available choices. Before making a purchase decision, the distribution strategy must facilitate the provision of the type of information customers will need, while also winning over the potential customer and emphasizing any differentiation that may provide a competitive advantage (Mintzberg et al., 2011). It is also likely that the target market will wish to experience the product before committing to it; purchasing a large item without previously trying or experiencing it may be seen as risky by many consumers (Kotler and Keller, 2011).

The main distribution strategy utilized by many automobile companies is through specialized car showrooms. The usual approach is for showrooms to be established under a franchise arrangement, which reduces the amount of capital the manufacturer has tied up in the downstream supply chain. However, under the vast majority of franchise agreements, only one automobile manufacturer's cars are sold in a given showroom. For example, buyers will go to a Ford dealer to buy a Ford car, a Toyota dealer to buy a Toyota, and a GM dealer to buy a GM vehicle.

A key difficulty in the sale and distribution of automobiles is the high level of capital involved in holding significant stock, as well as the logistical challenge of moving that stock. For this reason, the distribution strategy for new automobiles typically provides showrooms with a number of display models to demonstrate features, as well as demonstration cars that potential buyers can use for a test drive. When a customer decides to buy, however, the vehicle is usually ordered from central stock or built to order.

Stock Management and Customization in Auto Sales

For mass-market cars — such as those from Ford and GM — franchisees typically have access to a database of cars already built and on hand. This allows a customer to choose from the most common feature combinations that are ready for immediate delivery, or to wait for a car customized specifically to their requirements. For the luxury car market — for example, Porsche, Rolls-Royce, and Aston Martin — purchases are less likely to come from stock, with a higher proportion of cars finished to individual customer specifications.

The geographic reach of franchises for different companies is also likely to be limited deliberately, in order to ensure the business opportunity is attractive and has the potential to be profitable for the franchise holder. The franchises require a high level of capital investment, so the potential for a good return is a necessity (Hooley et al., 2007). This is also facilitated through the pricing strategy, which is set so that franchisees can generate sufficient profit (Kotler and Keller, 2011).

Soup Distribution: Mass Retail and Wholesalers

In recent years there has been an increased use of the internet as a cost-effective distribution channel, but this requires the buyer to already have knowledge of the car they wish to purchase (Chaffey, 2009). While there is an established distribution strategy for most firms, it is also one that is adapting and changing over time.

The distribution strategy for soup differs greatly from that of automobiles, due to the nature of the product and the purchasing behavior it generates. Soup is a relatively inexpensive product, representing only a very small proportion of disposable income, making it far more accessible to a broad consumer base. It may be purchased multiple times a year, and several units may be bought in a single shopping trip.

To be successful, firms such as Heinz and Bachelors must sell a high volume of soup. The revenue and profit on each can, packet, or tub sold is very small, and profit goals are achieved only by selling large quantities. This contrasts sharply with automobiles, which offer a large profit per unit and therefore require lower sales volumes to meet revenue targets.

The main distribution channels — selected to ensure broad accessibility to the target market — are inevitably supermarkets such as Walmart and Target, and grocery stores. Many companies, such as Heinz, benefit from ongoing relationships with retailers, as they are often supplying many other products simultaneously, from condiments to canned meals. Where a company is already doing business with a retailer, the addition of further product lines is generally much simpler than establishing new customer accounts. Distribution strategies for established food suppliers are therefore likely to build on existing customer relationships and channels.

From a practical perspective, it is not viable for large organizations to deal directly with every retailer. While companies may deal directly with large retailers such as Walmart, which purchase goods in very large quantities, soup is likely to be distributed to smaller retail chains and independent stores through wholesalers. The wholesaler, or middleman, is able to service smaller-scale customers. In some cases, retailers may go directly to wholesalers — such as Booker — and purchase goods, transporting them back to their own premises. Larger retailers may have contractual relationships with suppliers and place orders that are delivered directly.

Conclusion: Contrasting Distribution Approaches

The distribution strategies for automobiles and soup are very different. Automobiles represent an infrequent, highly considered purchase that requires careful management of capital-intensive stock, a carefully designed retail environment, and a franchise model that balances manufacturer control with franchisee profitability. Soup, by contrast, is a low-commitment product that may be purchased on impulse and requires no significant deliberation from the consumer. However, it demands a high level of commitment to developing and maintaining relationships with retailers and wholesalers in order to achieve the mass sales volumes required for profitability. Together, these two cases illustrate how the fundamental considerations of the marketing mix — product characteristics, consumer behavior, and cost — translate into very different but equally purposeful distribution strategies.