Overview of distribution channels

Marketing Management II (2005-06)

Adidas to overhaul distribution
• Adidas India is revamping its distribution – Exclusive distribution department being created – Distributor performance being re-evaluated • Current distribution – 74 exclusive stores ( run by franchisees) – 1,000 multi-brand outlets ( catered to by around 40 distributors). • "We need people who share the same vision and aggressiveness, and that hasn't been the case with all our partners in distribution." – Andreas Gellner- M.D., Adidas India

The basics • What is a distribution ( or marketing) channel? • Who belongs to a channel? • Concepts for understanding channels • Indian distribution system • What is the work of a distribution channel? .

Concept of a distribution channel Activity 1 Activity 2 Manufacturer Activity 3 Consumer Activity N Marketing Channel .

What is a distribution channel? • A channel of distribution is a pathway or route to market extending from manufacturer or service seller to its ultimate consumer or user – Direct sale from manufacturer to end user is also a channel • A channel of distribution can also be conceptualised as a sequence of value adding activities .

The distribution system Economy Legal Environment Technology Socio-Cultural Political Demographic Government Policy Specialised participants Buyers Producers Agriculture Manufacturers Service Firms Wholesale Retail Consumers Public Distribution system The Trade Channel .

Who is in the channel? • Primary participants – Manufacturers. Producers – Distributors and Wholesalers – Retailers • Specialized channel members – Transporters – C & F Agents – Warehouses – Brokers – DSA’s • End users .

Generalised structure : Example Pharma Manufacturer Branch or Depot / CFA / Super Stockist Stockist Hospital Institution Retailer Patient .

Nestle India.distribution structure Factory Imports Co-Packers Distribution Centers Clearing & Sales Agents Cash Distributors Re-Distributors Retailers Institutions Out of Home Channel .

Level Maruti Udyog 1.level Most FMCG 3-4 level .Concept of Levels Manufacturer Manufacturer Manufacturer Manufacturer Distributor Distributor Retailer / Dealer Consumer Dealers Wholesaler Retailer Consumer Consumer Consumer Eureka Forbes 0.level Philips Lighting 2.

Concept of directness Indirect Manufacturer 2 Indirect Channel member 2 Direct Channel member 1 Channel member 3 Consumers Dual .

Concept of variety • Few types of channels – Traditional channel only • Many types of channels – Traditional channel – Exclusive stores – Internet store front – Direct sales to corporate customers .

Concept of density • Exclusive – Automobiles • Selective – Consumer durables • Intensive – FMCG .

Concept of novelty • Traditional channel • Novel channels – Direct sales • Self help groups – Bancassurance – Vending machines – Internet – Shop in shop .

Indian Distribution channel: Foodstuffs Farmer Consolidator Trader Commission agent Wholesaler Retailer Consumer .

Indian retail: Traditional formats • • • • Door to door Mobile vending ( Push cart) Roadside vendors Temporary structures – Semi permanent – Encroachments • Markets – Seasonal – Permanent • Permanent shops .

Type of retail outlets in India Urban • • • • • • • % 34.0 6.6 • Chemist 3.0 17.4 17.6 • General Store 13.6 6.3 4.0 Rural % Grocers General Store Paan Other Food Chemist Cosmetics • Grocers 55.7 14.5 • Others 27.3 .

200 25. Textiles.Retail sales in India Total Retail Sales Category Clothing.5 6 10 3 3 .000 800 650 28.000 8. Music. Fashion Jewellery Watches Footwear Health & Beauty care services Healthcare products Consumer durables Mobile handsets & accessories Furniture & furnishings Food & grocery Catering services Books. Crores) 10.000 43.200 2.950 2.500 150 550 2.000 35.000 Organised Retail ( Rs.000 2.000 33.000 32.500 840 2. gifts Entertainment Total (Rs.000 Organised Share % 14 2 40 25 6 2 8 6 7 0.000 615.900 850 1110 2.500 2800 10.000 930.500 30. Crores) 80.000 13.

Music Consumer Readiness Pharmacy products SHAPE / ADAPT Fresh groceries Women’s apparel Fast food Personal care products Liquor retail LOW WAIT & WATCH LOW Supply Chain sophistication HIGH .McKinsey view of Indian retail ( Source: McKinsey Quarterly 2000 Number 4 Asia) HIGH Dry Groceries READY TO GO Electronics Men’s apparel Shopping Malls Books.

000 800 650 28. Fashion Jewellery Watches Footwear Health & Beauty care services Healthcare products Consumer durables Mobile handsets & accessories Furniture & furnishings Food & grocery Catering services Books. gifts Entertainment Total Source: Images-KSA. Music. Textiles.950 2.500 840 2.500 150 550 2.Organised retail in India Organised Retail Category Clothing. Crores) . 2005 Category share in Org retail % 10.000 39 3 4 9 1 2 9 3 8 11 7 3 2 100 ( Rs.900 850 1110 2.200 2.

durable. fulfill orders and service • Internationally. channel members collectively earn 30 to 50% of the final selling price • Channel not only serves the market but also makes the market • A good channel is strategic – Difficult to put into place. difficult to imitate • Channel management offers the potential to obtain competitive advantage .Why are channels important? • Route to market – Access potential buyer. convert the prospect.

Work done by the channel • TRANSACTIONAL ACTIVITIES – Buy products from sellers – Promote Products to consumers – Absorb the risk of product ownership • PHYSICAL ACTIVITIES – – – – Store the products Transport the products Break bulk the product into smaller quantities Service and repair the products • FACILITATING ACTIVITIES .

Marketing Channels .Flows Physical possession Ownership Promotion Producers Negotiation Financing Risk assumption Ordering Payment Retailers Source: Coughlan et al .

• Governance – Frameworks to ensure pursuit of objectives – Conflict resolution mechanisms • Relationship Management – Actions that frame the daily environment . of participants in the channel etc.Key decisions in channel management • Structure – Strategic choices that can be represented graphically – No.

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