2021 Distribution Reading Materials Final

DISTRIBUTION MANAGEMENT READING MATERIALS
WHAT IS DISTRIBUTION MANAGEMENT?
The management of resources and processes used to deliver a product from a production location
to the point-of-sale, including storage at warehousing locations or delivery to retail distribution
points. Distribution management also includes determination of optimal quantities of a product
for delivery to particular warehouses or points-of-sale in order to achieve the most efficient
delivery to customers.
A study on the basic tenets of distribution management is better anchored on a comprehensive

appreciation of distribution as a function of the marketing strategy. A quick review on the
concepts of marketing mix, the market and customer segmentation is therefore important to the
discussion of the fundamentals of distribution management.
PLACEMENT IN THE MARKETING MIX
In the light of sound marketing framework, a firm needs to formulate, implement and evaluate a
plan that focuses on the elements of the marketing mix that marketing practitioners must find
creative ways to control in order to best satisfy target consumer segments. We define consumers
here as those who will finally consume or use the product or service.
There are the classical four Ps, or elements of the marketing mix to be managed by the marketing
organization, namely:
 PRODUCT: A product is not always necessarily tangible like an anti-dandruff shampoo.

A product could be intangible like an idea, music or information. Your cellphone load or
credit is an intangible product. It could also be a service (e.g. spa, hotels, resorts), or any
combination of the three;
 PRICE: This refers to the value of a good or service for both the seller and the buyer,
which can involve both tangible and intangible factors, such as list price, discounts,
financing, and likely response of customers and competitors;
 PROMOTION: This is any communication used by a seller to inform, persuade, and/or
remind buyers and potential buyers about the seller’s goods, services, image, ideas, and
the impact it has to society, to influence buyers to make purchasing decisions.
Promotions are effective tools to increase demand and differentiate a product or service;
 PLACEMENT OR DISTRIBUTION: This refers to the process that ensures the
availability, accessibility, and visibility of products to ultimate consumers or business
users in the target channels or customers where they prefer to buy. Distribution decisions
include market coverage, channel member selection, channel coordination and conflict
management, logistics, and service levels.
In this new era, distribution is not just about moving the products from the point of producers to
the point of consumers. It involves such functions as gathering and sharing of relevant
information that can be used to identify key opportunities for growth and competitiveness in the
market. Most progressive companies utilize their distribution forces to obtain market
intelligence that are vital in assessing their competitive position.
DISTRIBUTION MANAGEMENT READING MATERIALS Page 1

CONCEPT AND MEANING OF DISTRIBUTION
DISTRIBUTION (OR PLACE) is one of the four elements of the marketing mix. Distribution
is the process of making a product or service available for the consumer or business user that
needs it. This can be done directly by the producer or service provider, or using indirect channels
with distributors or intermediaries. The other three elements of the marketing mix are product,
pricing, and promotion.
Distribution is fundamentally concerned with ensuring that products reach target customers in
the most direct and cost efficient manner. In the case of services, distribution is principally
concerned with access. Although distribution, as a concept, is relatively simple, in practice
distribution management may involve a diverse range of activities and disciplines including:
detailed logistics, transportation, warehousing, storage, inventory management as well as channel
management including selection of channel members and rewarding distributors.
Goods are produced in order to use. A proper arrangement should be made to sell and distribute
the products to satisfy the wants and needs of the consumers. Hundreds of thousand consumers
living in villages, cities and nook and crannies of the country use the goods produced at one
place. Some products need to be sold and distributed to different countries of the world
simultaneously. The way or medium used to transfer any product from the producer to the hands
of ultimate users or industrial users is called distribution channel. Under physical distribution
system includes the process of physical flow of goods or services. Transportation, warehousing,
inventory control, order processing etc. include in it. There are two major factors under
distribution. They are:
1. Distribution channel and 2. Physical distribution function.
Distribution channel sometimes also called 'trade channel' in which include producer, users of
the products and middlemen. All the persons, firms, or institutions involved in carrying the
products from producers to the hands of ultimate consumers or industrial users are called
channels of distribution.
The main function of the channels of distribution is to make effective flow of goods or services.
Different persons, business firms or business institutions, such as suppliers, producers, industrial
users, business intermediaries and agents, brokers, wholesalers, industrial distributors, retailers ,
and consumers involve in the channel of distribution. They involve in transferring right and
ownership of goods or services from one to another. But banks, insurance companies,
warehouses, transport companies including other non-intermediary organizations are not
included in the channel of distribution. Although they transfer goods from one place to another
or to market, yet they do not play the main role in buying and selling contract.
Suppliers supply raw materials, machines and machinery parts, equipment, manpower, finance
etc. to producers and industrial users. The producers transform the materials into the form to be
used by consumers. Wholesalers, industrial distributors, business middlemen, brokers, agents,
retailers etc. are the intermediaries of marketing. They help producers to transfer products to
markets.

Producers may use different channels to carry their products to the hands of ultimate consumers.
Selection of proper channel is challenging task for producers in distribution of their products.
While selecting distribution channel, cost and benefit is considered as the basic element.
Similarly, products, market, middlemen, organization, competition, environmental factors of
marketing also should be considered to select distribution channel.
IMPORTANCE OF DISTRIBUTION
Distribution is one of the important mix among marketing mixes. The role of distribution in
marketing and in the whole economy can be discussed as follows:
1. DELIVERY OF SATISFACTION
Marketing concept emphasizes on earning profit through satisfaction of the customers. Besides
market research for the development and sales of goods according to need and wants of
consumers, the participants of distribution channel also help producers in production of new
goods.
2. STANDARD OF LIVING
Distribution function helps to improve living standard of the consumers in the society. Proper
distribution of necessary goods and services to the consumers easily at right time does not only
satisfy them but also brings change in their living standard. Distribution brings improvement in
living standard of consumers through generation of employment, increase in income and transfer
of ownership. Hence, it brings positive effect in the society.
3. VALUE ADDITION
The functions of distribution such as transportation, warehousing, inventory management etc.
increase the importance of products by creating place utility, time utility and quantity utility.
Distribution mix plays an important role to increase the value of the products through delivery of
goods in right quantity, at right place and right time.
4. COMMUNICATION
Distribution serves as link between producers and consumers. Producers can make flow of
information and messages to consumers about their products, price, promotion etc. through
channel members. Similarly, they receive information about customers, competitors and
environmental changes from channel members.
5. EMPLOYMENT
The function of distribution creates employment opportunities in society. Market intermediaries
work as direct and indirect sources of employment. Different producers need to supply their
innumerable products to consumers. Thousands of distributors, agents, wholesalers, retailers,
brokers etc. involve in supplying the products to the consumers. Similarly, many persons of the
society can get job in the transport and warehouses sectors, etc.
6. EFFICIENCY

Producers produce limited types of goods in mass quantity but the consumers demand different
types of goods in small quantity. When goods are produced in a mass quantity, they can be
obtained at lower price. Distribution helps to satisfy the needs of consumers by supplying
assortment of different products of different producers. From this, efficiency can be achieved in
both production and distribution.
7. FINANCING
Intermediaries themselves make arrangement to keep reserve and stock of goods. The producers
need not make arrangement and management of distribution centers and warehouse. The
producers need not do anything except remaining busy in production, the timely payment by
intermediaries and financial helps become more important for smooth operation of production.
Similarly, the role of finance is also decisive in mobilizing other means of production.
ASPECTS OF DISTRIBUTION
Two aspects involve in distribution function, they are marketing channel and physical
distribution.
1. MARKETING CHANNELS
The relation network among persons, business firms, organizations etc. involved in the process
of ownership transfer of any product is called marketing (distribution) channel. Under this
include producers, different level intermediaries (distributors, agents, dealers, wholesalers,
retailers etc.) and consumers. In the process of making flow of products from producer to final
customers, different legal and financial activities need to be performed. So, banks, financial
institutions, insurance companies also include in marketing channel. As different promotional
activities are done to motivate all the persons and institutions involved in distribution process,
this aspect of distribution is also called ' channel motivation'.
2. PHYSICAL DISTRIBUTION OR MARKETING LOGISTICS

The activity related with physical inflow of goods is called physical distribution or marketing
logistics, transport, warehouse management, inventory management, order processing, material
handling etc. are the main activities involved in physical distribution. This is very important
aspect of distribution function.
OBJECTIVES OF DISTRIBUTION
The main objectives of distribution in marketing are as follows:
1. MOVEMENT OF GOODS
The main objective of distribution is to make flow of goods from production place to
consumption place. For this, the role of the distribution channel system and its members becomes
very important.
2. AVAILABILITY OF GOODS
The objective of distribution function is to make or supply necessary goods to the large masses
of customers living indifferent geographical areas.

3. PROTECTION OF GOODS
The objective of distribution is also to properly storing, handling and protecting the goods and
supplying them to the consumers in good condition.
4. COST REDUCTION
The objective of distribution is also to reduce cost of product by bringing effectiveness in
distribution process.
5. CUSTOMER SATISFACTION
The other objective of distribution function is to help consumers feel satisfied through effective
distribution.
DISTRIBUTION CHANNELS - MEANING AND THEIR SIGNIFICANCE
Various marketing intermediaries are used in transferring the products from the hands of
producers to the final consumers or industrial users. These marketing intermediaries carry
alternate names such as wholesalers, distributors, retailers, franchised dealers, jobbers,
authorized dealers and agents. Such marketing intermediaries compromise the distribution
channel. These distribution channels minimize the gap between point of production and point of
consumption, and thereby create place, time and possession utilities.
DEFINITION: DISTRIBUTION CHANNEL

The media through which goods or services flows from the producers to the consumers is known
as a distribution channel. It involves a series of individuals and organizations who act as
intermediaries in the system. Distribution channels are also called marketing channels or
marketing distribution channels.
Distribution Channels accommodate bidirectional flows such that they allow the flow of goods
and services from the vendors to the consumers and at the same time facilitates the flow of
payment for the goods/services in the opposite direction from the consumers to the producers.
The distribution function of marketing is comparable to the place component of the marketing
mix in that both center on getting the goods from the producer to the consumer. A distribution
channel in marketing refers to the path or route through which goods and services travel to get
from the place of production or manufacture to the final users. It has at its center transportation
and logistical considerations.
Business-to-business (B2B) distribution occurs between a producer and industrial users of raw
materials needed for the manufacture of finished products. For example, a logging company
needs a distribution system to connect it with the lumber manufacturer who makes wood for
buildings and furniture.
Business-to-customer (B2C) distribution occurs between the producer and the final user. For
instance, the lumber manufacturer sells lumber to the furniture maker, who then makes the
furniture and sells it to retail stores, who then sell it to the final customer.

FUNCTIONS OF A DISTRIBUTION CHANNEL:
Distribution channels are well organized arrangements that perform all the necessary tasks to
assist exchange transactions. The basic function of a distribution channel is to provide a link
between production and consumption and to create time, place and possession utilities which
constitute the added value of distribution.
Distribution channels can be exemplified by the number of intermediary levels that separate the
manufacturer from the end consumer. The choice of a particular distribution channel is
determined by factors related to market size, buyer behaviour and organization’s characteristics.
A typical distribution channel has to perform various functions as mentioned below.

