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HYBRID DISTRIBUTION CHANNELS – THE FUTURE OF DISTRIBUTION CHANNELS IN INDIA
Discipline: Marketing Sub-theme: Emerging Trends in Marketing
Authored by Dr. Ramkishen Y. Mr. Saurin K. Gandhi
K. J. Institute of Management Studies and Research, Vidyavihar East, Mumbai 400077
HYBRID DISTRIBUTION CHANNELS – THE FUTURE OF DISTRIBUTION CHANNELS IN INDIA EXECUTIVE SUMMARY: Increasing competition and ever-changing demands of the consumers is forcing companies to rethink their distribution strategies. Scaling up the distribution channels in domestic. The challenge. Sustainability and Caring for the Customers will be the new buzz words on the way how distribution channels would be redefined. Co-existence of multiple distribution channel systems which are managed by a company for incremental returns and extensive coverage of the products is known as Hybrid Distribution Channel. national and international markets and penetrating into these deeper pockets of the market landscape would mean extensive market coverage by minimizing the cost. This research paper will explore the concept of Hybrid Distribution Channels and explain how they can be used as a strategic advantage by companies in order to sustain in the competitive market place. is to design an effective hybrid distribution channel to balance between minimizing the costs and maximizing the customer satisfaction. Several distribution channels are already being used by the companies. Profitability. Channel conflicts. Online Distribution Contd… INTRODUCTION: . Key Words: Hybrid Distribution Channels. It will also highlight the conflicts which may arise due to functioning of these channels and how to overcome them. Multiple Channels. Strategic Framework for Hybrid Distribution Channels. therefore.
Distribution or Place is the fourth traditional element of marketing mix. belonging to the same entity and created to deliver products/service to one or several market segments. cutting cost. retailer. Adding to that. Hybrid marketing channels talks from the point where producers sell their products through several methods: both through mediators and directly to consumers through personal effort. They try to forge a Distribution channel. Hybrid Distribution recognizes that users are not brand loyalists. Mainly in industry. or it may have been through a number of intermediaries like wholesaler. 2009). Distribution has gained enormous importance since it accounts for a large portion of the total cost for a product to the company. Distribution acts as a bridge between customer and manufacturer. With the advent of internet. Price and Promotion. The name ‘Hybrid Distribution Channel’ was coined by Moriarty and Moran (1990) and Stern (1996). the new electronic Distribution channels are combined with the traditional channels resulting in fundamental changes in the structure of marketing channels. This can be accounted for multiple reasons like increasing the customer reach. meeting requirements of different segments and . it might increase efficiency of Distribution costs. These are known as Distribution channels. Companies can greatly improve their efficiency by creating and maintaining the right Distribution Channel. etc (Indirect Distribution). In recent years. mass-media and music where a considerable part of the production could have a digital format. Hybrid Distribution systems are characterized by the existence of multiple distribution channel systems. Internet provides a new channel to reach any prospect. Channel selection and deployment is one of the most critical issues faced by marketers today. companies have been adding new channels to existing ones according to Rowland T Moriarty and Ursula Moran (1990). When a product/service is purchased by a consumer. LITERATURE REVIEW: Companies are facing many challenges including the operating cost of the distribution networks (Bob Mcintyre. anywhere in the world. banking. The other three are Product. Other name for Hybrid Distribution is Multiple Distribution Channel. Most business use third parties or intermediaries to bring their products to market. The effect of using internet will need to be understood on case basis and used wisely. They have their own choice of activity which they like to experience. the strategy for Distribution has changed. Brands will need to have a two tiered strategy for reaching even the scattered yet profitable targeted audiences by their Distribution reach. it may have been bought directly from the business (Direct Distribution). Even though intermediaries mean losing partial control. With a Hybrid Distribution model companies do what it can to attract core users as well as other targeted users through these additional Distribution channels. Distribution is all about getting the product/service to the right people at the right time with special consideration for profit and effectiveness.
