Marketing Channels or Channels of Distribution or Trade Channel or

Go-To-strategy
Importance of Place decisions
 • Once you decide about the product, it is equally important to plan how it will
reach the customers.
• Marketing efforts would fail if the product were not available to buyers at right
time, right location and right quantity. Along with coming out with the right
product, it is equally important that it reaches out to the consumers- making it is
accessible, bridging the gap between the location of manufacturing plant and
location of customers, so that goods pass to reach the hands of customers.
• Producers need to transfer/move their products from factories to consumers.
• What are the Linkages between Producer and Customers. P C
• Set of people/firms involved in the movement of products and transfer of
ownership of products from producer to customers. (As long as the product does
not change its form)
• Perform other functions also. In addition to physical flow, channel members
perform certain other functions that add utility to the product.
Making the product accessible, at the time suitable to customers, in the form and size
wanted by customers is important for successful distribution strategy.
How to make products reach to consumers

Product distribution is to create possession utility/accessibilities for consumers and

bridge the gap, so that consumers can buy
1. in the right quantities
2. at the right locations
3. at the right times
4. In the right assortment

Distribution is the flow of products from place of production to place of

consumers. A distribution channel is a chain of businesses or intermediaries
through which a good or service passes until it reaches the end consumer. 

Distribution channel performs the function of physical flow and certain other
functions that add utility to a product.

• It is not simply a conduit to reach the customer. Channel is considered as a Value

Chain--The channel, as an entity adds value to the product because it gets the
products to reach the customers efficiently, and quickly and thus contributes to
brand equity. Coca-Cola’s easy availability to millions contributes to its brand
equity.
• Adds value to company as well as customers.

Customers’ point of view--Good distribution channel is that which enables

customers to buy the product/service with desired convenience at competitive
price. Consumers’ Desired convenience is different for different
products-convenience products to be available at arm’s length, car-going few
kilometers is not considered inconvenient.
Increase in convenance goes with increase in price so marketer. It is important to decide how
much increase in convenience will be preferred by customers and they will be willing to pay for
it.

Marketing Mix— Place------It includes: 1) Channel of distribution

2) Supply Chain Management

3) Physical Distribution/Logistics

Supply-chain
Supply chain is a system of organizations, people, activities, information, and resources
involved in producing and delivering a product or service, from the very beginning stage
of sourcing the raw materials to the final delivery of the product or service to end-users.
Physical Distribution/Logistics:  Emphasis is on physical movement of the product. It
is efficient and cost-effective storage and shipping of goods and related information. It
includes-warehouses-size, number, locations, Inventory, Transportation. It is part of
supply chain.

Components of supply chain

❑ Sourcing and Procurement
❑ Production Scheduling
❑ Order Processing
❑ Inventory
❑ Warehousing and materials handling
❑ Transportation

Marketing Channel/Channel of Distribution

Produced goods and services have to find a way to reach consumers. The role of the
distribution channel is to transfer goods and services to customers efficiently.
This is also known as Marketing Channel, Trade Channel, Channel of distribution
• Set of people/firms involved in the transfer of product from place of production to
place of customers. Chain of intermediaries through which a product or service
travels before reaching the final customer.
• These are known as intermediaries or middlemen (Mm) of the channel.
 • These can be Carrying and Forwarding Agent (C&F Agents), Stockists,
Distributors, Wholesaler, Retailers, Agency, ecommerce platform to sell others’
products
• They may/may not take title/ownership (buying the products) but perform variety
of functions in helping the product move from P —>C.
• Channel of Distribution creates value through Time, Place, Possession Utility for
consumers.

The key role that distribution plays is: satisfying a firm’s customers and achieving a profit for the
firm. From a distribution perspective, customer satisfaction involves maximizing time and place
utility to customers.

Utility Created by marketing Channels

• Place Utility -Availability of a product in a location that is convenient to the
customers-buy only if accessible, convenience, reaches form producer’s place to
place of consumption.
• Time utility-Availability of a product when desired by a customer at a time when
you want to use, products are produced in advance, stored and released in the
distribution channel when demand arises. Made available at the time of
consumption- car, coke
• Form utility- providing product for grading, packaging to channel members to
convert it to the form in which to make it available to consumers-washing and
packaging fruits and vegetables, grading them according to their quality.
• Information utility-Availability of answers to questions and general communication
about product’s useful features and benefits. Retailers are close to consumers
and have first hand in information about customers feedback, problems.
Information from consumers to producers for product improvements and to make
consumers aware of products.

A company wants a distribution channel that not only meets customers’ needs
but also provides differential/competitive advantage. Channel can help in
positioning strategy-Domino’s, Blinkit, Uber
Place decisions, just like other 3Ps can be used to differentiate a brand from competing
brand. It is to say that channel designing can be used to have competitive
advantage/differential advantage for the brand. It can be the only factor leading to
competitive advantage or it can be used in combination with any other of Ps to get
competitive advantage.

Channel decision must be well coordinated with other 3Ps.

Channel experience impacts end users, perceptions of brand image.