All the above mentioned functions should be considered logically in any market. The idea is to
know what functions are to be performed, who will perform them and how many levels it
requires to make the distribution efforts cost effective, is another important decision to take.
STRUCTURE OF DISTRIBUTION CHANNEL SYSTEM
Mainly, there are three levels in the structure of the distribution channel: they are direct channel,
indirect channel and mixed channel.
1. DIRECT CHANNEL - If the producers themselves distribute their products directly to the
ultimate consumers, this is called direct channel. In this, no help of intermediaries or middlemen
is taken.
2. INDIRECT CHANNEL - If the producers take help of wholesalers, retailers, dealers, agents
etc. to supply their products to ultimate consumers, this is called indirect channel. These
intermediaries can be divided in two groups as business intermediaries and business agents.
3. MIXED CHANNEL - If the producers use both direct and indirect channels to supply their
goods to customers, this is called mixed channel.
In this way, the producers can use direct, indirect and mixed channel to supply their goods or
services to the consumers. For distribution of consumer goods, the main participants of the
distribution channel are producers, agents, wholesalers and retailers. But for the industrial goods,
the main participants of the channel are producers, industrial users, industrial distributors and
agents.

ADVANTAGES OF DISTRIBUTION CHANNELS
1. Financial help to producer

2. Direct marketing may not be feasible. (Bubble gum producers)
3. It is a usually a costly exercise for producer’s to setup selling points
ROLE AND SIGNIFICANCE/IMPORTANCE OF DISTRIBUTION CHANNELS
Distribution Channels perform a crucial role in the successful distribution and marketing of all
products. They have various contacts, expertise and wider knowledge of the products. The
rapidly growing markets and increasing complexities of distribution have increased the demand
and requirement of the distribution channels.
The role of distribution channels can be summarized as follows:

1. Distribution channels offer salesmanship: The distribution channels offer pivotal role
of a sales agent. They help in creating new products in market. They specialize in word of
mouth selling and promotion of products. They assure pre-sale and post-sale service to
the consumers. Since these channels are in direct and regular contact with the consumers,
they do salesmanship very well and at the same time provide true and valuable feedback
to the producers.
2. Distribution channels increase distributional efficiency: The intermediary channels

ease the sales process as they are in direct contact with the customers. They narrow down
the gap between producers and consumers both economically and efficiently. These
intermediaries reduce the number of transactions involved in making products available
from producers to consumers. For instance, there are four producers who are targeting to
sell their products to four customers. If there is no distribution channel involved, then
there will be sixteen transactions involved. But if the producers use distribution channels,
then the number of transactions involved will be reduced to eight (four from producer to
intermediary and four from intermediary to customer), and thereby the transportation
costs and efforts will also be reduced.
3. The channels offer products in required assortments: Just like the producers have
expertise in manufacturing products, similarly the intermediaries have their own
expertise. The wholesalers specialize in moving and transferring products from various
producers to greater number of retailers. Similarly, the retailers have expertise in selling a
wide assortment of goods in less quantity to a greater number of final customers. Due to
the presence of distribution channels (wholesalers and retailers), it is possible for a
consumer to buy the required products at right time from a store conveniently located
(geographically closer) rather than ordering from a far located factory. Thus, these
intermediaries break the bulk and meet the less quantity demand of the customers.
4. They assist in product merchandising: It is actually the merchandising by

intermediaries which fastens the product movement from the retail shop desk to the
customer’s basket. When a customer goes to a retail shop, he may be fascinated by the
attractive display of some new product, may get curious about that new product, and he

may switch over to that new product leaving his regular product. Thus merchandising
activities of the intermediaries serve as a quiet seller at a retail store.
5. The channels assist in executing the price mechanism between the firm and the final
customers: The intermediaries help in reaching a price level which is acceptable both to
the producers as well to the consumers.
6. Distribution channels assist in stock holding: The intermediaries perform various other
functions like financing the products, storing the products, bearing of risks and providing
required warehouse space.
Thus, the distribution channels are vital constituent of a firm’s comprehensive marketing
strategy. They assist in expanding product reach and availability, as well in increasing revenue.
IMPORTANCE OF DISTRIBUTION CHANNELS
As noted, distribution channels often require the assistance of others in order for the marketer to
reach its target market. But why exactly does a company need others to help with the distribution
of their product? Wouldn’t a company that handles its own distribution functions be in a better
position to exercise control over product sales and potentially earn higher profits? Also, doesn’t
the Internet make it much easier to distribute products thus lessening the need for others to be
involved in selling a company’s product?
While on the surface it may seem to make sense for a company to operate its own distribution
channel (i.e., handling all aspects of distribution) there are many factors preventing companies
from doing so. While companies can do without the assistance of certain channel members, for
many marketers some level of channel partnership is needed. For example, marketers who are
successful without utilizing resellers to sell their product (e.g., Dell Computers sells mostly
through the Internet and not in retail stores) may still need assistance with certain parts of the
distribution process (e.g., Dell uses parcel post shippers such as FedEx and UPS). In Dell’s case
creating their own transportation system makes little sense given how large such a system would
need to be in order to service Dell’s customer base. Thus, by using shipping companies Dell is
taking advantage of the benefits these services offer to Dell and to Dell’s customers.
WHAT IS DISTRIBUTION PLANNING?
Distribution Planning is a systematic approach to ensure that the process encompassing the
delivery of goods to different distribution centers is done properly keeping in mind which goods
are to be supplied in what quantity at what location in the desired time. It is done keeping in
mind the demand trends over the years accounting for seasonal variations and also the
anticipated demand according to this year’s prediction. If distribution planning is done correctly,
it increases efficiency. All goods shortages are minimized as demand is accounted for during the
time of distribution and costs of ordering, transporting and holding goods is also reduced
considerably. If correct distribution is done, the major advantage is that inventory can also be
kept under control in the desired level.

For example: Distribution planning of Frooti should be done properly keeping in mind the
demand for the product throughout the year, both peak season and off season and also knowing
which regions are the major consumers of the product as distribution frequency in those regions
need to be more.
SELECTING THE CHANNELS OF DISTRIBUTION
For manufacturer to select a channel, they must consider the following:

 The product characteristics and how they affect methods of distribution
 Customers and their requirements
 Location of the customers
 How, when and where customers want to buy the products
 The cost of distribution
 The legal and regulatory constraints of the distribution
These are important issues and require significant levels of analysis in order to gain an
understanding of the situation. Clearly some of these issues will form the basis of the marketing
audit. Ideally the marketing mix has a clear focus on achieving customer satisfaction and
achieving the profit objectives of the organization.
Supermarkets have moved away from just supplying food-based products to include fashions,
music, electrical goods, cosmetics, etc. All of this is focused on meeting all of the above
distribution factors.
There are two perspectives of intermediary selection, the strategic perspective and the
operational perspective: strategic in relation to looking at the ‘bigger picture’ and ‘operational’
looking at the ability to implement the strategic marketing plan and distribution strategy.
(Armstrong& Kotler 2010).
DISTRIBUTION DECISIONS
Distribution decisions focus on establishing a system that, at its basic level, allows customers to
gain access and purchase a marketer’s product. However, marketers may find that getting to the
point at which a customer can acquire a product is complicated, time consuming, and expensive.
The bottom line is a marketer’s distribution system must be both effective (i.e., delivers a good
or service to the right place, in the right amount, in the right condition) and efficient (i.e.,
delivers at the right time and for the right cost). Yet, as we will see, achieving these goals takes
considerable effort.
Distribution decisions are relevant for nearly all types of products. While it is easy to see how
distribution decisions impact physical goods, such as laundry detergent or truck parts,
distribution is equally important for digital goods (e.g., television programming, downloadable
music) and services (e.g., income tax services). In fact, while the Internet is playing a major role
in changing product distribution and is perceived to offer more opportunities for reaching
customers, online marketers still face the same distribution issues and obstacles as those faced by
offline marketers.

CHANNEL DECISIONS
According to Philip Kotler, the channel decisions are among the most important decisions that
management faces and will directly affect every other marketing decision. These decisions are
set of interdependent organizations (intermediaries) involved in the process of making a product
or service available for use or consumption by the consumer or business user.
There are six basic channel decisions to make. These are:
1. Whether to distribute direct to the customer or indirectly through middlemen

The advantages of going direct are that it enables firms to exercise more control over marketing
activities and it reduces the amount of time spent in the channel. The disadvantages are that it is
difficult to obtain widespread distribution and more resources are required to maintain distribution.
Going direct is the method widely used by industrial goods producers. In the case of consumer
goods, examples of going direct to the customer are to be found in marketing cosmetics and
encyclopedias.
2. Whether to adopt single or multiple channels of distribution

The advantages of using a single channel are that it guarantees a minimum level of sales and the
exclusivity of using a single channel guarantees attention to the product. In the first case,
intermediaries can be asked to accept a minimum non-returnable order quantity. In the second
case, the fact that a product is only available from very specific outlets suggests that it is difficult
to obtain because it is exclusive. The harder it is to get, the more people will want to know about
it—or so the argument goes. On the other hand, the disadvantage of using exclusivity is that it
does limit sales.
In contrast, the use of multiple channels should lead to increased sales and a potential for wider
distribution. It must be argued that the more establishments put the product on view, the more
likely it is that sales will be substantial. Restricting the number of channels through which the
product is sold, restricts the number of people who can come into contact with the product. On
the other hand, there are disadvantages with using multiple channels. First, greater investment,
more sales people in the field, more marketing effort in general and more administration are
required.
3. How long the channel of distribution should be?

In determining the best channel length to adopt, the following factors have to be taken into
account:
(a) The financial strength of the producer—those in a strong position can carry out the
functions provided by intermediaries.
(b) Size and completeness of the product line—the costs of carrying out the distribution
function can be spread across the various items in the product line. The more items, the
more economical it might be to consider a shorter distribution channel.
(c) The average order size—large orders may be distributed direct to customers.
(d) The geographical concentration of customers—geographically dispersed customers
merit a longer distribution channel since servicing them requires substantial investment
of resources.

(e) The distance of the distributor from the market—geographical distance makes it less
attractive for the producer to want to supply direct.
The above are guidelines and of course exceptions may be encountered in practice.
4. The types of intermediaries to use.

This effectively means choosing between different types of retailer in the case of consumer
goods, e.g. supermarkets as opposed to cash and carry, and different types of distributor in the
case of industrial goods, e.g. whether to use franchised dealerships or not.
5. The number of distributors to use at each level.