Sharad Verma.” Dr. Companies have been adapting to the changing nature of business to stay ahead in competition. Arindham Bhattacharya. Adding new channels gives them an edge over the competitors. Thus. The need of the hour is to have a sustainable business which can sail through such difficult phase of global recession. Hybrid Distribution Channels have to create value. provided it is able to cope up with issues like poor infrastructure apart from the culture. plural governing systems and tapered integration. Abheek Singhi. Hybrid Distribution Channels are also called as multiple Distribution channels 2. India being the second highest populated country and with their disposable income has increased in recent years. India has become a hot spot for business for many countries (Vikram Bhalla. 2000). and other factors leads to dissatisfaction among the channel members and may result in shut down of a channel. Making a Hybrid Distribution work effectively can be a difficult task (John W. bureaucracy and other issues. especially during the recent turbulent times when the economies worldwide were falling. Success lies in understanding and managing the channels rather than to randomly experiment with them. Hybrid marketing channels talks from the point where producers sell their products through several methods: both through mediators and directly to consumers through personal effort. DEFINITION OF HYBRID DISTRIBUTION CHANNELS: Hybrid Distribution Channels are “created by companies to channelize their products and services in multiple ways so as to touch as many customer contact points as possible. Fruchter (2005). Difference of margin. preference. thus negating the very purpose of Hybrid Distribution Channels. Other names for Hybrid distribution are dual channels. RamKishen Y.many more. multiple channels. Hybrid Distribution Channels may result in problems of conflict and control according to Gila E. . in order to create a value for the channel partner as well as the company. both to the channel partner as well as to the company. companies would need to develop a Distribution network that would suit their nature of business. This would require great amount of thought with respect to Channel Design. 2007) due to its large customer base and increasing demands. Hayden. From the above mentioned definition. Hybrid Distribution Channels create multiple touch points for customer contact 3. The name was coined by Moriarty and Moran (1990) and Stern (1996). There is a huge scope for any country to set up its business in India. we can infer that 1.
There could be as many as 5 levels of intermediaries involved in the entire supply chain through which a product passes before reaching the end consumer. . This aspect is taken over by distributors. These products are transported either via roadways or railways within the domestic markets and normally don’t take more than a week to reach the retailers. What has been observed is that even though many companies are big multinationals they but face a major challenge of making their products available in the market in the right quantities and in the right time.Fig 1: Process Flow of Hybrid Distribution Channel: The analysis of the constituents associated in the above diagram proves the existence of four distinct channels. The two latter channels are created so as to serve two segments of organizational customers but we must also match this time with a short channel. wholesalers and retailer whose margins on these products actually double the price of these products when a final consumer buys it. FMCG products are normally a high volume ball game and products have to essentially be available in the market at all given points of time and at all given points of purchase and therefore the Distribution activities are highly volatile and dynamic. This is simply because these companies don’t really have an efficient Distribution Network which is required and is ideal for catering their products to the markets. HYBRID DISTRIBUTION CHANNELS – AN INDIAN PERSPECTIVE: The supply chain of products in India is one of the longest supply chains an industry could really have. which uses selling power with a long one including two mediating links. The products in this industry are transported from manufacturing units via C & F agencies or warehouse to distributors who further sell the same to wholesalers or stockiest who finally sell it to the retailers in the market. The first two are created in order to satisfy the needs of two segments of final consumers: the first one is short and implies specific methods of the direct marketing and the second one is a long channel including retailers. The margins kept by these intermediaries range from 2% to 5%.
if any. knowledge. weekly. etc. This not only allows companies to reduce their cost but also provides the product to the customer at a lower price. mobile and computer screens at work. A close check is maintained on the flow of the products on a daily. Hence. companies have started to sell products online. and rectify them within time. Pepsi has a tie up with HUL to distribute its snack category products. . thus.All criteria are taken into consideration before the quantum of products being dispatched to the next level of intermediary. The company is following a Hybrid Distribution Channel model. HUL has developed an innovative Distribution Channel to reach out the rural customers (Eg: Project Shakti). For instance. No single Distribution Channel can be pointed out to be the best for a particular product. This activity also helps to find out drawbacks of the Distribution system. scattered audience and many other unique factors has lead to a conclusion that Hybrid Distribution Channels has become a must in India. at home and in the car. • Cutting cost There is a chance of reaching a same customer at a much lower cost using an alternative channel. added to the complexities of forming an efficient Distribution network. including national and regional distributors. fortnightly and monthly basis to determine the trend in the business and flow of products and consumption. Belkin has launched a range of digital lifestyle products that can facilitate connectivity and content Distribution across TV. Some companies have already started implementing Hybrid Distribution Channels. thus avoiding all the intermediaries cost (Eg: Dell Computers). different nature of Customer demand different Distribution ranging from Multilevel to Direct Channels. to make the products easily available to the customers. diversified customer demands. Lack of Infrastructure. For instance. additional channels are being applied to reach out to those customers who could not be reached with the existing channel. Since it’s a volume game. The diversity has. WHY COMPANIES ARE ADOPTING HYBRID DISTRIBUTION CHANNEL? The main reasons why Companies are adopting Hybrid Distribution Channels are: • Reach more number of customers It has become difficult to reach out to all the potential customers with a single channel due to various constraints like time. manufacturers make all possible efforts to boost sales and promote their distributors to earn more and more orders from the retailers and wholesalers. distance. Similarly. The highly scattered customer demands higher levels of Distribution and at the same time. especially in Indian scenario. All this stresses on the fact that having an optimum Distribution Channel is very essential.
