- Fundamental aspects of distribution
- 1- Create the demand
- 2- Get the order
- 3- The handling and delivery of the product
- 4- Sales control
- How distribution costs are identified
- Classification
- Advertising and promotion expenses
- Transportation and delivery costs
- Storage and handling costs of the merchandise
- Direct expenses of the sale
- Factors to consider in the distribution of products
- Order size
- Delivery time
- Logistics
- Forms of product distribution
- Directly to consumers
- To retailers
- To wholesalers
- References
The distribution costs are defined as the monetary value resulting from consumption or wear a set of productive factors. They refer to the expenses (expenses and investments) that companies make to distribute their products in the market.
Distribution costs are made up of marketing and financing expenses. They include the expenses of packaging, special packaging, storage, transfer of the merchandise, those generated by the payment of the personnel in charge of selling the product, administration and wastage.
Loss is the loss of a physical or material asset. It is very common that during the transfer of the merchandise there are losses, especially when it comes to perishable products (fruits, vegetables, vegetables, meat, among others) and fragile products.
It is necessary to highlight that distribution expenses represent a recoverable cost, since they are regenerated through the sale of the product.
Fundamental aspects of distribution
The distribution costs are the expenses incurred in order to distribute the products in the regional, national and international market. To do this, a series of steps needs to be followed, which are detailed below:
1- Create the demand
The creation of demand consists of awakening the interest of the consumer through advertising, in order to obtain potential buyers.
2- Get the order
Obtaining the order arises when you already have a buyer. That is, when the customer (supermarkets, companies, stores, among others) decides to buy a certain amount of the product offered.
3- The handling and delivery of the product
It refers to the way in which the merchandise is packed, stored and transported, until it reaches the place specified by the buyer.
4- Sales control
This aspect covers every detail in economic matters. It is considered as the follow-up carried out from the moment they decide to attract customers until the product delivery process.
How distribution costs are identified
Distribution costs are identified based on:
- Kind of product.
- Areas where each product will be sold.
- Types of clients or consumers.
- Elements of the sale.
It is important to mention that to create a distribution cost system, the following activities must be carried out:
- Group distribution costs according to the function of the sale.
- Centralize them in a single concept of delivery.
Classification
The distribution costs can be classified according to the object of expenditure. Each of these classifications will be detailed below.
Advertising and promotion expenses
They are all those expenses inherent to advertising.
This line is made up of: market research expenses, salaries of the workers in charge of promoting the product, expenses of the samples delivered during the promotion process, and advertising expenses.
Transportation and delivery costs
They are all those expenses that are made for the transfer and distribution of the product.
Storage and handling costs of the merchandise
Includes reception costs, salaries of those in charge of storing the merchandise, warehouse payments, among others.
Direct expenses of the sale
These expenses include all those payments or disbursements that have to be made for the sellers to carry out their functions. Among them are travel expenses (per diem), taxes, among others.
They also include credit and financial expenses.
Factors to consider in the distribution of products
Order size
It is necessary to know what is the quantity of products requested by the customer and see if the order can be fulfilled according to the inventory.
That is, you cannot sell more than what you actually have in stock.
Delivery time
Delivery time represents a fundamental factor, because if the order is delivered on time, the client will be satisfied and will contract the services again.
To meet the delivery time you need to take into account the weather, the distance of the transfer and the transit.
Logistics
For the distribution of products it is necessary to know how it will be done.
Therefore, logistics is a key factor since the transfer, storage and handling of materials will depend on it until they reach the place where they will be sold.
Forms of product distribution
The distribution of the products can be done in different ways and each one of them generates a different cost. The forms of distribution will be presented below:
Directly to consumers
This form of distribution is more used by small companies. However, some large-scale companies are using this type of distribution because it generates the following advantages:
-The full retail price is received.
-Direct and active promotion of products.
-Feedback. This type of distribution allows direct contact with customers, allowing us to know what they think about the products. With this information you can improve on that product.
However, direct sales to the consumer causes less product to be sold, which limits the growth of the company.
To retailers
Distribution to retailers allows more product to be sold, since it is sold in several stores. This makes production higher.
The disadvantage of this type of distribution is that the full retail price is not received.
To wholesalers
Wholesalers are large companies that are responsible for selling merchandise to retailers. They usually have a wide area of distribution.
The wholesale distribution represents an advantage in the matter of the transfer, because with that fewer trips will be made than when it is distributed to retailers. With this type of distribution, a greater quantity of product is sold.
The downside is that it must be sold at a lower price because, as they buy it in bulk, they must be priced differently than retailers.
They can also be distributed to supermarkets, institutions, restaurants and individuals (for example, when they have a party or a large event).
References
- Measure of the cost of distribution, retrieved on September 29, 2017, from nber.org
- Logistics and freight distribution, retrieved on September 29, 2017, from people.hofstra.edu
- Cost- What is cost ?, retrieved on September 29, 2017, from debitoor.com
- Cost accounting, retrieved on September 29, 2017, from investopedia.com
- Distribution costs, retrieved on September 29, 2017, from encyclopedia2.thefreedictionary.com
- Cost, retrieved on September 29, 2017, from wikipedia.org
- Classification of costs basede on function / activities, retrieved on September 29, 2017, from efinancemanagement.com