Problems with Using Channel Intermediaries

• Mmen add to the prices
• Manufacturers lose the control over the way it to be sold to the customers.
 • Mmen are in independent business of their own who are interested in maximizing
their own profits.
• Mms are primarily buying agent for their customers and not the selling agent of
manufacturer.
• Problem of conflicts
Why should companies use middlemen-Answer is--
You can eliminate Mmen, but you cannot eliminate distribution functions. These
functions need to be performed.
Role of Intermediaries

• Even if the company has the funds to build its own channel to reach final
consumers, it might not be able to do so as cheaply as using an existing indirect
channel. As the intermediaries carry many other products, the cost of distribution
gats shared by all of them. In direct distribution of a company, all the costs would
be borne by few products of the company.
• The advantages in using Mmen rests on their superior efficiency in performing of
its functions. Marketing intermediaries, through their experience, specialization,
contacts and scale can perform these functions more efficiently than what
manufacturer can achieve on its own. Middlemen can perform certain functions
which cannot be performed by producers. Producers can concentrate on limited
number of activities related to production.
• Manufacturers cannot easily command such resources required for doing the
distribution themselves, even if they can, it may not be advantageous to invest in
its own distribution network. Producers can invest money where they get better
returns.
• In reality companies have a greater number of products and very large number of
customers, who are scattered all over-it becomes very complex and
unmanageable task to reach them for selling the products.
• Middlemen help greatly reduce number of interactions and duplication of
activities which otherwise would be there if you do not hire Mm.
• This is how Mm adds to the cost efficiency and ensure smooth flow of products.
• As these functions are shiftable--Who should do the function of distribution
depends upon the concept of Relative Efficiency & Effectiveness.

Wholesalers Firms that buy products from manufacturers and resell them to retailers.
Convincing wholesalers and retailers to carry new products can be difficult.
Retailers-A channel member that sells products to consumers for their consumption. It
is final link in the distribution channel. Retailers are 2 types: Store and non-store
retailers. Store retailers are-brick and mortar shops like supermarket, departmental
stores, mom and pop stores. Non store options are catalogue selling, telemarketing,
e-commerce, vending machines.
Distributor is an entity that buys noncompeting products or product lines, warehouses
them, and resells them to retailers or direct to end users or customers. Distributor buys
the goods from manufacturer or through C&F Agents. Most distributors provide strong
manpower and cash support to the supplier or manufacturer’s promotional efforts. They
usually provide a range of services such as product information, estimates, technical
support, after-sales services, and most importantly credit. Mostly, distributor sells the
goods to retailers on credit, but it depends on industry to industry.
Carrying and Forwarding Agents-take the goods from producer and store them at
their warehouses at different locations. They further transport the goods to distributors/
wholesalers after getting orders from them. Goods are not bought by C&F agents and
they are paid commissions by the producers.
Functions of Middlemen

Reducing the number of contacts

• Providing contact Efficiency- Reducing the number of contacts needed for

reaching consumers. Reducing duplication of activities in contacting customers.
Thus, provide for savings on costs- cost efficiency
• Break the bulk and offer in small quantity. Consumers need smaller quantities
whereas producer makes in bulk. Mm break the bulk and make it suitable in
quantities in which consumers buy.
• Storing and transportation of products to provide Time and place utility to
customers.
• Share the financial burden-manufacturer does not need to incur high expenditure
in setting up direct channel to sell their goods. Advance payments and orders
received by manufacturers.
 • Take care of flows in distribution-Physical, title, payment, information, risk,
promotion.
• Merchandising –display of products, shelves arrangements etc. it is activities
leading to the final stage of putting the products in customer’s basket.
• Promoting products-participating in persuasive communications like Point of
purchase materials, Word of mouth, joint advertising with producer, carrying out
company’s sales promotions like giving free gifts and collecting coupons
• Provide salesmanship-personal selling efforts of wholesalers in selling the
products to retailers and retailers’ efforts in selling the products to the customers
-introduce, establish new products, communicate, recommends, provide pre and
after sales service. Smen of producers, wholesalers, retailers push the product
forward in the channel chain.
• Assortment Transform the assortment of goods of producers into assortments as
desired and convenient to the customer. Product assortment available at grocery
shop or at stationary shop but each manufacturer produces only few products.
• Information provision Providing market information (customer feedback and
competitors’ information) to manufacturers as they are in direct & continuous
touch with customers and competitors.
• Non-feasibility-Selling directly may not be feasible for some products e.g Gum,
matchbox, one car accessory etc.
• Risk sharing- buying of the product by intermediaries shits the risk in
storage/transportation passed on to middlemen, payment in advance-less
financial risk
• Specialization, contacts, experience, local knowledge of middlemen-helps in
performing distribution functions in more efficient and effective manner.

How intermediaries add value

Intermediaries can carry out a range of tasks as mentioned above and add value.
Channel Flows
Product flow- the movement of the physical product from the manufacturer through all
the parties who take physical possession of the product until it reaches the ultimate
consumer. It is forward flow,
Payment flow from customer to the producer. It is backward flow.
Promotion flow- the flow of persuasive communication in the form of advertising,
personal selling, sales promotion, flow of promotion material like free gifts with the
product, receiving coupons etc. It is forward flow.
Market information flow-of information about customers’ feedback, information about
competing products back to producer.
Title flow- ownership flow of products from producer to consumer

Length of Channel-number of Channel Levels

• Channel Structure for Consumer Products
0 or 1 or 2 or 3 levels of Mm. It indicates the number of middlemen in the
channel. It does not include manufacturer or customer. It shows whether the
channel is long or short. The advantage of using more levels is that it’s possible
to reach a larger number of widely scattered consumers. Usually, short channels
are used for B2B markets and longer channels are used for Consumer products.
Consumer Marketing Channel

0 level 1 level 2 levels 3 levels

Two Main Types of Channels
On one end of the channel is Producer and on the other end is customer. The
options are to make the products available to customers directly by the producer
or producer can involve middlemen/intermediaries to make the products available
to customers and do it indirectly.
Direct distribution Channel
• Direct selling or direct channel – Channel without middlemen. Goods are directly
sold by the company to ultimate consumer or buyer. Goods do not go through
intermediaries before reaching their final destination.
• This model gives manufacturers total control over the distribution channel.
• Since the manufacturer alone is responsible for delivering products, this channel
generally can reach limited number of customers.
• Examples of direct channel- Company’s salesperson calling upon consumer,
company’s own showroom, selling through company’s website, telemarketing,
text messaging, catalogue etc. For example, Tanishq has own retail shops to sell
their products to consumers. For certain service organizations consumers avail
the service directly. Banks, consultancy firms etc. are examples of direct channel
of distribution of service.
Indirect distribution Channel – this is a channel structure where the goods or services
are delivered and sold using middlemen. There are independent intermediaries between
producer and consumers.
• Intermediaries could be wholesalers, retailers, distributors, or brokers, for
example.
• In this case, manufacturers do not have much control over distribution channels.
• The benefit is that this makes it possible to sell larger volumes by reaching to
large number of customers across different locations.