In principle, more distributors are required if:
(a) The unit value of the product is low and/or the physical quantity of stock held is likely
to be high.
(b) The product is purchased frequently.
(c) There is a high degree of technological complexity in the product.
(d) The service requirement is high.
(e) The inventory investment is high.
(f) Geographic concentration is low.
(g) Total market potential is high.
(h) The market share of the producer is high.
(i) Competition is intense
6. Which intermediaries to use

This is a qualitative decision and reflects whether the image of the particular outlet, the way in
which it performs and the deals which can be struck with the distributor are satisfactory. It may
mean choosing C&A rather than Marks and Spencer, or Tesco rather than Finefare. Even when
strategies have been selected they have to be implemented and this involves producers and
intermediaries working together in the most effective manner.
DISTRIBUTION STRATEGY
DEFINITION: DISTRIBUTION STRATEGY

Distribution strategy is the method one uses to get products and services on to different
distribution channels and networks to reach the end customer or the purchaser; it is how and
where the customer buys the product. It forms one of the 4 main parts of a marketing strategy
and focuses on:
 Location of business
 Location of target market
 Reaching the target market
 Warehousing
 Transportation and logistics
In many situations one or more distribution channels can be used, for example (there are many
more forms apart from these)
 Manufacturer -> end customer

 Manufacture -> agent -> end customer
 Manufacturer -> retailer -> end customer
 Manufacturer -> wholesaler -> retailer -> end customer
 Manufacturer -> reseller -> retailer -> end customer
 Manufacturer -> franchisor -> franchisee -> end customer
In deciding the most appropriate distribution strategy, primarily a manufacturer or a marketer

should ask the following two questions:
 What is the most effective way to reach the end customer?
Distribution strategy is influenced by the market structure, the firm’s objectives, its resources
and of course it’s overall marketing strategy. All these factors are addressed in the section on
selecting Distribution Channels.
The first strategic decision is whether the distribution is to be: Intensive (with mass distribution
into all outlets as in the case of confectionery); Selective (with carefully chosen distributors e.g.
specialty goods such as car repair kits); or Exclusive (with distribution restricted to upmarket
outlets, as in the case of Gucci clothes).
The next strategic decision clarifies the number of levels within a channel such as agents,
distributors, wholesalers, retailers. In some Japanese markets there are many, many
intermediaries involved.
Next comes a sensitive strategic decision whether to go single channel or multi-channel. Some
producers, like Manchester United FC, use multi-channels – they use many different routes,
direct and indirect, to bring their products to their customers. Multi-channel Systems like this are
common where intensive distribution is required. So direct marketing is combined with indirect
marketing through intermediaries.
Then comes the next level of strategic decisions concerning strategic relationships and
partnerships. Two common strategies are Vertical Marketing Systems and Horizontal Marketing
Systems.
VERTICAL MARKETING SYSTEMS involve suppliers and intermediaries working closely

together instead of against each other. They plan production and delivery schedules, quality
levels, promotions and sometimes prices. Resources, like information, equipment and expertise,
are shared. The system is usually managed by a dominant member, or ‘channel captain’. VMS is
more flexible than vertical integration where the manufacturer actually owns the distribution
channel, for example, Doctor Martens boot manufacturers own their own retail store.
HORIZONTAL MARKETING SYSTEMS occur where organizations’ operating on the same

channel level (e.g. two suppliers or two retailers) co-operate. They then share their distribution
expertise and distribution channels. This can speed up the time taken to penetrate the market.
There is room for creative alliances here.

Resources available affect distribution strategy. Who can handle outbound logistics, marketing
and sales, and servicing? Can the supplier afford to deliver small quantities, can it provide more
trucks, can its sales force ‘push’ products into national retail chains? Can the organization deal
with thousands, maybe even millions of customers – can it cope? Does it want to devote huge
resources here or would it prefer to utilize someone else’s resources in return for a slice of the
profits?
Difficult marketing dilemmas, which make distribution strategy both critical and interesting.
DISTRIBUTION STRATEGIES
1. EXCLUSIVE DISTRIBUTION. Severely limiting the number of intermediaries. It is
used when the producer wants to maintain control over services level and output, offered
by reseller.
2. SELECTIVE DISTRIBUTION. Some channels are used but not all. Only those are
used that give selective and privileged treatment. Cost effective, used by established
companies.
3. INTENSIVE DISTRIBUTION. Producers stock their products in many outlets and
available when and where consumers want. Fast moving consumer goods FMCGs are
normally distributed like this. Almost all the channels of distribution are used. Intensive
distribution will mean convenience to the customer and increase customer satisfaction.
DISTRIBUTION RESEARCH
Distribution Research refers to the collection and analysis of information related to the sales of
a product or brand and its distribution through various retail channels so as to enable the
management make better decisions. In depth distribution research about a brand/product provides
information related to its retail presence, market size and share, sales achieved, how well the
competitor is selling and seasonality of demand.
Marketing and distribution research is a key means to understand and analyze the marketing
environment and thereby helping eliminate any weak links present. Distribution research helps
gain insights into the following:
 Better management of sales channels with enhanced knowledge
 Better segmentation of distribution within sales channels
 Roles played by intermediaries in the sales process
 Understanding the centers of influence within a sales channel
 The company’s market position within a particular sales channel
The main intermediaries in a distribution process are agents, wholesalers, distributors and
retailers. Various methods of marketing and distribution research are:
 Qualitative research – In-depth interviews, focus groups, objective tests
 Quantitative research – Surveys, Questionnaires
SELECTING MEMBERS WITHIN A CHANNEL

Having decided to go through intermediaries the next question is whether to use agents or
distributors and also how many. Unlike distributors, agents don’t hold stocks – they only act as

sales agents finding customers, collecting orders and passing them on to the supplier in return for
a percentage commission.
HOW WOULD YOU SELECT A DISTRIBUTOR OR AN AGENT? HERE ARE SOME

CRITERIA:
1. Market Coverage, 2. Sales Forecast, 3. Cost, 4. Other Resources, 5. Profitability, 6. Control, 7.
Motivation, 8. Reputation, 9. Competition, 10. Contracts
1. MARKET COVERAGE: – does the profile of existing customers match your target market
profile? – is the number of customers big enough to meet the required distribution penetration? –
is the existing sales force big enough to cover the territory? – are they dependent on a single
individual? – are the existing delivery fleet and warehouse facilities adequate?
2. SALES FORECAST: How many can they sell? What are their forecasts based upon? Do they
give a ‘best, worst and average’ forecast? Will they invest in large stock commitment? Do they
have budgets to run promotions? Some suppliers even ask their distributors for a marketing plan
showing how they intend to market the supplier’s products.
3. COST: What will it cost in terms of discounts, commissions, stock investment and marketing
support?
4. OTHER RESOURCES: Does the target market require anything special such as technical
advice, installation, quick deliveries, and instant availability? If so can the distributor provide it?
5. PROFITABILITY: How much profit will the distributor generate for the supplier?
6. CONTROL: Do they have a reporting system in place? How do they deal with problems?
How often are review meetings scheduled? Can you influence the way they present your
products?
7. MOTIVATION: Does the agent or distributor convey a sense of excitement and enthusiasm
about the product? What about its sales force – what’s their reaction?
8. REPUTATION: Has it got a good track record? This includes the number of years in
business, growth and profit record, solvency, general stability and overall reliability. Is it
dependent on one key player?
9. COMPETITION: Do they distribute any competitor’s products?
10. CONTRACTS: Some distributors demand exclusivity. Some agreements tie the supplier in
for certain periods of time. Check for flexibility in case things go wrong.
The bottom line is: Can the agent or distributor be motivated, controlled and trusted? Motivated
to sell your product among a range of others. Controlled to feedback results or change strategy if
requested. And trusted to act as a reliable ambassador of your product?

DEFINITION: DISTRIBUTOR
A distributor is a middleman who buys goods from a company and sells them to retailers or
directly to end consumers.
Transfer of goods from manufacturer directly to consumers is called direct distribution. And
when there are a number of agents, distributor being one of them, between the manufacturer and
the consumer, then it is called indirect distribution. Distributors are employed by many
companies because they provide manpower and financial support to the manufacturer. They also
offer after-sales service, product information, technical support, etc. However, he has no right to
use the manufacturer’s name as a part of his business.
E.g. – Agents selling Tupperware products are the distributors of those companies. These agents
are not the manufacturers of those products. However, they buy these products from those
companies and sell them to the consumers. They also replace the products in case of a fault in
them, say broken lid of a plastic container.
TYPE OF CHANNEL MEMBERS
Channel activities may be carried out by the marketer or the marketer may seek specialist
organizations to assist with certain functions. We can classify specialist organizations into two
broad categories: resellers and specialty service firms.
RESELLERS
These organizations, also known within some industries as intermediaries, distributors or dealers,
generally purchase or take ownership of products from the marketing company with the intention
of selling to others. If a marketer utilizes multiple resellers within its distribution channel
strategy the collection of resellers is termed a Reseller Network. These organizations can be
classified into several sub-categories including:
 Retailers – Organizations that sell products directly to final c


 Wholesalers – Organizations that purchase products from suppliers, such as
manufacturers or other wholesalers, and in turn sell these to other resellers, such as
retailers or other wholesalers.
 Industrial Distributors – Firms that work mainly in the business-to-business market

selling products obtained from industrial suppliers.
SPECIALTY SERVICE FIRMS

These are organizations that provide additional services to help with the exchange of products
but generally do not purchase the product (i.e., do not take ownership of the product):
 Agents and Brokers – Organizations that mainly work to bring suppliers and buyers
together in exchange for a fee.

 Distribution Service Firms – Offer services aiding in the movement of products such as
assistance with transportation, storage, and order processing.
 Others – This category includes firms that provide additional services to aid in the
distribution process such as insurance companies and firms offering transportation
routing assistance.
WHOLESALING
Wholesaling is all activities involved in selling products to those buying for resale or business
use. Wholesaling intermediaries are firms that handle the flow of products from the manufacturer
to the retailer or business user.
Wholesaling intermediaries add value by performing one or more of the following channel
functions:
 Selling and Promoting
 Buying and Assortment Building
 Bulk-Breaking
 Warehousing
 Transportation
 Financing
 Risk Bearing
Market Information – giving information to suppliers and customers about competitors, new
products, and price developments.
Management Services and Advice – helping retailers train their sales clerks, improving store
layouts and displays, and setting up accounting and inventory control systems.
INDEPENDENT INTERMEDIARIES
Independent intermediaries do business with many different manufacturers and many different
customers. Because they are not owned or controlled by any manufacturer, they make it possible
for many manufacturers to serve customers throughout the world while keeping prices low.
MERCHANT WHOLESALERS
Merchant wholesalers are independent intermediaries that buy goods from manufacturers and
sell to retailers and other B2B customers. Because merchant wholesalers take title to the goods,
they assume certain risks and can suffer losses if products get damaged, become out-of-date or
obsolete, are stolen, or just don’t sell. At the same time, because they own the products, they are
free to develop their own marketing strategies including setting prices. Merchant wholesalers
include full-service merchant wholesalers and limited-service wholesalers. Limited-service
wholesalers are comprised of cash-and-carry wholesalers, truck jobbers, drop shippers, mail-
order wholesalers, and rack jobbers.
MERCHANDISE AGENTS OR BROKERS

Merchandise agents or brokers are a second major type of independent intermediary. Agents and
brokers provide services in exchange for commissions. They may or may not take possession of
the product, but they never take title; that is, they do not accept legal ownership of the product.
Agents normally represent buyers or sellers on an ongoing basis, whereas brokers are employed
by clients for a short period of time. Merchandise agents or brokers include manufacturers’
agents (manufacturers’ reps), selling agents, commission merchants, and merchandise brokers.
MANUFACTURER-OWNED INTERMEDIARIES
Manufacturer-owned intermediaries are set up by manufacturers in order to have separate
business units that perform all of the functions of independent intermediaries, while at the same
time maintaining complete control over the channel. Manufacturer-owned intermediaries include
sales branches, sales offices, and manufacturers’ showrooms. Sales branches carry inventory and
provide sales and service to customers in a specific geographic area. Sales offices do not carry
inventory but provide selling functions for the manufacturer in a specific geographic area.
Because they allow members of the sales force to be located close to customers, they reduce
selling costs and provide better customer service. Manufacturers’ showrooms permanently
display products for customers to visit. They are often located in or near large merchandise
marts.
NUMBER OF CHANNEL LEVELS