. the apparel companies have started to open up their own factory outlets and exclusive showrooms to spread the risk of a single channel (Eg: Arvind Mills – Mega Mart). sensing the increasing coercive power of the retailers.Fig 2: Reasons for adopting Hybrid Distribution Channels • Spreading Risk Dependence on a single Distribution Channel may be risky since any obstruction in the channel will lead to complete stoppage of the supply to the customers. by having more than one Distribution Channel. companies can spread the risk and ensure continuous supply of products to the customer. Thus. For instance. Obstruction may arise due to events like Channel Obsolescence or even discrepancies between any two Channel Partners. Such an obstruction may prove fatal as a large number of customers might shift to a competitor’s product and never return.
Contd… . • Cater to different products Companies manufacture a set of products which may or may not be in a same product category. beverage companies use a different Distribution Channel for the Cold Drink category products and their Snacks category products (Eg: PepsiCo and HUL Syndicated Distribution Partnership). As such. • Fight competition effectively Adopting the best Distribution Channel by avoiding unpleasant conflicts and being able to serve the customer in the best way possible can be a Strategic Advantage for a company.• Cater to different segments Companies are sometimes using different Distribution Channels to reach out different segments of customer based on their preferences. This can be achieved by adopting Hybrid Distribution Channels. Their needs differ and so does the mode to reach them. Different segments of customer may have different expectations which cannot be fulfilled by a same channel. FMCG companies are adding newer Channels of Distribution to increase the reach and visibility of its products in the market to fight off the competition of other players (Eg: ITC uses pan shops to sell its Bingo Potato Chips. the Distribution Channel needed for the products may be different or the end user may expect the different products at different touch points. For instance. Insurance companies will use DSAs for an ordinary prospect but will prefer to use direct sales force for a High Income customer (Eg: Max New York Life). It would then become mandatory to implement Hybrid Distribution Channels. For instance. For instance. which the competition doesn’t have access to).
. Companies must define its objective for the design.STRATEGIC FRAMEWORK FOR HYBRID DISTRIBUTION CHANNELS In order to avoid the Channel conflicts and design the optimum Hybrid Distribution Channels. But the objective should be made clear and should be consistent throughout the process. The steps involved in the design as follows:• Objectives: First step towards effective design is to understand the actual need for Hybrid Distribution Channels. It could be to reach out to more number of customers or it could be to cut cost by introducing a new Channel or any other reason. a Strategic Framework for Hybrid Distribution Channels is suggested. Fig 3: Strategic Framework for Hybrid Distribution Channels The above framework will help in designing an optimum Hybrid Distribution Network.
Any conflicts arising must be settled to have a smooth and efficient functioning of all the Channels. The issues would need to be sought out dynamically without interrupting the Distribution flow. the next step is to implement it in the market place. the company must decide whether to have a Distributor and a Retailer or have a Wholesaler and a Retailer or some other option. • Implementation: Once the Hybrid Distribution Channels are finalized and Channel Conflicts resolved. direct Distribution as well as intermediaries may be used as per situation. Also. for sending a greeting card. • Channel Type Selection: Based on the options available for a particular product category. Various implications of one Channel on the other Channels employed should be considered. . In multiple levels of Distribution. The implementation must be in tune with the objectives of Hybrid Distribution Channels. careful evaluation of the interrelation of various Channels must be understood and the best mix of Channels must be deployed in order to avoid any Channel Conflicts and thus. • Feedback: Problems might arise after Hybrid Distribution Channels is implemented due to minor issues not thought of or not taken care of. any changes required due to Internal or External environment would have to be catered to in order to reap the benefits of Hybrid Distribution Channels. multiple levels of Distribution would suit since it would increase its reach. the most viable Distribution Channel available needs to be decided upon before its selection. loss of Trust and Revenue.• Strategy Selection: Based on the market characteristics and structure. online Channel may be employed as an alternative to courier or direct delivery. Similarly. For instance. the Distribution Channels needs to be decided. For example. • Channel Selection: Mere selection of various Channels of Distribution and implementing will not lead to a success. for a consumer durable. Different Channels with same customer might lead to internal conflicts and also confusion among the customers. for a two level Distribution. for a consumer good. Hence. the company must select the optimum level at which it can operate efficiently. Also. Similarly. in case of a perishable good. select the Channels which will suit the nature of business. As such. multiple intermediaries would not be a viable option.