• Multiple/Hybrid Distribution Channels

• Hybrid channels are a mix of direct and indirect channels.
• Multiple - companies can use more than one channel to serve market
• One example is companies selling through company’s salesmen as direct
channel and also selling through middlemen or selling online but delivery is done
through nominated authorized distributors.
e.g., indirect channel- LG selling through retailers, after sales service through
local agencies, telephone as direct channel but delivery through mail.

Companies can sell same product through different channels to different

customers-direct channel for business customers and indirect channel for individual
customers, different size of buyers large and small e.g., travel agents selling to
corporate groups and to individuals differently, Geographical locations nearby
customers through own sales force and far off through agents.
Why do some companies choose to use a channel and others do not?
It depends upon company’s resources, abilities, Business strategy of the firm,
nature of products and types of customers, type of market-consumer market vs
B2B market

Length of Channel-Channel Levels

 0 level one level two levels three levels

Types of distribution Channels

Direct distribution channel

• Products are sold directly to ultimate buyer/consumer- no Mmen
• Most common in B2B markets
• Manufacturers have total control over the distribution channel
• Products can be sold to limited number of customers. Since the manufacturer
alone is responsible for delivering products to consumers, this channel generally
makes it impossible to reach large number of customers.
• Often found in the marketing of customized products, relatively expensive
products that may require services like demonstrations, educating etc. e.g.,
Eureka Forbes adopted direct channel of having its salespeople, who were
meeting consumers to educate them about contaminated water and demonstrate
the purity in water after filtration to show its benefits and do some talking about
the product or when you need to customized the product to some degree to
make it more attuned to the needs of consumers like in various kinds of
consultancy services, Lenskart.
• Internet is helping companies distribute directly to consumer as well as business
market.
• Internet has helped a lot in making direct contact with customers and enabling
the companies to make the product available to customers and sell directly to
 them. Lot of companies are selling their products online through their websites
and apps.
• Examples of direct channel: Company’s salesperson calling upon consumer,
company’s own showroom, company’s website, telemarketing, text messaging,
catalogue etc. For example, salespersons of HPCL selling to organization
buyers, Tanishq having their own retail shops to sell their products to consumers.
For certain service organizations consumers avail the service directly. Banks,
consultancy firms, software companies, etc. are examples of direct channel of
distribution of service.

Indirect distribution Channel

• It is a multilevel structure where the goods or services are sold using
intermediaries between producer and consumer. middlemen.
• Intermediaries could be wholesalers, retailers, distributors etc.
• Indirect channel can be in different forms involving different levels and different
kinds of middlemen.
• In this case, manufacturers do not have much control over distribution channels.
• The benefit is that this makes it possible to reach and sell to large number of
customers at widely scattered locations
• Customer reach will be lesser-Inexpensive products which are sold to thousands
of consumers, bought in small quantity and bought frequently are usually sold by
indirect channel resulting in larger sales volumes.
• Lowers cost of goods to consumers by creating market utility. It will be costlier to
go for direct channel to make direct contacts with customers, to make products
reach widely spread and large number of customers. Products like small
stationary items, personal products like soap, shampoo, grocery items, hardware,
electrical items are distributed through indirect channel involving middlemen.
Indirect channel makes it more cost-effective. E.g., like investing in own
showrooms or investing in other ways to sell to too many widely scattered small
customers is more expensive.

• Multiple/Hybrid Distb. Channels – A company can have more than one and
different types of channels to distribute e.g., indirect channel- through retailers,
after sales service through local employees, direct channel- telephone and
Delivery through mail.
• Companies can sell same product through different channels for----different
customers, business and individuals, different size of buyers large and small e.g.,
travel agents selling to corporate groups and individuals or selling at different
Geographical locations- nearby customers through own sales force and far off
through agents.
Why do some companies choose to use a channel and others do not?
It depends upon company’s objectives, resources, abilities, Business strategy of
the firm, product characteristics and customer characteristics (Discussed below),
type of market-consumer market vs B2B market
Franchising is a contractual agreement between a franchisor and a franchisee that
allows the franchisee to operate a retail outlet using a name and format developed and
supported by the franchiser.

Channel Design Decisions

Following factors need to be considered before selecting a channel design.
• Specify the Role of Distribution Channel
• Decide Desired customers’ service output levels
• Specify the role of Pull vs Push in Channel Strategy
• Consider the Product, Customers, Company, Competitors, Middlemen,
Environmental Characteristics

Specify the Role of Distribution Channel-be clear about the role and services of
marketing channel-identify the functions/services you need. Just hiring Mmen because
your competitors are doing so or to be different from competitors, will not justify your
investment in the channel. Distribution channel must be aligned to help in fulfilling
marketing objectives. e.g., A company’s marketing objective of: fast coverage and
penetration of market or building premium brand, developing competitive advantage of providing
better customer service. Each of these objectives would require different kind of channel design.