A layer of Intermediaries that perform some work in bringing the product and its ownership
closer to the final buyers.
Channel levels consist of consumer marketing channels or the industrial marketing channels. A
factor common among both channel levels is that both include the producer as well as the end
customer.
1) ZERO LEVEL CHANNEL / DIRECT MARKETING CHANNEL – Consists of a

manufacturer directly selling to the end consumer. This might mean door to door sales, direct
mails or telemarketing. Dell online sales is a perfect example of a zero level channel marketing.
2) ONE LEVEL CHANNEL – As the name suggests, the one level channel has an intermediary
in between the producer and the consumer. An example of this can be insurance in which there is
an insurance agent between the insurance company and the customer. Even E-commerce is an
excellent one channel level example – wherein the companies tie up directly with E-commerce
portals and then sell in the market.
3) TWO LEVEL CHANNEL – Two level channel involves the movement of goods from the
company to an intermediary, from the intermediary to another and then to customer. This is also
commonly known as “breaking the bulk” in FMCG market. A widely used two level marketing
channel especially in the FMCG and the consumer durables industry which consists of a
wholesaler and a retailer. So the goods go from company to distributor, distributor to retailer and
retailer to consumer.
4) THREE LEVEL CHANNEL – Again observed in both the FMCG and the consumer
durables industry, the three level channel can combine the roles of a distributor on top of a dealer

and a retailer. The distributor stocks the most and spreads it to dealers who in turn give it to
retailers.
In the three level channel, the example can be taken of Ice cream market. Because of the
manufacturing levels required, Ice cream markets have C&F agents who stock the ice cream in
refrigerated cold rooms. These ice creams are then transported to local distributors who also have
refrigerated cold rooms. The distributors then transport to local dealers who will have 10-12
small freezers. And finally it is transported to the retailer who will have 1-2 freezer of each
company.
Here are perfect representations for channel levels between consumer marketing channel and an
industrial marketing channel.

CHANNEL STRUCTURE FOR INDUSTRIAL PRODUCTS
The products, which are used by industrial firms to produce other finished goods, are called
industrial products. Raw materials, machines, equipment, management materials and production
supplies etc. include in industrial products. The channel structure used for consumer goods
cannot be used for industrial goods. The channel for sale and distribution of such goods depends
on type and nature of industrial goods, necessity, number of users, geographical distance etc.
THE STRUCTURE OF DISTRIBUTION CHANNEL FOR INDUSTRIAL PRODUCTS

CAN BE MENTIONED AS FOLLOWS:
1. Zero Level Channel: (Producer.......Industrial User)

In this channel the producers directly sell their products to industrial users without the help of
intermediaries. Large quantity of industrial goods, big installations machines, costly equipment,
raw materials and important machine parts re directly sold to the industrial users. As the number
of customers of such goods remains low and such goods are used in certain geographical areas
and are costly, their sales become easy and possible through zero level channel. Manufacturers of
planes, big generators, ships, buses etc. produce the goods according to the order of the
customers and contact directly to them. This channel is less costly and more effective in
distribution of industrial goods.

2. One Level Channel: (Producer.......Industrial distributor........Industrial user)
Less costly office materials, equipment, operational supplies, construction materials, spares and
parts etc. are sold through industrial distributors. In this channel, only one level intermediary
remains between producers and users. The producers sell their products to industrial distributors
and the industrial distributors sell them to industrial users.
3. One Level Channel: (Producer.......Agent........Industrial User)

The other channel to sell industrial goods is one level channel in which goods are sold to users
through agents and not by industrial distributors. The producers who need to remain busy in
production cannot contact customers living in different places. So, they appoint agents for selling
their goods. The agent bring goods from producer and sell them to industrial users. But the
agents do not take tights and ownership of the goods. They get commission on the basis of
quantity they sell. The service of agents becomes very important to bring new goods in market.
They can identify potential customers and establish contact with them.
4. Two Level Channel: (Producer......Agent.....Industrial distributor.....Industrial user)

This is the longest channel for distribution of industrial goods. Two intermediaries i.e. agent and
industrial distributor remain between producer and users. Producer's agent contact industrial
distributors and industrial distributors sell the goods to industrial users. This two level channel
becomes useful to sell operating supplies, small spares and parts and other industrial goods that
need massive distribution.
CHANNEL STRUCTURE FOR CONSUMER PRODUCTS
Producers can use different channels of distribution in the process of supplying their products to
the final consumers. There are different alternatives for them to select type and number of
channel. The legal right and ownership of goods goes on transferring from one to another
channel member before reaching the hands of final consumers. The levels and numbers of
distribution channels should be selected and used carefully considering the nature of products,
market situation, firm's capacity etc. Each intermediary involved in distribution channel is
counted as one level of the channel. If a producer sell his products directly to consumers, then it
is 'zero level channel'. If he sells products to retailers and retailers sell to consumers, this is 'first
level channel'.
The goods that the consumers buy for the purpose of consumption or use are called consumer
goods. On the basis of buying behavior, consumer goods can be divided into three classes as
convenience goods, shopping goods and specialty goods. According to the nature of the goods,
they can be classified into two types as perishable goods and durable goods, necessities and
luxury goods. Only one type or same distribution channel may not be suitable for distribution of
all types of consumer goods. Any one or more distribution channel can be used; they may be
various levels of distribution channels used for supplying consumer goods. Among them the
main levels can be presented as follows:
1. Zero-level Channel: (Producer......Consumers)
This channel is also called direct channel. In this, the producers sell their goods or services
directly to the consumers. There is absence of intermediary or middlemen between the producers

and consumers. This channel of distribution is called zero-level. This is the most common, easy
and short channel for sales or distribution of goods. Mostly, if the goods are costly or the
consumers' number is low, the producers themselves sell their products directly to the
consumers. The small producers of perishable products also sell their products directly to the
local consumers. Big firms, which want to minimize distribution cost and eliminate middlemen,
use direct level distribution channel to sell their products.
2. One Level Channel: (Producer........Retailer......Consumers)

In one level channel of distribution, only retailers remain as middlemen between producers and
consumers. In this channel producers sell their products to retailers and the retailers sell them to
final consumers. The producers do not seek help of wholesalers or agents to sell their products.
Nowadays, this channel has become very popular. The producers themselves supply their
products to the final consumers through retailers. Big retailing shops such as departmental stores,
super markets, discount houses etc. have begun to appear in markets. They have made easy to
sell any goods or services without the presence of wholesalers in the distribution channel. This
channel is suitable to sell perishable goods and other goods that need prompt sale.
3. Two-level Channel: (Producer.........Wholesaler.........Retailer............Consumers)
In this channel of distribution, the producers sell their products to final consumers through
wholesalers and retailers. In other words, the producers sell their products to wholesalers, then
wholesalers sell them to retailers and the retailers sell to final consumers. This is also called
'Traditional channel of distribution'. The producers sell their products to wholesalers in large
quantity. Then wholesalers sell them to retailers in small quantity then the retailers sell them to
final consumers.
This channel is long in distribution system. This channel is used to sell or distribute foodstuffs,
medicines, including many other consumer goods. This channel is suitable for the products,
which need to be supplied to scattered markets and consumers.
4. Third Level Channel: (Producer....Agent....Wholesalers....Retailers....Consumers)

This is the longest channel of distribution of consumers’ goods. In this channel three middlemen
are used to supply goods to the final consumers. In other words, the producers sell their products
to final consumers through agents, then agents sell them to wholesalers and wholesalers sell
them to retailers and finally the retailers sell the goods to consumers. Generally, this channel is
needed for selling agro-products, clothes, industrial materials etc. The producers can take help of
agents to sell their goods.
This channel is useful to those producers who cannot contact many wholesalers, cannot pay
attention to international markets and want to avoid several distribution problems. Mostly, this
channel is not used for distribution of most of the goods since it is costly, takes long time and
invites several problems.

BENEFITS OFFERED BY CHANNEL MEMBERS
When choosing a distribution strategy a marketer must determine what value a channel member
adds to the firm’s products. Remember, in the Product Decisions customers assess a product’s
value by looking at many factors including those that surround the product (i.e., augmented
product). Several surrounding features can be directly influenced by channel members, such as
customer service, delivery, and availability. Consequently, for the marketer selecting a channel
partner involves a value analysis in the same way customers make purchase decisions. That is,
the marketer must assess the benefits received from utilizing a channel partner versus the cost
incurred for using the services. These benefits include:
1. COST SAVINGS IN SPECIALIZATION – Members of the distribution channel are

specialists in what they do and can often perform tasks better and at lower cost than
companies who do not have distribution experience. Marketers attempting to handle too
many aspects of distribution may end up exhausting company resources as they learn
how to distribute, resulting in the company being “a jack of all trades but master of
none.”
2. REDUCE EXCHANGE TIME – Not only are channel members able to reduce
distribution costs by being experienced at what they do, they often perform their job more
rapidly resulting in faster product delivery. For instance, consider what would happen if a
grocery store received direct shipment from EVERY manufacturer that sells products in
the store. This delivery system would be chaotic as hundreds of trucks line up each day to
make deliveries, many of which would consist of only a few boxes. On a busy day a truck

may sit for hours waiting for space so they can unload their products. Instead, a better
distribution scheme may have the grocery store purchasing its supplies from a grocery
wholesaler that has its own warehouse for handling simultaneous shipments from a large
number of suppliers. The wholesaler will distributes to the store in the quantities the store
needs, on a schedule that works for the store, and often in a single truck, all of which
speeds up the time it takes to get the product on the store’s shelves.
3. CUSTOMERS WANT TO CONVENIENTLY SHOP FOR VARIETY – Marketers

have to understand what customers want in their shopping experience. Referring back to
our grocery store example, consider a world without grocery stores and instead each
marketer of grocery products sells through their own stores. As it is now, shopping is
time consuming, but consider what would happen if customers had to visit multiple
retailers each week to satisfy their grocery needs. Hence, resellers within the channel of
distribution serve two very important needs: 1) they give customers the products they
want by purchasing from many suppliers (termed accumulating and assortment services),
and 2) they make it convenient to purchase by making products available in single
location.
4. RESELLERS SELL SMALLER QUANTITIES – Not only do resellers allow

customers to purchase products from a variety of suppliers, they also allow customers to
purchase in quantities that work for them. Suppliers though like to ship products they
produce in large quantities since this is more cost effective than shipping smaller
amounts. For instance, consider what it costs to drive a truck a long distance. In terms of
operational expenses for the truck (e.g., fuel, truck driver’s cost) let’s assume it costs
(US) $1,000 to go from point A to point B. Yet in most cases, with the exception of a
little decrease in fuel efficiency, it does not cost that much more to drive the truck
whether it is filled with 1000 boxes containing the product or whether it only has 100
boxes. But when transportation costs are considered on a per product basis ($1 per box
vs. $10 per box) the cost is much less for a full truck. The ability of intermediaries to
purchase large quantities but to resell them in smaller quantities (referred to as bulk
breaking) not only makes these products available to those wanting smaller quantities but
the reseller is able to pass along to their customers a significant portion of the cost
savings gained by purchasing in large volume.
5. CREATE SALES – Resellers are at the front line when it comes to creating demand for
the marketer’s product. In some cases resellers perform an active selling role using
persuasive techniques to encourage customers to purchase a marketer’s product. In other
cases they encourage sales of the product through their own advertising efforts and using
other promotional means such as special product displays.
6. OFFER FINANCIAL SUPPORT – Resellers often provide programs that enable

customers to more easily purchase products by offering financial programs that ease
payment requirements. These programs include allowing customers to: purchase on
credit; purchase using a payment plan; delay the start of payments; and allowing trade-in
or exchange options.

