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UNIT 8
DISTRIBUTION STRATEGIES

• Key concepts
• Factors affecting distribution channel
• Design marketing channel
• Managing marketing channels

KEY CONCEPTS

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DISTRIBUTION

A set of coordinated group of

individuals or firms involved in the process
of making a product available for use or
consumption by the consumer or
business user.

KEY CONCEPTS
 Distribution process: The process of making products
available to customers
 Channel level: The number of intermediaries in the
channel
 Direct marketing channel: A marketing channel that has no
intermediary level
 Indirect marketing channel: Channel containing at least
one level
 Intermediary: independent organization in the channel but
not manufacturer or consumer. There are different types of
intermediaries (whole sale; agent, facilitators..)
 Sales forces: People from company

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FUNCTIONS OF MARKETING CHANNEL

 Information: Gather information about potential & current customers, competitors, &
other actors & forces in the marketing environment
 Promotion: Develop & disseminate persuasive communications to stimulate
purchasing
 Contact: Finding & communicating with prospective buyers
 Matching: Match demand and supply through breaking bulk
 Negotiation: Negotiate and reach agreements on price & other terms of the offer so
that ownership or possession can be transferred
 Place orders with manufacturers
 Physical distribution: transporting and storing goods
 Financing: Acquire the funds to finance inventories at different levels in the
marketing channel
 Risk taking: Assuming the risk of carrying out the channel work
 Provide for buyers’ payment of their bills through banks & other financial institutions
 Oversee actual transfer of ownership from one organization or person to another

CONSUMER/INDUSTRIAL
MARKETING CHANNELS

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FACTORS AFFECTING
DISTRIBUTION CHANNEL

• Internal factors
• External factors

FACTORS AFFECTING DISTRIBUTION

CHANNEL

Internal factors
External factors

• Consumer
• Company Distribution
Decisions • Competitors
• Middleman
• Product
• Environment

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FACTORS AFFECTING
DISTRIBUTION CHANNEL
• Product factors: The characteristics of the product, for
example, the value, complexity, perishability of products
being distributed must be considered, type of required
services…
• Middlemen factors: availability and willingness of
intermediaries
• Producer factors: Objectives, resources and desire for
control of producer.
• Consumer factors: The size, needs and level of serviced
required by customers
• Environment factors: Weather, coverage, geographical
location of the firm’s market affects the channel choice.
Small markets allow the use of direct channels

PRODUCT & CHANNEL LEVEL

Product Direct/Short Indirect/Long

characteristics distribution distribution
channel channel
Cost/price of High Low
product
Technical feature Complicated Simple

Perishability Easy difficult

Volume Heavy, large Light/ small

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FIRM & CHANNEL LEVEL

Company Direct/Short Indirect/Long
distribution distribution
channel channel
Control level High Low

Finance Good Limited

Possibility to High Low

combine
products
Risk taking High Low

CUSTOMER & DISTRIBUTION LEVEL

Customer Direct/Short Indirect/Long

distribution distribution
channel channel
Number of customer Few/ not frequent Many/ frequent
and frequency of
purchase
Service requirement High Low

Geographical Concentrate Disperse

concentration

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INTERMEDIARIES &
DISTRIBUTION LEVEL

Intermediaries Direct/Short Indirect/Long

distribution distribution
channel channel
Number of qualified Limited many
intermediaries
Readiness/ desire of Low High
intermediaries

MARKETING CHANNEL
DECISIONS

• Internal factors
• External factors

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CHANNEL DESIGN DECISION

• Find out what target consumers want from the channel
• Prefer to buy nearby or travel; in person, over the phone…
Analyzing consumer need • Specialization or wide assortments; kind of service…
• waiting time, availability, level of service…
• Firm should balance consumer need & feasibility and cost of
meeting these needs
▪ Set the targeted level of customer service
Setting channel objectives
▪ Minimize the total channel cost of meeting customer service
requirements
▪ It also depend on the nature of firm, its products, marketing
itermediaries, competitors, environment…

Identify major alternatives • Identify types of intermediaries

• Number of marketing intermediaries
• Responsibility of channel members

▪ Economic; Control, Adaptive criteria

Evaluating the major
alternatives ▪ Sales quota, average inventory levels, customer delivery time,
treatment & lost goods, cooperation in firm promotion & training
programs, service to customers…

ANALYSING CUSTOMER NEEDS

 Lot size
 Average quantities of purchased products/time
 Waiting and delivery time
 Average accepted waiting time to be served by the
companies
 Spatial convenience
 Average distance that customer need travel to the
served organization
 Product variety
 Specialization or diversification
 Service backup
 Required much or less service (installation, guarantee
time, service after sales…)