Also, channel strategy should be well aligned within the context of marketing mix.
Channel cannot be handled as a standalone isolated factor so, it is imperative that it is aligned
with product-if the nature of product is such that short channel is required or product is
standardized, longer channel may be used. Distribution strategy must be suitable to various
aspects related to the product. Similarly, need to consider the influence of distribution costs on
pricing of the product. For example, if it is economy product to be sold at lower price, distribution
should be such that it aligns in keeping prices low and does not add to the prices become high.
So, channel design must gel with other 3Ps.

At times, when companies are not able to use product or pricing or promotion strategies to
differentiate the brand, Objective can be to use the channel as a tool to create competitive
advantage. All the 4Ps have the potential to create brand differentiation. Any one of these or any
combination can be used to create competitive differential advantage.

Domino’s half an hour delivery was to set it apart from competitors

Decide Desired customers’ service output levels

Service Output Levels in terms of:

• lot size- variations in the different amounts purchased by different customers

per occasion (e.g., one sachet to different sizes of bottles)
• waiting time- average waiting time for customers in possessing (buying)
goods
 • convenience- in buying the products
• product variety- assortment to be provided
• service back up- credit, delivery, repairs

• Greater the service output level- higher the price

Decide the service level by considering the type of target customers, type of
product, competitive situation & marketing objective with as lower total channel
cost as possible

Channel Strategy – Pull vs Push

Specify the role of Pull vs Push in Channel Strategy

• Push distribution strategy–pushing the product towards consumers.

Manufacturer using its sales force or commissions, discounts, allowances for
intermediaries as trade promotions to induce intermediaries to carry, promote and
sell their brands.
It is suitable for low brand loyalty products, when brand choice is made in the
store, product is an impulse item, product benefits are well understood. Small
grocery items, stationary items, phone accessories, Screwdriver etc.

• Pull distribution strategy – pulling consumers towards products. Manufacturer

using advertising and sales promotion to induce consumers to buy the product
from retailers thus making the retailers keep the product. It is suitable when there
is high brand loyalty, high involvement, people perceive differences in brands;
choose the brand before they go to store. Microwave, TV

Similar companies may differ in their emphasis on pull /push strategy in designing a
channel.

Decide the extent of Pull or Push distribution strategy required for company’s marketing
objectives. Suppose, company is not having enough budget for advertising, it may use more of
push by its middlemen to sell the product or if company has the plan of using advertising heavily
to pull the consumers to retailers- manufacturer would require lesser services from retailer.
Hence, it is important to coordinate channel design with the pull/push strategy of the company.
Factors Affecting Choices of Channels
Factors Affecting Choice of Channels and length of channel—As shown in the
above slides, these are:
Customers’ or Market Factors/considerations:
Type of market-consumer or business market.
Number of customers to be reached
Geographic concentration of customers
Order size -big or small
number of customers, geographical location, order size, frequency of purchase etc. If
there are: large number of customers, geographically scattered, buying frequently, in
small order size--- long channel with a greater number of levels and middlemen.
In B2B--lesser no, concentrated locations, bulk orders, services required, technicality of
products—short channels

Product factors/considerations
Unit value
Perishability
Technical nature

High priced (jewelry), perishable (Milk, Fruits), bulky (shipping and handling) of large
home appliances technical nature of the product-explanation, demonstrations (laptop,
software), requiring installation and maintenance services, new product category
requiring educating the customers about new product, desired premium brand image
----short channel with lesser number of levels.
Low priced products, standardized products, products not requiring after sale
services--long channel

Company factors/considerations
Desire for channel control
Services to be provided by seller
Ability of management

Financial resources, marketing skills and managerial capabilities for handling

distribution functions, desire/need to control the channel, level of customer service
objective, number of products to be sold, other marketing mix objectives influence the
channel type and structure.

Middlemen factors/considerations
Services provided by middlemen

Availability of desired middlemen

Producer’s and middlemen’s policies

Financial strength of middlemen

abilities, financial resources, kind of services provided-Limited services middlemen or
full services middlemen providing whole range of desired functions like grading,
packaging, labelling of fruits along with other functions like displaying, providing
information, maintain inventory, taking back damaged goods, cooperative for promotion
activities of company, experiences, reputation, whether selling competing products,
retailer’s location, type, and numbers of contacts/customers, able to have some control
over them for various functions for smooth flow, policies of producer and policies of
middlemen should gel well otherwise it may give rise to conflicts. Maruti has extensive
list of eligibility criteria for their dealers and control over them. At times desired channels
may not be available in the form you want them. E.g., Available channels are handling
rival firm’ products and you want the channel which is not selling competing products

Competitors’-- factors/considerations to place the product in the same channel and

in direct competition or be away from competitors’ products and sell the product through
other channel-- --follow the leader or be innovative in distribution channel to have an
edge over the competitors.

Environmental factors/considerations --government policy-for example, online selling

of medicines, technical-use of software-Lenskart channel, general economic conditions
also influence channel decisions.