7. PROVIDE INFORMATION – Companies utilizing resellers for selling their products
depend on distributors to provide information that can help improve the product. High-
level intermediaries may offer their suppliers real-time access to sales data including
information showing how products are selling by such characteristics as geographic
location, type of customer, and product location (e.g., where located within a store, where
found on a website). If high-level information is not available, marketers can often count
on resellers to provide feedback as to how customers are responding to products. This
feedback can occur either through surveys or interviews with reseller’s employees or by
requesting the reseller allow the marketer to survey customers.
As noted, when developing a channel strategy, marketers must also be aware of potential costs
that may come with utilizing channel members. These costs include:
1. LOSS OF REVENUE – Resellers are not likely to offer services to a marketer unless
they see financial gain in doing so. They obtain payment for their services as either direct
payment (e.g., marketer pays for shipping costs) or, in the case of resellers, by charging
their customers more than what they paid the marketer for acquiring the product (termed
markup). For the latter, marketers have a good idea of what the final customer will pay
for their product which means the marketer must charge less when selling the product to
resellers. In these situations marketers are not reaping the full sale price by using
resellers, which they may be able to do if they sold directly to the customer.
2. LOSS OF COMMUNICATION CONTROL – Marketers not only give up revenue

when using resellers, they may also give up control of the message being conveyed to
customers. If the reseller engages in communication activities, such as personal selling in
order to get customers to purchase the product, the marketer is no longer controlling what
is being said about the product. This can lead to miscommunication problems with
customers, especially if the reseller embellishes the benefits the product provides to the
customer. While marketers can influence what is being said by training reseller’s
salespeople, they lack ultimate control of the message.
3. LOSS OF PRODUCT IMPORTANCE – Once a product is out of the marketer’s hands

the importance of that product is left up to channel members. If there are pressing issues
in the channel, such as transportation problems, or if a competitor is using promotional
incentives in an effort to push their product through resellers, the marketer’s product may
not get the attention the marketer feels it should receive.
DISTRIBUTION EXPENSES
DISTRIBUTION EXPENSES, also known as distribution costs, are all expenses incurred to
make the product reach from the manufacturer to the end user.
Varieties of costs are included in this and are not only limited to freight expenses. Inventory
handling costs, packaging costs, salaries of personnel looking after distribution are all included
in distribution expenses however freight costs remain the most important factor in it.

A lot of above mentioned costs are interlinked with each other and it is very important to use this
links to find the lowest possible cost for the required level of efficiency and flexibility in a
distribution system.
Who incurs the distribution costs at various stages of the supply chain depends on the
understanding between the partners involved but generally the member who is sending the
product to the member downstream of him is the one who incurs the cost.
CHANNEL ARRANGEMENTS
The distribution channel consists of many parties each seeking to meet their own business
objectives. Clearly for the channel to work well, relationships between channel members must be
strong with each member understanding and trusting others on whom they depend for product
distribution to flow smoothly.
For instance, a small sporting goods retailer that purchases products from a wholesaler trusts the
wholesaler to deliver required items on-time in order to meet customer demand, while the
wholesaler counts on the retailer to place regular orders and to make on-time payments.
Relationships in a channel are in large part a function of the arrangement that occurs between the
members. These arrangements can be divided in two main categories:
1. Independent Channel Arrangements
2. Dependent Channel Arrangement
CHANNEL ARRANGEMENTS: INDEPENDENT

Under this arrangement a channel member negotiates deals with others that do not result in
binding relationships. In other words, a channel member is free to make whatever arrangements
they feel is in their best interest. This so-called "conventional" distribution arrangement often
leads to significant conflict as individual members decide what is best for them and not
necessarily for the entire channel.
On the other hand, an independent channel arrangement is less restrictive than dependent
arrangements and makes it easier for a channel members to move away from relationships they
feel are not working to their benefit.
CHANNEL ARRANGEMENTS: DEPENDENT

Under this arrangement a channel member feels tied to one or more members of the distribution
channel. Sometimes referred to as "vertical marketing systems" this approach makes it more
difficult for an individual member to make changes to how products are distributed. However,
the dependent approach provides much more stability and consistency since members are united
in their goals. The dependent channel arrangement can be broken down into three types:
1. CORPORATE
Under this arrangement a supplier operates its own distribution system in a manner that
produces an integrated channel. This occurs most frequently in the retail industry where a
supplier operates a chain of retail stores. Starbucks is a company that does this. They
import and process coffee and then sell it under their own brand name in their own stores.
It should be mentioned that Starbucks also distributes their products in other ways, such
as through grocery stores and mail order. As we will see in more detail later, Starbucks is
using a multi-channel structure to market their products.
2. CONTRACTUAL
Under this arrangement a legal document obligates members to agree on how a product is
distributed. Often times the agreement specifically spells out which activities each
member is permitted to perform or not perform. This type of arrangement can occur in
several formats including:
 Wholesaler-sponsored – where a wholesaler brings together and manages many
independent retailers including having the retailers use the same name
 Retailer-sponsored – this format also brings together retailers but the retailers are
responsible for managing the relationship
 Franchised – where a central organization controls nearly all activities of other
members
3. ADMINISTRATIVE
In certain channel arrangements a single member may dominate the decisions that occur
within the channel. These situations occur when one channel member has achieved a
significant power position. This most likely occurs if a manufacturer has significant
power due to brands in strong demand by target markets (e.g., Procter &Gamble) or if a
retailer has significant power due to size and market coverage (e.g., Wal-Mart). In most
cases the arrangement is understood to occur and is not bound by legal or financial
arrangements.
ISSUES IN ESTABLISHING DISTRIBUTION CHANNELS

Like most marketing decisions, a great deal of research and thought must go into determining
how to carry out distribution activities in a way that meets a marketer’s objectives. The marketer
must consider many factors when establishing a distribution system. Some factors are directly
related to marketing decisions while others are affected by relationships that exist with members
of the channel.
Next we examine the key factors to consider when designing a distribution strategy. We group
these into three main categories:
 Marketing Decision Issues
 Infrastructure Issues
 Channel Relationship Issues
In turn, each of these categories contains several topics of concern to marketers.
MARKETING ISSUES IN CHANNELS

Distribution strategy can be shaped by how decisions are made in other marketing areas.
1. PRODUCT ISSUES

The nature of the product often dictates the distribution options available especially if the
product requires special handling. For instance, companies selling delicate or fragile
products, such as flowers, look for shipping arrangements that are different than those
sought for companies selling extremely tough or durable products, such as steel beams.
2. PROMOTION ISSUES
Besides issues related to physical handling of products, distribution decisions are affected
by the type of promotional activities needed to sell the product to customers. For products
needing extensive salesperson-to-customer contact (e.g., automobile purchases) the
distribution options are different than for products where customers typically require no
sales assistance (i.e., bread purchases).
3. PRICING ISSUES
The desired price at which a marketer seeks to sell their product can impact how they
choose to distribute. As previously mentioned, the inclusion of resellers in a marketer’s
distribution strategy may affect a product’s pricing since each member of the channel
seeks to make a profit for their contribution to the sale of the product. If too many
channel members are involved the eventual selling price may be too high to meet sales
targets in which case the marketer may explore other distribution options.
4. TARGET MARKET ISSUES

A distribution system is only effective if customers can obtain the product. Consequently,
a key decision in setting up a channel arrangement is for the marketer to choose the
approach that reaches customers in the most effective way possible. The most important
decision with regard to reaching the target market is to determine the level of distribution
coverage needed to effectively meet customer’s needs. Distribution coverage is measured
in terms of the intensity by which the product is made available.
LEVEL OF DISTRIBUTION COVERAGE
As we will see the marketer must take into consideration many factors when choosing the right
level of distribution coverage. However, all marketers should understand that distribution creates
costs to the organization. Some of these expenses can be passed along to customers (e.g.,
shipping costs) but others cannot (e.g., need for additional salespeople to handle more
distributors). Thus, the process for determining the right level of distribution coverage often
comes down to an analysis of the benefits (e.g., more sales) versus the cost associated with gain
the benefits.
Additionally, it is worth noting that for the most part distribution coverage decisions are of most
concern to consumer products companies, though there are many industrial products that also
must decide how much coverage to give their products.
There are three main levels of distribution coverage - mass coverage, selective and exclusive.
1. MASS COVERAGE - The mass coverage (also known as intensive distribution)

strategy attempts to distribute products widely in nearly all locations in which that type of

product is sold. This level of distribution is only feasible for relatively low priced
products that appeal to very large target markets (e.g., see consumer convenience
products). A product such as Coca-Cola is a classic example since it is available in a wide
variety of locations including grocery stores, convenience stores, vending machines,
hotels and many, many more. With such a large number of locations selling the product
the cost of distribution is extremely high and must be offset with very high sales volume.
2. SELECTIVE COVERAGE - Under selective coverage the marketer deliberately seeks

to limit the locations in which this type of product is sold. To the non-marketer it may
seem strange for a marketer to not want to distribute their product in every possible
location. However, the logic of this strategy is tied to the size and nature of the product’s
target market. Products with selective coverage appeal to smaller, more focused target
markets (e.g., see consumer shopping products) compared to the size of target markets for
mass marketed products. Consequently, because the market size is smaller, the number of
locations needed to support the distribution of the product is fewer.
3. EXCLUSIVE COVERAGE - Some high-end products target very narrow markets that
have a relatively small number of customers. These customers are often characterized as
“discriminating” in their taste for products and seek to satisfy some of their needs with
high-quality, though expensive products. Additionally, many buyers of high-end products
require a high level of customer service from the channel member from whom they
purchase. These characteristics of the target market may lead the marketer to sell their
products through a very select or exclusive group of resellers. Another type of exclusive
distribution may not involve high-end products but rather products only available in
selected locations such as company-owned stores. While these products may or may not
be higher priced compared to competitive products, the fact these are only available in
company outlets give exclusivity to the distribution.
We conclude by noting that while the three distribution coverage options just discussed serve as
a useful guide for envisioning how distribution intensity works, the advent of the Internet has
brought into question the effectiveness of these schemes. For all intents and purposes all
products available for purchase over the Internet are distributed in the same way - mass
coverage. So a better way to look at the three levels is to consider these as options for
distribution coverage of products that are physically purchased by a customer (i.e., walk-in to
purchase).
INFRASTRUCTURE ISSUES
The marketer’s desire to establish a distribution channel is often complicated by what options are
available to them within a market. While in the planning stages the marketer has an idea of how
the distribution plan should be executed, she/he may find that certain parts of the distribution
channel may not be what they expected. For example, a supplier of high-end, specialty snack
foods may find a promising target market for their products is located in a mountain ski area in
Colorado. However, the company may also discover that no suitable distributor in that area
possesses the required refrigerated storage space that is necessary to store the product in the
proper way specified by the marketer.

