Distribution Network

Distribution network or channels is one of the crucial “P” i.e. “Place” in the 8 Ps of
the Marketing. The distribution channel plays the role of intermediary between the
manufacturer (Company) and the consumer.

The marketing channel is a set of actions taken to transfer the ownership of the
products from the manufacturer to the final consumer (point of consumption). Various
interdependent organizations are involved in the marketing channel to deliver the products
and services to the consumer. According to American Marketing Association, “the channel of
distribution is the structure of intra company organization units and extra company agents
and dealers, wholesale and retail, through which a commodity, a product or a service is
marketed.”

Importance of Distribution Network

The main objective of the distribution network is not only to serve the market with the
product or service but also to establish the market for the product or service. So, the selection
of the channels can affect all other marketing decisions. Also, the sale of the product/service
depends on these intermediaries which is dependent on the motivation/compensation
provided to these external organizations. Hence, the decisions about marketing channels and
maintaining these relations are critical marketing decisions for the management of the
organization.

Elements of Distribution Network

The characteristics of the Distribution network are mentioned as follows:

1. Flow –

The flow of the product or service should be smooth, sequential and

undisturbed. The manufacturing company prefers the flow of the product to be
unidirectional.

2. Route or Pathway –

The distribution channel is the pathway through which the products and
services are transferred from point of production to point of consumption.

3. Composition –

The distribution network consists of intermediaries such as wholesalers,

retailers, agents, middleman, distributors, etc.
 4. Functions –

The intermediaries perform all the necessary actions required to transfer the
ownership as well as the possession of product and service from the producer to the
consumer.

5. Remuneration –

To perform all these functions of the marketing channel, the intermediaries are
provided with the commissions.

Functions of Channels of Distribution

The various functions performed by the intermediaries in the distribution channel are
mentioned below:

 Ease of Distribution

It is difficult for the producers to directly distribute their products to the

consumers. The intermediaries help to distribute the products to the customers. Also,
they help to penetrate more into the market areas which might not be possible for the
manufacturing company.

 Promotional Activities

The channel of distribution helps to promote the sales of the product and
services to the customers and hence they help to increase the sales of the product and
services.

 Communication Channel

The channel of distribution plays an important role in communicating the

needs of the consumers to the producers and the value proposition of the products and
services to the customers.

 Price Determination\

The channel of distribution is the touchpoint for the customers and hence they
can gauge the spending capacity and desire of the consumers to the manufacturers.
Depending upon the information provided by these channels, the price of the product
is decided along with considering other factors.

 Information Flow

The channel of distribution is also a medium of information flow regarding the

products and services. Hence, the distribution channels help to conduct marketing
research to determine the target group’s needs and wants.
  Matching the demand and supply

Another important function of the intermediaries is to manage the supply of

the product from the manufacturer and the demand by the customers.

Managing Distribution Network

The task of managing distribution network is very tedious. It includes building trust
and motivating the seller’s salesforce too. Many companies have their sales team visiting the
distributor for hardly one or two times per month. Also, the sales team hardly meets all the
staff of the distributor and hence motivating them is difficult.

There should be cooperation between the manufacturing company and the distributors
for successful implementation of marketing strategy. The manufacturers understand their
dependencies upon the distributors, but the distributors are seldom aware of this cooperation.
Hence, manufacturing companies set up the cooperative programs.

How to Maintain Distribution Network

The various methods, which can be used to maintain the distribution network, are
mentioned below –

 Channel Partners Loyalty Programs

Loyal channel partners can boost the sales of the product more than the hostile
one. Hence, some manufacturing companies have loyalty programs and policies for the
distribution channels to have check on them.

 Incentives to the Channel Partners

The channel partners are basically profit-seeking institutes and the incentives can
help them to achieve their main objective.

 Incentives to the Channel Partners’ Sales Personnel

It is important to compensate the sales person efforts monetarily to motivate them

for increasing the sales. While taking care of Channel partner’s owner, it is vital to take
into consideration the sales personnel of the channel. So, providing them incentives will
help to increase their selling efforts.

 Assistance and Advise for Distribution Institute

Some manufacturing companies assist the distributors while setting up the

institute in various means such as financial aid, materials, infrastructure guidelines.
Effect of Changing Distribution Network

The advancement in technology and industry revolution has given birth to new types
of distribution institutes. These are online retailers, e-commerce website, departmental stores,
supermarket and Every Day Low Price (EDLP) department stores. These emerging
distributors are creating threats for traditional distributors. Hence, the complexity for
managing the distribution network has increased a lot. The manufacturing companies, which
are having dynamic marketing and sales policies, are able to maintain the traditional
distribution network to earn more sales.

Managing the Channel Conflict

Every company wants to implement omnichannel presence to increase its penetration

in the market. To have omnichannel presence, it is important that different types of
distribution channels should work in harmony. But, the main objective of distribution
institutes is to increase their profitability, which can create conflicts among the channels.
Hence, it is necessary for sales managers to understand, identify the various goals of different
distributors. This will help them to draft the sales policies which can reduce the conflicts
between the channels.