especially when the customer is exposed to multiple product offerings from other companies. The topic has a lot of scope for further research. Some customers are motivated by the immediate and convenient availability of a product. This would enable Companies to sustain their competitive advantage brought about by Hybrid Distribution Channels. The task is to best identify customer preference and satisfy them with the cost effective options. And no business can survive without demand from its customers. ANNEXTURE: . In most of the businesses. Mere selection of more than one channel will not serve the purpose. Also. Further research on this area of study would provide more insights into complexity involved in implementation of Hybrid Distribution Channels. From the Strategic Framework which has been developed in this paper it is very clear that designing of an apt Distribution Network will need great precision which can come only with experience. more research can be carried out on customizing Hybrid Distribution Channels to adapt to various sectors. Having a strategic framework for Distribution forms the base for a company. the behavior of consumer about various touch points will have to be understood and their acceptance of multiple channel be tested. Another aspect which would be important to understand would be the cost attached with an additional channel as its affect of the profitability of the company as a whole. it is critical to identify the products and services that are unique to each. While the nature of distribution is changing. In addition to understanding the motivations of each customer channel. Careful evaluation of the costs involved in each channel along with the conflicts and other implications like consumer attitude. to remain in sight and in the minds of the customer becomes very important during such turbulent times. and still others value service. out of sight is out of mind. understanding and implementing an effective Distribution Network leaves much to be desired. Hybrid Distribution Channels network will assist companies to reach the customers in as many ways as possible. Thus. The current economic crisis scenario highlights the fact that only those businesses with strong fundamentals can sustain in the long run. Thus. Different nature of products and customers would need different type of Hybrid Distribution Channels. Research can be conducted more on issues like sustaining Hybrid Distribution Channels by avoiding Conflicts or Redundancy of any Channel. relations with other channel members has to be performed to benefit from Hybrid Distribution Channels.SCOPE FOR FUTURE RESEARCH: There appears to be little published research work on Hybrid Distribution Channels. CONCLUSION: Channels generally are defined by customer preference. others look for the least expensive option. We have made an attempt to understand the nature of Hybrid Distribution Channels and its impact on Marketing.
This is in sync with its matchbox distribution strategy – wherever a match is sold. It offers multiple products and services like Mobile Connections. today. In order to meet the objectives. AIRTEL Relationship Centre 6. In order to meet the demands of such a large customer base and also look for further growth opportunity. recharge options and many more. calling cards. The objective of Airtel was to create value to the customers and the company in as many ways as possible using Distribution Channels. bill payment. Services like 3G and WiMax have further augmented the growth. For the company. this helps reduce its overheads whereas for a customer. Retail outlets 4. Hence. Retail outlets Even a franchisee model will not be able to reach the vast customer base of Airtel. Corporate Selling Associates 5. Franchisee Selling Associates 3. managed and controlled by Government. Airtel employed Hybrid Distribution Channels to cater to the needs of its varied customers. Airtel used following channels to serve the customers:1. the company needed a strong Distribution Network and equally strong sales force. Bharti Airtel. This channel maintains utmost quality of customer service by employing well trained professionals. is the leading telecom player in the market today with over 110 million subscribers in 23 telecom circles. Corporate Selling Associates . Conferencing. They act as a direct link between Airtel and the customers. the industry has seen tremendous growth and has become one of the largest telecom markets globally. DTH and many other services. new connection. some frequently used services like top up or recharge are made available at the local retail stores which will include the pan walahs also. broadband & internet. Franchisee Selling Associates This channel includes the franchisees of Airtel who serve in those places where a company owned outlet is not able to reach.AIRTEL – A CASE STUDY Until mid 1980s. A customer can visit this outlet for multiple purposes like details regarding any new schemes. Company-owned outlets 2. Home phones. Since then. telecommunication industry in India was a monopoly. Company’s website Company-owned outlets Company-owned outlets are the exclusive brand outlet (EBO) for Airtel. In 1991. it is another touch point added for his convenience. Airtel's services will also be sold. Government invited private players to enter the market.