This concern is even greater when a marketer looks to expand into international markets.
Marketers often find the type of distribution system they are used to employing is lacking or
even nonexistent (e.g., poor transportation, few acceptable retail outlets). In fact, depending on
the type of product, a marketer could be prevented from entering a foreign market because there
are no suitable options for distributing the product. More likely, marketers will find options for
distributing their product but these options may be different, and possibly inferior, from what has
made them successful in their home country. While viewed as risky, companies entering foreign
markets often have little choice but to accept the distribution structure that is in place if they
want to enter these markets.
RELATIONSHIP ISSUES IN CHANNELS

A good distribution strategy takes into account not only marketing decisions, but also considers
how relationships within the channel of distribution can impact the marketer’s product. In this
section we examine three such issues:
DESIGNING AND MANAGING VALUE NETWORKS AND MARKETING CHANNELS

A normal way of functioning for a company is to procure raw materials, use its expertise in
creating the product and then distribute to the customer. Companies have to convert this supply
chain into a value network as to develop and maintain partnership with different stakeholders.
VALUE NETWORK AND MARKETING CHANNEL

A network which creates partnership and value in purchase, production and selling of products is
referred to as value network. Value network looks at the whole supply chain system players as
partners rather than customers. The purpose of value network is to increase productivity, save
cost and increase revenue. Companies are willing to take the procurement process on online for
accuracy and speed. Companies exactly know each partner’s role in influencing or disrupting
normal operations.
Companies have developed distribution channel and network through which it supplies final
product to customers. This distribution channel and network are referred to as the marketing
channel. Companies invest time and money in a well-functioning marketing channel. The
marketing channels are an integral part of marketing and promotional activity of the company.
MARKETING CHANNELS
Core competency for a company lies in developing a product which satisfies a particular need of
the market. A company if it decides to sell a product on its own than it is diverting from main
line business resulting in operational difficulties. Marketing channel is ears and eyes of
companies in the market. They provide companies with valuable information of customers,
competitors and other players in the market. Dell’s computer exclusively uses direct marketing
(the Internet and express mail service) in reaching customers are different of marketing channel
depending upon the number intermediaries like retailer, wholesaler and distributor. Channels are
also used by companies providing services; for example, hospital and fire station have to
strategically locate for people to reach without considerable efforts.
MARKETING CHANNEL DESIGN, MANAGEMENT, EVALUATION AND

MODIFICATION

In designing marketing channel companies analyze customer needs and preference for a given
product. Further marketing channel should fall in line with overall objectives of the company in
cost and desired output level. Companies then need to explore various marketing channels like
direct marketing, tele-marketing, direct mail, etc. to find the right fit to reach the customer. Each
channel short listed has is to be evaluated on operational, cost effective and flexibility criteria.
Once the channel is designed, companies look forward to selecting partners with characteristics,
which have a positive impact for the product. Channel members need to get the right amount of
training as to full understand their role with respect to customer and product. Companies need to
develop a mechanism as to monitor functioning of marketing channels on criteria based on total
customer satisfaction. After reviewing marketing channel companies should modify them to
improve functioning and productivity.
NEW TRENDS IN MARKETING CHANNELS

Companies are looking forward to innovating business functioning as to stand up to the
competition and changing market scenario. This has seen rise different types of marketing
channel. In a vertical marketing channel, the traditional producer-wholesaler-retailer becomes
one functional unit. This can be achieved through franchise or single ownership. In horizontal
marketing channel two or more un-related agencies combine to exploit the market opportunities,
for example, banks in super markets. In multi-channel marketing systems, companies use
different marketing channels to reach different customer base or segment.
CONFLICT MANAGEMENT IN MARKETING CHANNELS

In vertical channel conflicts are between members of same channel. In horizontal channel
conflicts are between similar service providers in a different channel. In multi-channel conflict
arise when a different channel serves the same market. The first step in conflict resolution is to
identify the cause for the conflict. Next step is to manage the conflict. This can be done by
setting up clear mandate for each member and their role in the overall objective of the company.
Further, joint membership, diplomacy and exchange of team members are other ways in
resolving conflicts.
Companies need to design and manage marketing channels in such a way that they are always
able to deliver value to customer.
CONCEPT OF DISTRIBUTION CHANNELS IN MARKETING

Most producers use intermediaries to bring their products to market. They try to develop a
distribution channel (marketing channel) to do this. A distribution channel is a set of
interdependent organizations that help make a product available for use or consumption by the
consumer or business user. Channel intermediaries are firms or individuals such as wholesalers,
agents, brokers, or retailers who help move a product from the producer to the consumer or
business user.
A company’s channel decisions directly affect every other marketing decision. Place decisions,
for example, affect pricing. Marketers that distribute products through mass merchandisers such
as Wal-Mart will have different pricing objectives and strategies than will those that sell to
specialty stores. Distribution decisions can sometimes give a product a distinct position in the
market. The choice of retailers and other intermediaries is strongly tied to the product itself.

Manufacturers select mass merchandisers to sell mid-price-range products while they distribute
top-of-the-line products through high-end department and specialty stores. The firm’s sales force
and communications decisions depend on how much persuasion, training, motivation, and
support its channel partners need. Whether a company develops or acquires certain new products
may depend on how well those products fit the capabilities of its channel members.
Some companies pay too little attention to their distribution channels. Others, such as FedEx,
Dell Computer, and Charles Schwab have used imaginative distribution systems to gain a
competitive advantage.
CHANNEL POWER
A channel can be made up of many parties each adding value to the product purchased by
customers. However, some parties within the channel may carry greater weight than others. In
marketing terms this is called channel power, which refers to the influence one party within a
channel has over other channel members. When power is exerted by a channel member they are
often in the position to make demands of others. For instance, they may demand better financial
terms (e.g., will only buy if prices are lowered, will only sell if price is higher) or demand other
members perform certain tasks (e.g., do more marketing to customers, perform more product
services). Channel power can be seen in several ways:
 Backend or Product Power – Occurs when a product manufacturer or service provider

markets a brand that has a high level of customer demand. The marketer of the brand is
often in a power position since other channel members have little choice but to carry the
brand or risk losing customers.
 Middle or Wholesale Power – Occurs when an intermediary, such as a wholesaler,
services a large number of smaller retailers with products obtained from a large number
of manufacturers. In this situation the wholesaler can exert power since the small retailers
are often not in the position to purchase products cost-effectively and in as much variety
as what is offered by the wholesaler.
 Front or Retailer Power – As the name suggests, the power in this situation rests with
the retailer who can command major concessions from their suppliers. This type of power
is most prevalent when the retailer commands a significant percentage of sales in the
market they serve and others in the channel are dependent on the sales generated by the
retailer.
CHANNEL CONFLICT
In an effort to increase product sales, marketers are often attracted by the notion that sales can
grow if the marketer expands distribution by adding additional resellers. Such decisions must be
handled carefully, however, so that existing dealers do not feel threatened by the new distributors
who they may feel are encroaching on their customers and siphoning potential business. For
marketers, channel strategy designed to expand product distribution may in fact do the opposite
if existing members feel there is a conflict in the decisions made by the marketer. If existing
members sense a conflict and feel the marketer is not sensitive to their needs they may choose to
stop handling the marketer’s products.
NEED FOR LONG-TERM COMMITMENTS

Channel decisions have long-term consequences for marketers since efforts to establish new
relationships can take an extensive period of time while ending existing relationships can prove
difficult. For instance, Company A, a marketer of kitchen cabinets that wants to change
distribution strategy, may decide to stop selling their product line through industrial supply
companies that distribute cabinets to building contractors and instead sell through large retail
home centers. If in the future Company A decides to once again enter the industrial supply
market they may run into resistance since supply companies may have replaced Company A’s
product line with other products and, given what happened to the previous relationship, may be
reluctant to deal with Company A. As another example of problems with long-term
commitments, building contractors may be comfortable purchasing kitchen cabinets from
industrial suppliers. If Company A decides to change their reseller network they may find it
difficult to regain the building contractor customer base, who may continue to purchase from the
industrial suppliers but are now purchasing products from Company A’s competitors. In this
case, Company A may have to give serious thought to whether breaking their long-term
relationship with industrial suppliers is in the company’s best interest.
DISTRIBUTION SYSTEMS
Mindful of the factors affecting distribution decisions (i.e., marketing decision issues and
relationship issues), the marketer has several options to choose from when settling on a design
for their distribution network. We stress the word "may" since while in theory an option would
appear to be available, marketing decision factors (e.g., product, promotion, pricing, target
markets) or the nature of distribution channel relationships may not permit the marketer to
pursue a particular option. For example, selling through a desired retailer may not be feasible if
the retailer refuses to handle a product.
For marketers the choice of distribution design comes down to the following options:
1. Direct Distribution Systems
2. Indirect Distribution Systems
3. Multi-Channel or Hybrid Distribution Systems
DISTRIBUTION SYSTEMS: DIRECT

With a direct distribution system the marketer reaches the intended final user of their product by
distributing the product directly to the customer. That is, there are no other parties involved in
the distribution process that take ownership of the product. The direct system can be further
divided by the method of communication that takes place when a sale occurs. These methods are:
 Direct Marketing Systems – With this system the customer places the order either
through information gained from non-personal contact with the marketer, such as by
visiting the marketer’s website or ordering from the marketer’s catalog, or through
personal communication with a customer representative who is not a salesperson, such as
through toll-free telephone ordering.
 Direct Retail Systems – This type of system exists when a product marketer also
operates their own retail outlets. As previously discussed, Starbucks would fall into this
category.
 Personal Selling Systems – The key to this direct distribution system is that a person
whose main responsibility involves creating and managing sales (e.g., salesperson) is

involved in the distribution process, generally by persuading the buyer to place an order.
While the order itself may not be handled by the salesperson (e.g., buyer physically
places the order online or by phone) the salesperson plays a role in generating the sales.
 Assisted Marketing Systems – Under the assisted marketing system, the marketer relies
on others to help communicate the marketer’s products but handles distribution directly
to the customer. The classic example of assisted marketing systems is eBay which helps
bring buyers and sellers together for a fee. Other agents and brokers would also fall into
this category.
DISTRIBUTION SYSTEMS: INDIRECT

With an indirect distribution system the marketer reaches the intended final user with the help of
others. These resellers generally take ownership of the product, though in some cases they may
sell products on a consignment basis (i.e., only pay the supplying company if the product is
sold). Under this system intermediaries may be expected to assume many responsibilities to help
sell the product.
Indirect methods include:

 Single-Party Selling System - Under this system the marketer engages another party
who then sells and distributes directly to the final customer. This is most likely to occur
when the product is sold through large store-based retail chains or through online
retailers, in which case it is often referred to as a trade selling system.
 Multiple-Party Selling System – This indirect distribution system has the product
passing through two or more distributors before reaching the final customer. The most
likely scenario is when a wholesaler purchases from the manufacturer and sells the
product to retailers.
DISTRIBUTION SYSTEMS: MULTI-CHANNEL (HYBRID)

In cases where a marketer utilizes more than one distribution design the marketer is following a
multi-channel or hybrid distribution system. As we discussed, Starbucks follows this approach as
their distribution design includes using a direct retail system by selling in company-owned
stores, a direct marketing system by selling via direct mail, and a single-party selling system by
selling through grocery stores (they also use other distribution systems).
The multi-channel approach expands distribution and allows the marketer to reach a wider
market, however, as we discussed under Channel Relationships, the marketer must be careful
with this approach due to the potential for channel conflict.
ESTABLISHING CHANNEL RELATIONSHIPS

Since channel members must be convinced to handle a marketer’s product it makes sense to
consider channel partner’s needs in the same way the marketer considers the final user’s needs.
However, the needs of channel members are much different than those of the final customer. As
we noted in the Business Buying Behavior tutorial, resellers seek products of interest to the
reseller’s customers but are also concerned with many other issues such as:
 Delivery – Resellers want the product delivered on-time and in good condition in order to
meet customer demand and avoid inventory out-of-stocks.