To sum up--If you want reach large number of customers with wide reach-it is difficult to
have such massive reach directly, so roping in intermediaries in the channel becomes
indispensable. As against this, if nature of product and customers is such that it can be
handled by the company and mgt is able to take care of other aspects which are
handled by middlemen like promotional activities and has financial strength to do it own
their own, expertise and ability may decide how much and what companies can do
directly.
Complex, expensive, custom-made, perishable products move through shorter channels
involving few or no intermediaries
Standardized products with low unit value usually pass through relatively long
distribution channels
Start-up companies often use direct channels to reach smaller number of customers
because they can’t persuade intermediaries to carry their products

Channel Design Decisions

Steps in designing Channels are:
1. Identify major Channel Alternatives
2. Decide Market Coverage or Intensity of Distribution Strategy
3. Selecting Specific Channel Members
4. Terms and Responsibilities of Channel members-- Trade Relations Mix

Three elements of channel alternatives:

1. Type of intermediaries--own salespeople, wholesalers & Retailers, Franchising,
agents, distributors, stockists etc.
2. Number of Intermediaries—How extensively to cover the market (customers)
Intensive distribution, Selective distribution, Exclusive distribution
3. Terms and Responsibilities of each channel participants-Price policies, territorial
rights, conditions of sale, specific services and responsibilities to be performed by each
party

1. Identify Major Channel Alternatives and Decide on the types of channel

intermediaries to be used
There are number of possible options for consumer markets and business markets

Type of Channel Intermediaries-own salesforce, online selling, telephone and

catalogue selling, wholesalers & Retailers, Franchising, agents, distributors, stockists
etc.-- each has its own strengths and weaknesses

For example, own salespeople on salary basis will result in high fixed costs but they
may give full attention to selling of company products, can be suitably trained, more
control over them. Salespeople on commissions-no fixed costs and expense of
commission related to profit from their sale, may result in higher turnover, less control
over them, do not share the risks.

Wholesalers and Retailers-less control over them, expenses in commissions and

incentives for them, may not give desired attention to your brand, lesser risk, help from
their selling expertise and contacts
Typically for consumer market, there can be 0, 1, 2, 3 level Which one to be selected
will depend upon nature of product, customer service objective, pricing strategy,
promotion strategy, available funds, number of customers and how are they scattered
over geographical area, what competing firms are doing and other factors.
A company can sell Apparel or footwear directly through own retail store, through its
own website, mail order, catalogues, through other e-commerce platform or through
channel of retailers or through channel of wholesalers and retailers or any combination
of these channels. A Car stereo manufacturer can sell its product directly to car
manufacturers, through website, and/or indirectly through auto-part retailers, dealers’
showrooms, mail order etc.
Each channel has its own strengths & weaknesses. Suitable channel is selected for the
given type of target customers, type of product, competitors’ channels based on costs
and profit analysis and achieving desired objectives.
Companies can choose from a wide variety of channels for selling their products
to customers.
Choosing the Right Distribution Channel
• Not all distribution channels work for all products, so it's important for companies
to choose the right one. The channel should align with the firm's overall mission
and strategic vision including its sales goals.
• The method of distribution should add value to the consumer. Do consumers
want to speak to a salesperson? Will they want to handle the product before they
make a purchase? Or do they want to purchase it online with no hassles?
Answering these questions can help companies determine which channel they
choose.
• Secondly, the company should consider how quickly it wants its product(s) to
reach the buyer. Certain products are best served by a direct or short distribution
channel such as meat or produce, while others may benefit from an indirect
channel.
• If a company chooses multiple distribution channels, such as selling products
online and through a retailer, the channels should not conflict with one another.
Companies should strategize so one channel doesn't overpower the other.
• Channel must contribute to profits of the company by being cost efficient and
leading to good sales.

Evaluating Major Channel Alternatives

Economic criteria- each channel alternative will produce a different level of sales and
costs. Example-Company’s sales reps are better trained and give more attention in
selling its products leading to higher sales but it is more expensive and it may reach
limited number of customers which may result in lower sales but there are no
commissions to be paid to Mmen. Therefore, choose where it is at best in terms of costs
and profits.
Control Criteria-channel evaluation has to include manufacturer’s degree of control over the
channel. It is the extent to which producers would like to have control of channel partners
in his hands. Example-Retailer may not master the enough knowledge/ technical details
about cars or may not maintain good ambience or retailer may not use the promotion
material like danglers, posters properly, may not give enough shelf space, shelf
arrangement for the brand etc. as desired by the manufacturer.
Adaptive criteria- Flexibility of the channel for adjustments that can be made to meet the needs
arising out of changes in co., channel members, customers, products. Each channel involves
some duration of commitment and loss of flexibility. Example-contract for 5 years with distributor
with no flexibility will make the channel less adaptive or Co. wants to go for online selling also
but its contract with sales agency may resist it Or A manufacturer seeking a sales agency might
have to offer a 5-year contract. During this period, other means of selling such as direct mail
might become more effective, but the manufacturer is not free to drop the sales agency.

2. Determine Intensity of Distribution (extent of market coverage)

It is determining the number of middlemen to be involved to distribute the product.
3 Levels of Intensity in market coverage: Intensive, Selected, Exclusive distribution

Market Coverage or Number of Intermediaries/Mm- it refers to extent of customer

coverage through product selling outlets. Different degrees may be appropriate for
different products and customers situations--size of the target market with different
geographic and demographic spread of customers, production capacity, price of the
product.