Conclusion: From this case study. any conflict is avoided by defining the role of each of them. There will obviously be some intersecting functions and that would need expertise of Airtel to deal with any kind of conflicts. check their usage. The website helps the customers to pay bills. services and much more is catered to through a toll free number (121 from an Airtel connection) which is well trained to help the customers.A new segment of customer which has evolved with years is the corporate customer. Company’s website Tech savvy people have been increasing preferring online model for communication. AIRTEL Relationship Centre This is the call centre for Airtel customers where they provide all the services provided by Airtel but is primarily used as an interaction between the customer and the company. know about new schemes. • But when the same customer wants a new connection or wants to pay his bills. In spite of few of the functions overlapping between some channels. he would prefer to go to the exclusive outlet or even visit the website. REFERENCES: . Hence. Consider the following instances:• When a customer would want to recharge with a small denomination. he would rather go to a retail shop which would be a couple of blocks away than go to an Exclusive outlet which is further away. then he would prefer calling the toll free call centre rather than look for an outlet. Airtel provides this through its company website. new schemes and queries or complaints or any other requirement. Airtel has been able to deal with the requirements of its internal customers (channel members) as well as its external customers (end users) with its high quality service through its widespread distribution network. it can be inferred that Airtel still reigns the Numero Uno in the mobile communication market in India and its success lies in understanding the consumer hot buttons and immediately responding to his needs by effectively administering the various channels so that the customer can be services better (Hybrid Distribution Channels). But as seen from the success. queries. They help the customers with new connections. Any complaints. This saves a lot of time and energy spent in finding those numbers of customer elsewhere. a dedicated distribution is been set up for them under Corporate Selling Associates. and many other functions. This segment is highly profitable since the deal is usually done is bulk where all the employees of an organization get the best tariffs with Airtel connection. Customers who do not have time are finding this channel extremely useful. • If the customer is travelling and needs some information urgently.
10.airtel.H. James M.1. 9. www. Devavrat Purohit “Dual Distribution Channels: The competition between Rental Agencies and Dealers” (1997) Gila E.in About the Authors: . V. Rowland T Moriarty and Ursula Moran “Managing Hybrid Marketing Systems” (1990) 12. 8. Sarah Taylor “Managing at the speed of reality” (October 2008) 13. Murphy. Peter Broderick. Fruchter “Dynamic online and offline Channel pricing for heterogeneous customers in virtual acceptance” (2005) John R Hall “Using the Hybrid Distribution Model” (July 2008) John W. Sharad Verma “Creating a Distribution Advantage in India” (2007) 16. and Chińu Ioana Bianca “Hybrid Distribution system – strategic methods applied more and more in the context of new markets extended through the European union” 15. Hayden “Managing Multiple Channels” (2000) Madhup M Paturkar “Bench Marking in Automotive Industry Distribution Process: Case Study of Luxury Car Maker” (2007) Michael Grotticelli. 6. 5.co. Manek Kirpalani. Vikram Bhalla. 4. 2. and Reijo Luostarinen “Multiple Channel Strategies in the European Personal Computer Industry” (September 2000) Mike Reynolds “A Net with Island Flavor” (September 2007) Paul R. Arindham Bhattacharya. Steve Smith “Roll that Beautiful B2B Footage” (May 2007) 14. Declaration of Independence: The Ten Principle of Hybrid Distribution (2009) 11. Abheek Singhi. 7. Daley “An Empirical Study of Internet Issues among International Freight Forwarders” (2000) 3. “Interview with Bob Mcintyre” (2009) Mika Gabrielsson. Tecău Alina Simona.
His research interest lies in Channel Management and Marketing Research Mobile: 9987599511 E-mail: gsaurin@gmail. Saurin K. Mumbai. He has written two books: Rural and Agricultural Management and Management of Co-operatives both published by Jaico Books Mobile: 9821820059 E-mail: ramkishen123@rediffmail. in the area of Rural Marketing. He has close to 6 years of teaching experience and 4 years of corporate experience. Gandhi is a student at K.com **Mr.Somaiya Institute of Management Studies and Research. Retail Management. Sales and Distribution and Brand Management. He has 2 years of prior work experience with Infosys Technologies Limited.com . is Faculty of Marketing at K J Somaiya Institute of Management Studies and Research. doing Masters in Management Studies (MMS) approved by University of Mumbai with specialization in Marketing.*Dr. His consulting areas are – Rural Marketing. He holds a PhD. RamKishen Y.J.
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