Distribution channels

INTRODUCTION
Channels Of Distribution describes the varieties of
intermediaries (i.e., agents, wholesaler and retailers)
involved in moving products between countries as
well as within countries. The tasks and functions of
the various intermediaries will be examined. It
should be kept in mind that certain types of
intermediaries do not exist in some countries and
that the pattern of use as well as the importance of
each type of intermediary varies widely from country
to country
.
A manufacturer is required to make several decisions
that will affect its channel strategy, including the
length, width, and number of distribution channels to
b used.
 DEFINITION
THE AMERICAN MARKETING ASSOCIATION
DEFINES:--
CHANNEL OF DISTRIBUTION AS—
“An organized network of agencies and
institutions which in combination perform all
the activities required to link producers with
users to accomplish the marketing task.”
DISTRIBUTION:-
Is the physical flow of goods through
channels and
CHANNELS:-
Is coordinated groups of individuals or firms
that perform functions adding utility to a
product or services.
 OBJECTIVES OF CHANNELS
TO CREATE UTILITY FOR CUSTOMERS
CHANNEL UTILITY ARE:-
PLACE
TIME
FORM
INFORMATION

Ex:-COKE’S LEADERSHIP:-
due to PLACE UTILITY
 The most effective channel arrangement is
a clear focus of the company’s marketing
effort on a target market and a
determination of its needs and preferences.
 Channel strategy in global marketing must
fit the company’s COMPETITIVE POSITION
and MARKETING OBJECTIVE in each national
market
 If a company wants to enter a competitive
market,it has two basic choices:-
DIRECT INVOLVEMENT (sales
force, retail stores etc.)
INDIRECT INVOLVEMENT
(independent agents, distributors,
wholesalers)
 Distr ibution C hannel
Functions
Information

Transfer
Communication

Payments
Negotiation
Physical
Distribution
Ordering

Risk Taking
Financing
 ROLES OF CHANNEL
MEMBERS
1. Facilitate the search process of
buyers & sellers:-
Lower the uncertainty among end-users
In their absence, manufactures would also
be confuse about how to approach
customers

2. Sorting:-
Channel members eliminate the
differences in the collection of goods &
services offered by company
 CONTD.
3. Making transactions routine:-
Transactions involve ordering of goods or
services, fulfilling orders & paying for
goods & services purchased.
i.e., Manufacture-Wholesaler-Retailer-
Customer
Help in making transactions routine
through standardizations & automations

4. Contractual efficiency:-
Channel Intermediaries have to optimize
the number of exchange relationships
required to complete a transaction.
 DESIGNING MARKETING
CHANNELS
Dimensions to choose a channel design:
 The channel length – Number of
intermediaries between the producer and
customers

 The channel breadth – Number of

outlets available to consumers

 The cost involved in selecting a

particular channel
 CONTD.
A channel decision depends on the
following considerations:-
• CHANNEL STRUCTURE:-
It refers to the number of levels of
channels intermediaries (Distributor,
Wholesaler, Retailer).

It depends on the number of

intermediaries uses to distribute its
product to end-users
The channel levels are zero level, one
level, two level & three level.
 Zero-level channel

One-level channel
Retailers
Manufactures

Consumers
Two-level channel

Wholesalers Retailers

Three-level channel

Wholesalers Agents Retailers

 CONTD.
2. CHANNEL INTENSITY:-
It refers to the number of intermediaries present
in a distribution or marketing channel.

Intensive distribution
Producers of products stock their goods in as
many outlets as possible as possible by
considering time & place utility.

Exclusive distribution
Producers of some products limit the number of
intermediaries handling their product to deliver
maximum service quality to customers, try to
develop a superior brand image for their product.
 CONTD.
Selective distribution
It is adopted when the manufacturer
lacks the resources to adequately
influences the policies of all the
intermediaries who can carry a
particular product.