Example, number of locations for selling of FMCG products like water bottles, cigarette,
shampoo sachet- total sales are directly linked to the number of outlets used. Thus, it
requires reaching very close to customers. For expensive products like cars, luxury
apparels or technical products like machinery, computers-customers do not desire them
to be available at arm’s length- top brands decide to have their shops in malls at
Gurugram, Noida, South Delhi only -or for fertilizer-objective can be-farmers need not
travel more than 3 Kms, Service- decision about number of ATMs to reach customers,
number of car service centers to cover its customers in Delhi or different market
coverage decisions for inorganic fruits and vegs and Organic fruits and vegs, high end
cosmetics and low end cosmetics

Intensive – Selling the product through as many outlets as possible soft drink, chips.
Selective - products are available at some selected stores but not on all the possible
outlets (televisions and refrigerators)
Exclusive - only chosen few outlets to sell the products. Product is sold exclusively and
not along with competing brands. (Designer clothes and prestige watches)
Marketer’s choice regarding desired channel intensity will depend upon nature of
product, nature of customers, company considerations, middlemen considerations etc.
Intensive Distribution – rope in many intermediaries so that product is available at all
possible outlets of sale- wherever consumer is looking for to buy it-it is available. For
wide reach of product, large number of middlemen are used. Soft drink is available at all
kinds of stores, restaurants, vending machines, kiosks near universities, stations etc.
The goal of intensive distribution is to penetrate the market i.e., reaching as many
customers as possible. Intensive distribution is usually required where customers have
a range of acceptable brands to choose from. In other words, if one brand is not
available, a customer will simply choose another. So, the product is placed at arm’s
length to be purchased. For many products, total sales are related to the number of
selling outlets. (e.g., cigarettes, packaged water bottle). Wide availability increases the
probability of it getting sold and thus helps in increasing sales volume. It is suitable for
selling the products which do not require much control over Middlemen. For example,
convenience goods requiring immediate satisfaction of needs & heavily supported by
advertising from producer e.g., soft drink, cigarette, soap

Selective Distribution— the firm selects limited number of outlets in a geographical

area to sell products. Selective distribution caps the number of locations in a particular
area. Distribution is through selective multiple outlets but not all outlets in a market. An
advantage of this approach is that the producer can choose the appropriate outlets and
focus effort (e.g., training) on them, supervise the way they sell the manufacturer’s
products. Selective distribution works best when consumers are prepared to “shop
around” – in other words – they have a preference for a particular brand or price and will
search out the outlets that supply. Consumers do not seek arm’s length availability of
the product. Consumers do not easily replace the brand they want. This alternative is
the middle path approach to distribution. This alternative helps focus the selling effort of
manufacturing firms on a few outlets rather than dissipating it over countless marginal
ones.

It also enables the firm to establish a good working relationship with channel members.
It is easier to manage than intensive distribution, to strengthen customer service,
improve quality control, better image of the product. It can help manufacturer gain
optimum market coverage and control but at a lesser cost. It is suitable for shopping
goods like major home appliances requiring moderate control over Mmen.

Exclusive Distribution –Brand is not sold along with any other brand. Product is sold
through own retail outlets or franchisees, which sell its brands exclusively and not its
competing brands. Its retailer or wholesaler, or distributor deal with one manufacturer’s
brand only. The firm hopes to get the benefit of better selling support by such outlets.
This method helps maintain a brand’s image, product exclusivity, perceived value. It is
suitable when-- it is essential for the firm to carry large inventory of the brand to provide
good variety to the customers (clothing, shoes), product is to be sold aggressively, to
create and maintain better relationship with customers, to have more control over the
way it is sold, salesmen need to have more knowledge about the product, product
requires demonstrations, producer can set specific terms for retailers to follow for
inventories, product displays, its price, promotional support, customer service, way of
selling sell its products. For example, selling cars, luxury brand of apparel etc.
Each of them has their strengths and weakness’. It is important for a business to decide
on the emphasis on how they will distribute products and/or services in order to reach
their target market as it can have an effect on a business’s brand image, sales,
expenses.
3. Selecting Specific Channel Members
 Customer Customer Customer Customer

It shows different options A, B, C, D. A is Direct channel without any Mmen-reach for the
product is limited, B, C, D are indirect channels with different kinds of intermediaries
Each of the distribution strategy has its strengths and weakness. It is important for a
business to place some emphasis on how they will distribute products and/or services in
order to reach their target market as it can have an effect on a business’s brand image,
sales, expenses.
4. Terms And Responsibilities of Channel Members-- Trade Relations Mix
Producer must determine the rights & resp. of participating channel members.  Each
channel member must be clear about their responsibilities & performing them must be
profitable to him. Main elements are:
Price Policy Price to final customers – whether all retailers should sell the product at
fixed price or can reduce it from their commission to make sale, allowances/ discounts
to intermediaries that are equitable, sufficient & motivating enough to Mm to do their job
well
Conditions of Sale-and service policies etc.
Payment Terms-Cash discounts, defective goods, volume discount & guarantees etc.
Distributors Territorial Rights- geographical area assigned for an outlet e.g., opening two
nearby outlets may interfere with their territorial rights for selling the product. It is
deciding the number of retailers carrying a firm’s product in a particular geographical
area. e.g., to get the credit of the sales made in his territory even if he has not done the
selling or number of retailers carrying a firm’s product in a particular geographical area
Mutual Services & Resp.- to be spelled out carefully. These can be: collecting payment,
credit facility, inventory level to be maintained, market information to be gathered by
intermediaries.
Promotional support- record keeping system, training of retailer’s salesmen technical
assistance. In case of Franchisees – satisfaction of company’s standards regarding
physical facilities, supplies from specified vendors etc.
Channel Management
• Channel member selection – selecting the channel members to meet the
distribution needs for a given product.
• Channel member motivation – motivating channel members to help achieve
distribution objectives.
• Channel member evaluation – assessing the performance of channel member.