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IDENTIFY MAJOR ALTERNATIVES

 Types of intermediaries
 Agents, distributors, retailers…
 Number of intermediaries
 Intensive distribution
 Selective distribution
 Exclusive distribution
 Term/reponsibilies of channel members
 Price policy (can be changed or not, range of
change…)
 Conditions of sales
 Territorial rights
 Specific services to be performed by each party

COVERAGE CHANNEL STRATEGIES

 Intensive distribution: A large number of
intermediaries are used, making the
products available widely
 Selective distribution: Products are sold
through a small number of selected
outlets
 Exclusive distribution: The distribution is
handled by a limited number of dealers
(can be one distributor) who has
exclusive rights for particular territories

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INTENSIVE DISTRIBUTION
 Number of middlemen: As many as possible
 Coverage: As large area as possible, provide
availability & reduce search time
 Type of product: Convenience goods with high
replacement rates (food, clothing, snack…)
 Price: Low price product
 Example: Toothpaste, candies, batteries…

SELECTIVE DISTRIBUTION
 Number of middlemen: Selected, some
 Coverage: Wide area
 Type of product: Shopping goods & durable
goods with low replacement rates (branded
clothes, electronics…)
 Price: Mid price product
 Example: Televisions, Computers, Cosmetics

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EXCLUSIVE DISTRIBUTION
 Number of middlemen: 1, 2 or very few
 Coverage: small
 Type of product: Special and prestige goods,
high value, high quality (expensive jewelry,
musical instruments...)
 Price: High price product
 Example: Rolex watches

EVALUATE MAJOR ALTERNATIVES

 Economic criteria
 Control & adaptive criteria

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MANAGING MARKETING
CHANNEL

CHANNEL MANAGEMENT DECISIONS

Selecting channel members

Training channel members

Motivating channel members

Evaluating channel members

Modifying channel design

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SELECTING CHANNEL MEMBERS

 Reputation
 Experiences
 Knowledge on products, market
 Resources (finance, staff, facilities…)
 Growth and profit record

TRAINING AND MOTIVATING

 Capability-building programs
 Products
 Skills required (selling, communication…)

 Taking care of intermediaries’ needs

 Constant communication
 Reward

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EVALUATING CHANNEL MEMBERS

 Evaluate performance
 Treatment of lost & damage goods
 Sale quota attainment
 Counsel, motivate, or terminate the
underperformers

CHANNEL MODIFICATION DECISIONS

 Review channel design & arrangement
 Notice change in buying pattern
 New competition
 Stage of product in the life cycle

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CONFLICT
 Conflict happened when one channel member’s
actions prevent another channel member from
achieving its goal
 Causes of channel conflict
 Goal incompatibility
 Unclear roles and rights
 Differences in perception
 Intermediaries’ dependence on manufacturers

TYPES OF CONFLICT
 Horizontal channel conflict: Involves conflicts among
members at the same level within the channel
 Vertical channel conflict: Conflicts between different
levels owithin the same channel
 Multichannel conflict: exists when the manufacturer has
established two or more channels that sell to the same
market
 Without it the channel could become passive & non-
innovative
 Severe or prolonged conflict can disrupt channel
effectiveness & cause lasting harm to channel
relationship
 Firm should manage conflict to keep it from getting out
of hand

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MANAGING CHANNEL CONFLICT

 Regular communication
 Diplomacy: each side sends a person to meet its
counterpart to resolve the conflict
 Mediation: Resorting a third party to conciliate two
parties interest as a consultation or an advisor
 Arbitration: Resorting to a third party for final
resolution of the conflict
 Litigation: try to avoid litigation – costly, takes long
time, bad publicity for both parties

CRITERIA SELECTING
INTERMEDIAIES
 Select distributor – don’t let them select you
 Willingness, commitment
 Reputation, trusted
 Knowledge of market, industry, product
 Resources (physical facilities, finance, human
resource..)
 Capable of developing markets, rather than those with
a few good customer contacts
 Size of firm
 Experiences
 …

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WORKING WITH INTERMEDIARIES

 Treat local distributors as long-term partners, not
temporary market-entry vehicles
 Support market entry by committing money, managers and
proven marketing ideas
 From the start, maintain control over marketing strategy
 Make sure distributors provide you with detailed market
and financial performnce data
 Build links among national distributors at the earliest
opportunity

GLOBAL RETAILING
 Department store
 Supermarkets
 Specialty retailers
 Convenience stores
 Warehouse, Outlet stores
 Supercenters
 …

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