The manufacturer distributes

products only to specific retailers
selected on the basis of defined
criteria.
 CONTD.
3. TYPE OF CHANNEL INTERMEDIARIES AT EACH
LEVEL
Manufacturer’s representatives
They sell the manufacturer's product to the
wholesalers, retailers, other businesses & also to
institutions such as hospitals, libraries & school.
They may represent more than one manufacturer.
Also called account executives or sales engineers.

Manufacturer’s sales force

 It comprises the salespersons who are on the
company’s rolls & received a fixed salary.
 Devotes their entire time & effort to selling that
product or service of that manufacturer.
 CONTD.
Industrial distributors
 These are independent firms
consisting of sales & support
personnel.
 They differ from manufacturer's in
that they take possession of the
products they sell & have a
partnership arrangement with the
manufacturer.
 Examples: Norton, Pfizer & 3M.
FACTORS AFFECTING SHAPING
OF CHANNELS

 CUSTOMERS
 PRODUCTS
 MIDDLEMENAND
 ENVIRONMENT
 CUSTOMER
CHARACTERISTICS
 Customers number, geographic distribution,
income, shopping habits and reactions to
different selling methods all vary from country to
country and therefore require different channel
approaches.
 The need for multiple channel intermediaries
increases as the customers increases.

EX:- 10 customers must be directly contacted by

either by manufacturer or an agent,
For mass market products bought by millions of
customers, retail distribution outlets or mail order
distribution is required.
 Product characteristics
 Degree of standardization.
 Perishablity
 Bulk/Quantity
 Services (requirements and facilities)
 Unit price
 Types of products
 Product with high unit price rely on controlled
sales force,(Ex. mainframes computers) since
selling cost of this expensive distribution method
is small part of the total SP.
 Cosmetics products and other consumer products
rely on wide gross selling margins to compensate
salespeople (Ex. Amway and avon)
 Perishable products need relatively direct
channels to ensure proper conditions at the time
of purchase by customers. (bread and eatables)
 Bulky products/large quantity (Ex.soft drinks, beer
)of product requires minimum shipping
distances,charges and minimum amt. of
transactions between intermediaries.
 Middleman characteristics
 Cherry picking. Practice of taking
orders from manufacturers whose
product require less efforts to
promote.
 Bypassing of cherry picking can be
done by going alternatives options
like:
•Setting own distribution organizations.
•Going for cooperative arrangements/direct selling
supports and distribution support systems. ( Rely on
distributors own sales force by subsidizing the cost of
the sales representatives the distributer had assigned
to the company’s products).
 Middleman characteristics
•Selection- finding most efficient and compatible distributers. (Ex. The
local chamber of commerce or local trade associations in country can
provide lists.)
•Before signing make sure the presence of one key person in the
organization who will make it a personal objective to achieve success
with your product.
•Distributer must be capable of assisting of providing necessary
information about customers .
•Distributer/agent should have core competency in related products.
•Motivation in form of commissions is appreciable.
•Clause of termination on the account of performance should be
clearly expressed. (Ex. despite of mentioned clause foreign agent
might sue you on basis of his native country norms.)
 Environmental
characteristics
•Economic
•Social
•Political

Consumables and eatables are highly sensitive

towards environment. Success of Supermarkets is
classical example of this factor.
 Structure
• Consumer products Designed to directly put in
the hands of end user.
•Industrial products Designed for manufacturers
and organizational use.
Consumer product :
• Door to Door selling
•Manufacturer- owned store
•Franchise Operations
•Combination Structures

Industrial products
 M M M M M M

Agents/
Brokers MSF MSF MSF
Manufacturer-Owned Stores

W W
Door-to-Door

W
Mail order

– Time Salesperson
Consignment to Part
House Party

R
R R R R

Customers
M = Manufacturer MSF = Manufacturer’s Sales Force
W = Wholesaler R = Retailer (including online e-commerce
Figure :- Marketing Channel Alternatives – Consumer Product
Marketing channels alternatives for industrial
product
THANKS