Channel Member Selection

Channel member selection – selecting the channel members to meet the distribution
needs for a given product. It is influenced by factors such as:

1. Size of middlemen
2. Financial strength
3. Operational experience
4. Reputation/Credibility of the channel partner among different publics
5. Past performance and growth trend
6. Location
7. Branch network, contacts
8. Cooperativeness

Motivating Channel members

It is imp to keep on motivating, boosting the morale of channel members- maintain the
enthusiasm of channel members to get the enough support for selling your
products-motivation can be financial or non-financial motivation and it can be
positive-encouraging them by linking their targets with rewards extra commissions,
discounts to make them perform their best, Dealers meet to pamper them or negative
as lesser commissions etc.
They need to be provided with the training with regard to how you want your products to
be sold, so that there is no flaw in the system and goods smoothly move in the channel
• Coercive power- threatens to withdraw the product from Mm. It works only if the
producer is powerful, and his products attracts customers. E.g., HUL, Coca-Cola
 • Reward Power- Extra benefits on achieving targets
• Legitimate Power- by having the contract terms.
• Expert power- special knowledge of manufacturer that Mm value. E.g., skills in
showroom setting and selling cars
• Referent power – Producer is so highly respected that Mm are proud to be
associated with his products. E.g., Apple products
• Developing Good Relationship- cooperation, partnership, vertical marketing
system (VMS)
• Positive motivators- margins, allowances, contests, prizes,
• Negative sanctions-reduce margins, slowdown delivery, terminate.

Evaluating Channel Members

Also need to evaluate channel members on periodic basis so that we know where they
are doing well, what are the problem areas creating hinderances in smooth flow of
goods in the channel and take corrective action as providing training, support
• Evaluating channel members performance against goals–quota, inventory level,
customer delivery time, treatment of damaged and lost goods, cooperation in
promotion and training program, sales volume generated, customer services
provided etc.

It may also require to modify the channel arrangements to suit the customers or
producers at times or redesign existing channel.
Working in unison with channel members is important for producers because there are
certain situations where Producers cannot sell on their own. Roping intermediaries and
getting products pass through these Mm becomes the need of the hour.

Conventional (horizontal) and Vertical marketing System

• In Conventional marketing channels –manufacturers, wholesalers and retailers
operate as independent parties, negotiate aggressively with each other to
increase their benefits.

Now in the recent times, we have come with the channel systems which is integrated marketing
system called VMS. In VMS, Producer, Wholesaler, Retailer work together as a team/unified
group in order to meet consumers’ needs. There is one captain of the team who ensures that
entire channel integration provides with those kinds of advantages which were there working as
a team. all work together towards serving the customers.

• In Conventional marketing channels –manufacturers, wholesalers and retailers

operate as independent parties, negotiate aggressively with each other to
increase their benefits.
 • Vertical marketing systems, producer, wholesaler, and retailer—work together as
a unified group in order to meet consumer needs. VMS increases efficiency and
effectiveness of channel and reduces conflicts.
• In VMS, channel members function as parts of a system and coordinate their
activities to minimize costs, reduce duplications and maximize the performance
and create value for the customer and ensure that all participating members are
rewarded accordingly.
• Companies are taking a value network view of their businesses instead of limiting
their view on suppliers/ retailer’s distribution & customers as fragmented units. 
• One member of the channel either owns or wields sufficient leverage to control
and coordinate the activities of other members in the channel.
• The channel members continue to operate as distinct entities but become
accountable to one owner or the most powerful channel member.
• Walmart, Amazon for example, wield sufficient power to direct much of the
activity of manufacturers and wholesalers.
• Developing VMS requires considerable handholding, persuasion, negotiations
and development of incentives commensurate with each channel member’s
effort.
• One type of contractual VMS is a Franchise organization, in which a producer
licenses a wholesaler or retailor to distribute its products.
• Vertical marketing system are of three types:
• Corporate VMS
• Administered VMS
• Contractual VMS

Ways to create VMS:

In a Corporate VMS, one member of the distribution channel owns the other
members. Although they are owned jointly, each company in the chain continues
to perform a separate task. Forward-Mahindra Tractors, Arvind Mills
Backward-Grasim Fabrics
• In an Administered VMS, one member of the channel is large and powerful
enough to control and coordinate the activities of the other members in the
channel without an ownership stake. Walmart, Amazon, Pepsi
• Contractual VMS consists of independent firms joined together by contract for
their mutual benefit. E.g., Franchising
Channel Conflict
• It is clash of goals and methods between channel members. Members may
develop conflict over issue over which they have different opinions.
• A sense of competition and conflict between members can lead to obstruction in
achieving its distribution objectives.

Conflicts may occur if channel members:

• Have conflicting goals
• Fail to fulfill expectations of other channel members
• Have ideological/policy differences
• Have different perceptions of reality

Horizontal conflict occurs among channel members at the same level, such as
between different retailers that handle the same manufacturer’s brands.
Vertical conflict occurs between different levels in a marketing channel.
Multichannel conflict-Exists when the manufacturer has established two or more
channels that sell to the same market.
Resolving Channel conflicts
Strategies are needed to smooth differences between channel members.

• Strategies are needed to smooth differences between channel members.

• Good Clarity about Expectations
• Performance Metrics
• Defining Roles and Responsibilities
• Vertical marketing system is one of the effective strategies. Instead of taking
each intermediary as fragmented unit interested in its profits even at the cost of
others—take Producer and intermediaries as a part of an integrated system.
• Vertical marketing system is one of the effective strategies for reducing conflicts.

Channel reorganization

The channel needs to be realigned on basis of:

• Consumer buying habits- online buying, home delivery
• New technologies-Lenskart
• Importance attached to outlets
• Competitor activity
• Increase in sales Volume-Ghari detergent, Uttam tea
• Changes in product-ready-mades instead of tailor-made
Logistics and physical distribution
• Supply chain-involves complete sequence starting from suppliers that
contribute to creating s goods and delivering it to business users/ final
consumers.
• Logistics-the activities involved in controlling the flow of goods and
information among members of supply chain. It is tracking the entire
supply chain. Raw materials, components, spare parts to be made
available to the producer, who makes value addition to them and makes
the products which get delivered for consumers-these forward and
backward ends need to be integrated. Flow of goods and flow of
information from ss to P is handled. E-commerce companies ensure that
goods reach customers in the fixed time 2-3 days. They get in touch with
suppliers for items and then get them move to reach customers.
• Physical Distribution-activities aimed at efficiently moving finished goods
from production line to the consumer.

