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Distribution Elasticity

Distribution elasticity is a measure of the effect on a company’s sales of distribution or product availability. It also indicates the distribution intensity in the markets where the company is operating. Distribution is a very important part of marketing-mix planning if the product is a convenience product or impulse purchase. These kinds of products require intensive distribution, while shopping goods require more selective distribution. Finally, speciality and luxury products, which can be conceptualized as “exclusive distribution,” do not depend on distribution, rather consumers seek out where they are available. In other words, distribution elasticity is a more concrete and quantitative representation of distribution intensity, simply indicating the change in distribution impact on sales, other effects excluded. The concept utilizes the same calculation approach as price elasticity, discussed in the previous chapter.

If distribution elasticity (De) is greater than one, it means the product’s success mostly depends on its availability. This is generally the case for frequently purchased products (see Fig. 5.2). Similarly, empirical research indicates that distribution and product availability might also lead market share for these kinds of items when the products are available in every market

Distribution elasticity

Fig. 5.2 Distribution elasticity

Source: West (1989)

Distribution and market share Source

Fig. 5.3 Distribution and market share Source: Farris et al. (1989)

outlet (Farris et al. 1989). This relationship reveals a convex shape, as shown inFig. 5.3 (Farris etal. 1989; Reibstein and Farris 1995), especially for items where De > 1.

In general, small outlets carry fewer products than big stores. Once the product is available everywhere in the market, searching for it is not an option. Smaller stores generate fewer shares, and when more outlets start carrying the product market share grows at increasing pace. Since the market shares must equal 100%, then the entire outlet shares equal 100%. In other words, the product’s visibility and possibility of being purchased, as well as its market share, can eventually reach the highest level (100%). Since buying these kinds of frequently purchased products involves a smaller financial risk, the only differentiating factor is availability of the product in the retail or market outlets, thus their success is highly dependent on distribution.

On the other hand, if De is less than one or a very small number approximating to zero, it means that distribution has no or very limited impact on product sales, as illustrated by the speciality and shopping goods lines in Fig. 5.2. While a company might be able to tolerate the unavailability of these kinds of products for a certain amount of time, unavailability of impulsive purchase items means a loss of sales and market share.

 
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