 Profit Margin – Resellers are in business to make money so a key factor in their decision
to handle a product is how much money they will make on each product sold. They
expect that the difference (i.e., margin) between their cost for acquiring the product from
a supplier and the price they charge to sell the product to their customers will be
sufficient to meet their profit objectives.
 Other Incentives – Besides profit margin, resellers may want other incentives to entice
them especially if they are required to give extra effort selling the product. These
incentives may be in the form of additional free products or even bonuses (e.g., bonus,
free trips) for achieving sales goals.
 Packaging – Resellers want to handle products as easily as possible and want their
suppliers to ship and sell products in packages that fit within their system. For example,
products may need to be a certain size or design in order to fit on a store’s shelf, or the
shipping package must fit within the reseller’s warehouse or receiving dock space. Also,
many resellers are now requiring marketers to consider adding identification tags to
products (e.g., RFID tags) to allow for easier inventory tracking when the product is
received and also when it is sold.
 Training – Some products require the reseller to have strong knowledge of the product
including demonstrating the product to customers. Marketers must consider offering
training to resellers to insure the reseller has the knowledge to present the product
accurately.
 Promotional Help – Resellers often seek additional help from the product supplier to
promote the product to customers. Such help may come in the form of funding for
advertisements, point-of-purchase product materials, or in-store demonstrations.
DEFINITION: DISTRIBUTOR INCENTIVES

To build key relationships, to inspire motivation and teamwork, to increase productivity and thus
to increase sales, the sales team of any firm requires unique benefits, excitement and relaxation.
These are known as distributor incentives.
The incentives are usually provided in form of cash offerings (termed as prize money for being
good in something or meeting the target). But sometimes, certain incentive programs can be
formulated with the help of many companies which are professionals in such program offerings.
These incentive programs can be customized to intrigue the distributors while still being within
the companies’ budget. These programs help motivate the distributors to focus on products of a
company and thus grow sales. Also, they make the distributors feel as if they are truly part of an
exclusive group and the same time enhancing their loyalty to the company.
Incentives play an important role in supporting the achievement of KPI (key-performance-

indicators) targets. So, the structuring of such programs should be done carefully.
A general approach followed to structure an incentive program, consists of the following

steps:
• Specify the objectives of the incentive program
• Determine who and what is critical
• Determine the award system
• Develop a tracking plan

• Develop the budget
• Decide who will run the program
• Write the rules
• Establish communications plan
• Consider the role of training
• Launch and track the program
• Conclude the program
• Demonstrate appreciation
• Evaluate the results and incorporate changes in the next program
Incentives can have a negative influence. For example, when the companies have to eliminate or
reduce the incentives for some reasons (mostly financial reasons), it is often found that morale is
lower than that before the incentives were installed. This leads to higher turnover and reduced
productivity.
The marketing mix place strategy is about how an organization will distribute their product or
service to the end user. The organization must distribute the product to the user at the right place
at the right time. Efficient and effective distribution is important if the organization is to meet its
overall marketing objectives. If an organization underestimates demand, profitability will be
affected.
MOTIVATING CHANNEL MEMBERS
Imagine these three scenarios:
You are a producer of ‘Grand Pens’ a brand of fountain pens.
A customer seeks advice from a pen shop on which pen to buy and the retailer strongly
recommends yours.
A customer asks a retailer, who stocks your pen, for another brand called ‘Bad Pens’. The
retailer recommends and offers your pen as superior.
A retailer actively solicits business for you by asking customers buying other products to come
and have a look at the exquisite ‘Grand Pen’.
This retailer is obviously very motivated. ‘Mindshare’, as it is called in the USA, has to do with
how important your product is in the distributor’s mind relative to the other lines they carry.
Winning the battle for the distributor’s share of mind can be more important than many other
marketing strategies. It applies in industrial markets and consumer markets where intermediaries
play important roles in the distribution channel.
In reality, maintaining continually high levels of motivation among intermediaries presents a

challenge. It requires a reasonable quality product, creative promotions, product training, joint
visits between producer and distributor, co-operative advertising, merchandising and display.
Most of these apply to agents as much as distributors and retailers.

Keeping the intermediary stimulated is important. Positive motivators, like sales contests are
preferred to negative motivators like sanctions such as reduced discounts and the threat of
terminating the relationship.
A positive reward works better than a negative punishment. Ideally there should be a shared
sense of responsibility – a partnership – a strategic partnership. The supplier and intermediary
are there to help each other. Vertical Marketing Systems are a good example.
Clear communications, covering sales goals, review meetings, reporting procedures, marketing
strategy, training, market information required, suggestions for improvements, all help. Regular
contact through visits, review meetings, dinners, competitions, newsletters, thank you letters,
congratulatory awards all help to keep everyone working closely together.
These are all non-financial incentives which provide a form of psychic income as opposed to
financial income. That’s not to say that financial incentives aren’t useful motivators, it just
means that there are other motivations there too. In fact the money spent on financial incentives
is often spent more effectively when the sales person is rewarded with a plaque, a gold pen or a
holiday in the Bahamas rather than just the cash which tends to get soaked up and lost in a sea of
ordinary household daily expenditure.
Non cash rewards appeal to the higher levels of Maslow’s Hierarchy of Needs – belonging,
esteem and self-actualization.
Despite this, conflict can occur when too many distributors are appointed within close proximity
of each other, or the producer engages in a multiple channel strategy of direct marketing as well
as marketing through intermediaries.
Carefully motivating distributors is vital if goods are to flow smoothly through the channel and
reach satisfied customers.
PHYSICAL DISTRIBUTION MANAGEMENT (PDM)

Physical distribution management (PDM) is the term used to describe the management of every
part of the distribution process. PDM can be contracted out to a specialist or is best developed as
a specialist function within the organization. It is the process which ensure that the correct
customer within a given timescale, as cost-effectively as possible (Little and Marandi 2003).
Part of PDM would include being aware of what your competitors are offering, as suggested
above.
Elements for consideration would include:
 Costs involved
 Methods of transport – road, rail, plane, shipping, etc.
 Routes used
 Stock, storage and stock control
 Protection and delivery of stock
 Timing – a key element

 Evaluating the effectiveness of methods of distribution and being aware of other
alternatives.
Distribution is an integral part of the marketing mix. With the right distribution strategy in place
that is with the right mode of delivery the right speed of delivery to the appropriate place of
purchase, customer satisfaction can be significantly increased. Failure to deliver these practical
points will result in the loss of orders and income to the company and long-term customer loyalty
will decline (Drummond and Ensor 2001)
The key objective of PDM is to find the most cost-effective way of meeting customer needs in
relation to purchasing their product, whoever they are and wherever they are. Physical
distribution management includes the following functions:
 Customer services
 Order processing
 Materials handling
 Warehousing
 Stock/inventory management
 Transportation
The key success factors of physical distribution management include all elements of the
marketing mix:
 Product characteristics – how do they affect delivery requirements?
 Packaging – can the product be transported?
 Pricing – how much does distribution add to the cost of the product?
 Promotional campaigns – creating an awareness of the product and where and how it can
be purchased.
 Timing is a critical element of PDM, as many Companies work on the delivery of
materials and components on a ‘Just in Time’ basis (JIT).
JIT is just as it sounds; it means that the manufacturer of products, or the supplier of raw
materials, must deliver the necessary material or components as and when required. For example,
a window manufacturer, who makes windows for office buildings, will be making windows to
order and will be require to deliver them at certain periodic times in the construction of the
building. Because storing glass and the metal or plastic structures is difficult, the organization
will deliver as and when the office block construction company needs it.
The concept of JIT was developed to encourage maximized efficiency of manufacturing. The
process will reduce the storage space requirements, which is a direct cost saving to the
organization, but it also means that the organization will only pay for the materials when they
have taken delivery of them, rather than in a bulk order at the beginning of the contract. Both
save significant amounts of money, which means that the cost saving can be passed onto the
customer, making products cheaper to purchase.
JIT is much linked to qualify applications and improvements. Should the organization take a
mass delivery of a component, and leave stock standing around, it could be damaged or problems
with the delivery may not be discovered until it is too late. Therefore, quality assurance controls

and measures can be implemented as the components are dispatched which then aids the quality
improvement process. This then enables organization to work towards zero defects, which means
zero wastage of time and material, which means cost effectiveness and quality improvement and
ultimately a higher level of customer satisfaction.
Within the retail sector, JIT plays the same sort of role. You will note that retail outlets very
rarely run out of standards of stock products, because they have good stock control processes and
systems that enable JIT delivery of those stock items (Joan Feldman 1984).
Most retailers now work with electronic point of sale system (EPOS). EPOS registers your
purchase at the point of sale, i.e. the payment checkout. The product is scanned into the computer
as sold and the computer automatically registers this as a stock reduction. When the stock
reduction reaches a certain minimum level, the computer automatically generates a message to
place a stock order for that particular product to be in store by a certain delivery date. The EPOS
system allows retailers to monitor frequency of purchase of certain products, which then enables
them to forecast demand of their stock products. This in turn helps them plan for their stock
requirement and come to appropriate agreements with their suppliers on delivery and storage
requirements.
DEFINITION: DISTRIBUTION CENTER

A distribution center can be understood as a facility that is usually smaller than a firm's main
warehouse and is used for receipt, temporary storage, and redistribution of goods according to
the customer orders as they are received. They are also called as ‘branch warehouse’ or
‘distribution warehouse’. It should be duly noted that here the emphasis is on processing and
moving goods on to wholesalers, retailers, or consumers rather than on storage.
Also, the key feature of a distribution center is that it is usually ‘demand-driven’. Hence
Distribution centers are the foundation of a supply network, as it is the single location to stock a
vast number of products.
5 FACTORS INFLUENCING CHANNEL DECISIONS IN INTERNATIONAL MARKET
International marketing channels deal with channels within which goods and services pass to
reach their foreign consumers. This implies that manufacturers and consumers must be located in
either the manufacturers or consumers country or having presence in both countries.
The choice of the channel to use is a fundamental decision for the manufacturer where a number
of factors and objectives have to be considered as a basis for such decision. The international
marketer needs a clear understanding of market characteristics and must have established
operating policies before beginning the selection of channel middlemen. The following points
should be addressed prior to the selection process:
1) Identify specific target markets within and across countries.

2) Specify marketing goals in terms of volume, market share, and profit margin
requirements.