Market Logistics Decisions are:

• Order Processing- when an order for the product received-keeping track of
the order
• Includes order entry in which the order is actually entered into a co’s
information system
• Order handling-involves locating, assembling and moving products into
distribution and
• Order delivery-delivering products to reach customers

• Warehousing-place where goods are store until they are demanded by

consumers. Number, locations, size of warehouses
• Distribution centers-are designed to efficiently receive goods from
suppliers, doing some value addition and then fill orders for individual
stores or customers
• Inventory Management-to avoid situations like neither shortfall where
consumer asks for the product and it is not available nor you should be
having excess inventory which would increase holding costs and risks.
Maintain optimal quantity maintained with producers all the times ensures
do not run out of raw material or finished products, no risks and increased
costs of excess inventory but whenever there is demand being generated,
you have goods to supply. principles of economic order quantity come into
play
• Inventory management-ensures that a company neither runs out of
manufacturing components of finished goods nor incurs the expense and
risks of carrying excessive stocks of these items
• Transportation-the method or mode a company should utilize when
moving products through domestic and global channels, the most common
modes of transportation are railways, road, air, water
• Advantages and disadvantages of these modes and selecting the most
suitable on the basis of criteria like- speed, dependability in meeting
schedules, frequency of shipments, availability in different locations,
flexibility in handling and cost-high low, fast, slow.
Mapping the Four Forces Affecting Channel Strategy
• Customer Wants and Needs
 
What do customers buy, how do they buy, and why do they buy the products
and services offered by the various players?
How do other players in the industry segment their customer markets?
What influences have affected customers’ wants and needs? How have they shifted?
 Are customers satisfied with the output of existing channels? What are the gaps in the
channel value chain?
 
• Channel Capabilities and Costs
 

What are the industry’s broad channel capabilities and costs (e.g., speed of
delivery, product assortment, service warranty)?
 How have channel capabilities evolved over time?
 How have channel costs and margins evolved?
 
• Channel Power and Influence
 
How has power shifted among the channel constituencies—vendors,
manufacturers, distributors, and retailers?
What accounts for the various power shifts? 
Who has gained power, and why? Who has lost power?
• Competitive Postures and Actions
 
What has been the nature of industry competition? How has it evolved? 
Who is the dominant player? The most profitable? The most innovative? What are their
channel strategies?
 What has been the nature of competition at the channel level? How has it evolved?
Which is the dominant channel? The most profitable? The most innovative?

• When Dell computer company was founded in an industry that already had
players such as Apple, IBM, Compaq, and Hewlett-Packard. Each had a
unique way of going to market. Apple was largely focused on consumers
and small entrepreneurs doing their own desktop publishing. It sold
primarily through computer specialty retailers. IBM, on the other hand,
focused on business users of personal computers and sold its products
directly, as well as through office retailers such as Business Land.
• Compaq straddled both the consumer and business markets. Lacking the
extensive direct-sales force that IBM enjoyed, Compaq supplemented office
retail channels with value-added resellers, who could handhold business
customers through their initial application needs.
• Michael Dell quickly realized that retailers would not favor his brand over
the reputation of the top three, especially because Dell products had no
features that differentiated them in the marketplace. Dell therefore decided
to bypass retail and value-added reseller channels altogether. And, in a
stroke of genius, he also chose to forgo inventory, focusing on only a few
business customers and taking orders on demand. As a result, Dell could
customize requirements for hardware configuration and preload software, for
direct delivery of the product, collect cash, avoid holding inventory, and save
the customer the channel margin. In essence, Dell had done an informal
channel mapping analysis to identify a direct channel opportunity, which
eventually helped to make the company an industry leader.

• Traditionally, Britannia stocks products at its distribution centres. Products

first go to its exclusive wholesale dealers, then distributors and direct
retailers. The entire process takes anything from one week to three weeks,
depending on the distance between the retail outlet and the factory. Britannia
wants to reduce this to less than a day.
• Britannia used to serve only 6.5 lakh retail outlets directly. In comparison,
Frito-Lay — a brand marketed by PepsiCo had a direct reach of 10.1lakh
outlets 
• In the new distribution model, Britannia plans to operate with a “zero-day
inventory" by “reducing distance between its distribution centers and retail
stores" that the company reaches directly. “Direct distribution results in
much better offtake of brands. There has been two to three times higher
brand offtake (sales). In some areas, we can go up to the level of a store that
sells Britannia products worth Rs1,000
• In the new direct distribution model, the entire supply chain is controlled by
Britannia. Every day, around 20,000 people who are on Britannia’s direct
payroll, visit retail stores, analyze local demands, suggest required tweaks in
product placements based on the company’s in-house analytics and take
orders on their mobile phones through an app. The orders are then delivered
directly by Britannia from the nearest distribution centre within a day.
• Britannia has more than 800 vendors, 70 factories, 50 depots, 300
stock-keeping units and 3500 wholesalers. “The role of dealers and
distributors is changing fast. We need them for local knowledge, logistics
and credit collection. Plus, they would take our products to geographies
where Britannia can’t reach direct in a commercially viable manner. 
• ITC Ltd, which reaches about 20 lakh retail stores directly, has been working
on a similar ‘factory-to-retail in a day’ model for the last few years.