3) Specify financial and personnel commitments to the development of international
distribution.
4) Identify control, length of channels, terms of sale, and channel ownership.
There are a number of factors both objective and subjective and varying from company to
company which govern choice or selection of channel of distribution. But there are some which
stand out and influence channel of distribution choice in all cases. They are as follows:
1) FACTORS RELATING TO PRODUCT CHARACTERISTICS:
Product manufactured by a company itself is a governing factor in the selection of the channel of
distribution. Product characteristics are as follows:
i) Industrial/Consumer Product:
When the product being manufactured and sold is industrial in nature, direct channel of
distribution is useful because of the relatively small number of customers, need for
personal attention, salesman’s technical qualifications and after-sale servicing etc.
However, in case of a consumer product indirect channel of distribution, such as
wholesalers, retailers, is most suitable.
ii) Perishability:
Perishable goods, such as, vegetables, milk, butter, bakery products, fruits, sea foods etc.
require direct selling as they must reach the consumers as easily as possible after
production because of the dangers associated with delays in repeated handling.
iii) Unit Value:

When the unit value of a product is high, it is usually economical to choose direct
channel of distribution such as company’s own sales force than middlemen. On the
contrary, if the unit value is low and the amount involved in each transaction is generally
small, it is desirable to choose indirect channel of distribution, i.e. through middlemen.
iv) Style Obsolescence:

When there is high degree of sty obsolescence in products like fashion garments, it is
desirable to sell direct to retailers who specialize in fashion goods.
v) Weight and Technicality:

When the products are bulky, large in size and technically complicated, it is useful to
choose direct channel of distribution.
vi) Standardized Products

When the products are standardized, each unit is similar in shape, size, weight, colour and
quality etc. it is useful to choose indirect channel of distribution. On the contrary, if the
product is not standardized and is produced on order, it is desirable to have direct channel
of distribution.
vii) Purchase Frequency:

Products that are frequently purchased need direct channel of distribution so as to reduce
the cost and burden of distribution of such products.
viii) Newness and Market Acceptance:

For new products with high degree of market acceptance, usually there is need for an
aggressive selling effort. Hence indirect channels may be used by appointing wholesalers
and retailers as sole agents. This may ensure channel loyalty and aggressive selling by
intermediaries.
ix) Seasonally:
When the product is subject to seasonal variations, such as woolen textiles in India, it is
desirable to appoint sole selling agents who undertake the sale of production by booking
orders from retailers and direct mills to dispatch goods as soon as they are ready for sale
as per the order.
x) Product Breadth:
When the company is manufacturing a large number of product items, it has greater
ability to deal directly with customers because the breadth of the product line enhances its
ability to clinch the sale.
2) FACTORS RELATING TO COMPANY CHARACTERISTICS:
The choice of channel of distribution is also influenced by company’s own characteristics as to

its size, financial position, reputation, past channel experience, current marketing policies and
product mix etc. In this connection, some of the main factors are as follows:
i) Financial Strength:
A company which is financially sound may engage itself in direct setting. On the
contrary, a company which is financially weak has to depend on intermediaries and,
therefore, has to select indirect channel of distribution, such as Wholesalers, retailers,
with strong financial background.
ii) Marketing Policies:

The Policies relevant to channel decision may relate to delivery, advertising, after-sale
service and pricing, etc. For example, a company which likes to have a policy of speedy
delivery of goods to ultimate consumers may prefer direct selling and thus avoid
intermediaries and will adopt a speedy transportation system.
iii) Size of the Company:

A large-sized company handling a wide rang of products would prefer to have a direct
channel for selling its products. On the contrary, a small-sized company would prefer
indirect selling by appointing wholesalers, retailers etc.
iv) Past Channel Experience:

Past Channel experience of the company also influences the choice of selection of
channel distribution. For instance, an old and established company with its past good

experience of working with certain kinds of intermediaries will like to opt for the same
channel. However, different will be the case in reverse situation.
v) Product Mix:
The wider is the company’s product mix, the greater will be its strength to deal with its
customers directly. Similarly, consistency in the company’s product mix ensures greater
homogeneity or uniformity and similarity in its marketing channels.
vi) Reputation:
It is said that reputation travels faster than the man. It is true in the case of companies
also who wish to select channel of distribution. In case of companies with outstanding
reputation like Tata Steel, Bajaj Scooters, Hindustan Levers etc indirect channel of
distribution (wholesalers, retailers, etc.) is more desirable and profitable.
3) FACTORS RELATING TO MARKET OR CONSUMER CHARACTERISTICS:
Market or consumer characteristics refer to buying habits, location of market, size of orders, etc.
They influence the channel choice significantly. They are:
i) Consumer Buying Habits:

If the consumer expects credit facilities or desires personal services of the salesman or
desires to make all purchases at one place, the channel of distribution may be short or
long depending on the capacity of the company for providing these facilities. If the
manufacturer can afford those facilities, the channel will be shorter, otherwise longer.
ii) Location of the Market:

When the customers are spread over a wide geographical area, the long channel of
distribution is most suitable. On the contrary, if the customers are concentrated and
localized, direct selling would be beneficial.
iii) Number of Customers:

If the number of customers is quite large, the channel of distribution may be indirect and
long, such as wholesalers, retailers, etc. On the contrary, if the number of customers is
small or limited, direct selling may be beneficial.
iv) Size of Orders:

Where customers purchase the product in large quantities, direct selling may be preferred.
On the contrary, where customers purchase the product in small quantities frequently and
regularly, such as cigarettes, matches, etc., long (wholesalers, retailers, etc.) of
distribution may be preferred.
4) FACTORS RELATING TO MIDDLEMEN CONSIDERATIONS:

The choice of the channel of distribution is also influenced by the middlemen considerations.
They may include the following:
i) Sales Volume Potential:

In selecting channel of distribution, the company should consider the capability of the
middlemen to ensure a targeted sales volume. The sales volume potential of the channel
may be estimated through market surveys.
ii) Availability of Middlemen:

The company should make efforts to select aggressively oriented middlemen. In case
they are not available, it is desirable to wait for some time and then to pick up. In such
cases, the company should manage its own channel so long the right types of middlemen
are not available.
iii) Middlemen’s Attitude:

If the company follows the resale price maintenance policy, the choice is limited. On the
contrary, if the company allows the middlemen to adopt their own price policy, the
choice is quite wide. Quite a large number of middlemen would be interested in selling
company’s products.
iv) Services Provided by Middlemen:

If the nature of product requires after-sale services, repair services, etc., such as
automobiles, cars, scooters etc, only those middlemen should be appointed who can
provide such services, otherwise the company will adopt direct selling channel.
v) Cost of Channel:
Direct selling generally is costlier and thus distribution arranged through middlemen is
more economical.
5) FACTORS RELATING TO ENVIRONMENTAL CHARACTERISTICS:
The environmental factors which include competitors’ channels, economic conditions, legal
restrictions, fiscal structure etc., as given below, affect significantly the channel choice.
i) Economic Conditions:
When economic conditions are bright such as inflation, it is desirable to opt for indirect
channel of distribution because there is an all-round mood of expectancy, market
tendencies are bullish and favourable. On the contrary, if the market is depressed (such as
deflation), shorter channel may be preferred.
ii) Legal Restrictions:

The legislative and other restrictions imposed by the state are extremely formidable and
give final shape to the channel choice. For example, in India M.R.TP. Act, 1969 prevents
channel arrangements that tend to substantially lessen competition, create monopoly and
are otherwise prejudicial to public interest. With these objectives at the backdrop, it
prevents exclusive distributorship, territorial restrictions, resale price maintenance etc.
iii) Competitors’ Channel:

This also influences the channel choice decision. Mostly, in practice, similar types of
channels of distribution used by the competitors are preferred.

iv) Fiscal Structure:
Fiscal structure of a country also influences the channel choice decision. For example, in
India, State Sales Tax rates vary from state to state and form a significant part of the
ultimate price payable by a consumer. As a result, it becomes an important factor in
evolving channel arrangements.
Differences in the sales tax rates in two different states would not only bring about
difference in the price payable by a consumer but also in the distribution channel
selected. Hence the company should appoint the channel in that stale where the sales tax
rates are quite low, such as in Delhi, and that would give price advantage to the buyers of
those states where the sales tax rates are high.

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DISTRIBUTION MANAGEMENT READING MATERIALS

WHAT IS DISTRIBUTION MANAGEMENT?

A study on the basic tenets of distribution management is better anchored on a comprehensive

PLACEMENT IN THE MARKETING MIX

 PRODUCT: A product is not always necessarily tangible like an anti-dandruff shampoo.

DISTRIBUTION MANAGEMENT READING MATERIALS Page 1

DISTRIBUTION MANAGEMENT READING MATERIALS Page 2

DISTRIBUTION MANAGEMENT READING MATERIALS Page 3

2. PHYSICAL DISTRIBUTION OR MARKETING LOGISTICS

The main objectives of distribution in marketing are as follows:

DISTRIBUTION MANAGEMENT READING MATERIALS Page 4

DISTRIBUTION CHANNELS - MEANING AND THEIR SIGNIFICANCE

DEFINITION: DISTRIBUTION CHANNEL

DISTRIBUTION MANAGEMENT READING MATERIALS Page 5

DISTRIBUTION MANAGEMENT READING MATERIALS Page 6

STRUCTURE OF DISTRIBUTION CHANNEL SYSTEM

DISTRIBUTION MANAGEMENT READING MATERIALS Page 7

1. Financial help to producer

ROLE AND SIGNIFICANCE/IMPORTANCE OF DISTRIBUTION CHANNELS

The role of distribution channels can be summarized as follows:

2. Distribution channels increase distributional efficiency: The intermediary channels

4. They assist in product merchandising: It is actually the merchandising by

DISTRIBUTION MANAGEMENT READING MATERIALS Page 8

IMPORTANCE OF DISTRIBUTION CHANNELS

WHAT IS DISTRIBUTION PLANNING?

DISTRIBUTION MANAGEMENT READING MATERIALS Page 9

SELECTING THE CHANNELS OF DISTRIBUTION

For manufacturer to select a channel, they must consider the following:

DISTRIBUTION MANAGEMENT READING MATERIALS Page 10

There are six basic channel decisions to make. These are:

1. Whether to distribute direct to the customer or indirectly through middlemen

2. Whether to adopt single or multiple channels of distribution

3. How long the channel of distribution should be?

DISTRIBUTION MANAGEMENT READING MATERIALS Page 11

4. The types of intermediaries to use.

5. The number of distributors to use at each level.

6. Which intermediaries to use

DEFINITION: DISTRIBUTION STRATEGY

DISTRIBUTION MANAGEMENT READING MATERIALS Page 12

In deciding the most appropriate distribution strategy, primarily a manufacturer or a marketer

VERTICAL MARKETING SYSTEMS involve suppliers and intermediaries working closely

HORIZONTAL MARKETING SYSTEMS occur where organizations’ operating on the same

DISTRIBUTION MANAGEMENT READING MATERIALS Page 13

SELECTING MEMBERS WITHIN A CHANNEL

DISTRIBUTION MANAGEMENT READING MATERIALS Page 14

HOW WOULD YOU SELECT A DISTRIBUTOR OR AN AGENT? HERE ARE SOME

9. COMPETITION: Do they distribute any competitor’s products?

DISTRIBUTION MANAGEMENT READING MATERIALS Page 15

TYPE OF CHANNEL MEMBERS

 Retailers – Organizations that sell products directly to final c

 Industrial Distributors – Firms that work mainly in the business-to-business market

SPECIALTY SERVICE FIRMS

DISTRIBUTION MANAGEMENT READING MATERIALS Page 16

MERCHANDISE AGENTS OR BROKERS

DISTRIBUTION MANAGEMENT READING MATERIALS Page 17

NUMBER OF CHANNEL LEVELS

1) ZERO LEVEL CHANNEL / DIRECT MARKETING CHANNEL – Consists of a

DISTRIBUTION MANAGEMENT READING MATERIALS Page 18

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THE STRUCTURE OF DISTRIBUTION CHANNEL FOR INDUSTRIAL PRODUCTS

1. Zero Level Channel: (Producer.......Industrial User)

DISTRIBUTION MANAGEMENT READING MATERIALS Page 20

3. One Level Channel: (Producer.......Agent........Industrial User)

4. Two Level Channel: (Producer......Agent.....Industrial distributor.....Industrial user)