Distribution

DISTRIBUTION
MIDDLEMEN
Create value by reducing spatial separation- the physical distance between the point of
production and the point of consumption
Marketing Channel
“A set of interdependent organisations involved in the process of making a product or service
available for use or consumption”
Can also be defined as exchange relationships that create customer value in the acquisition,
consumption and disposition of products and services.

HOW DO CHANNELS HELP?

1. Sorting: To adjust the discrepancy of assortment through the process of sorting,
acuumulation, allocation and assorting
2. Standardisation: To minimise the distribution costs through routinising and standardising
transactions to make exchange more efficient and effective
3. Search: To facilitate the searching process of both buyers and sellers by structuring the
information essential to both the parties
4. Meeting: To provide a place for both parties to meet each other and reduce
uncertainities

CHANNEL FUNCTIONS
1. Transactional Function
a. Buying
i. Purchasing for resale
ii. Agent for supply
b. Selling
i. Contacting potential customers
ii. Promoting products
iii. Seeking orders
c. Risk taking
i. Assuming business risks in the ownership of inventory
2. Logistical Function
 a. Assorting
i. Creating product assortments based on customer requirements
ii. From one or more sources
b. Storing
i. Assembling and protecting goods at a suitable location
c. Sorting
i. Breaking bulk
d. Transporting
i. Physical movement
3. Facilitating function
a. Financing
i. Extending credit
b. Grading
i. Inspecting, judging them
c. Marketing information and research
i. Information to customers, suppliers including competitive conditions and
trends

THE TOP FIVE REASONS FOR SELLING THROUGH DISTRIBUTORS

1. Customers demand it
2. Market access
3. Lower marketing and selling expenses
4. Distributors perform necessary functions
5. Reduced collection problem

THE COST AND CONTROL

ASPECTS OF INTERMEDIATION
BROAD TYPES OF MARKETING CHANNELS
1. Direct
a. Direct Channel
i. Carries goods directly from a producer to the business purchaser or ultimate user
b. Direct Selling
i. A marketing strategy in which a producer establishes direct sales contact with its
product’s final users
c. Internet and direct mail are also potentially important tools for direct selling
2. Channels using marketing intermediaries
For some products, using intermediaries may be more efficient, less expensive and less
time-consuming.
3. Dual Distribution
a. Movement of products through more than one channel to reach the firm’s target
market.
b. Used to maximise the firm’s coverage in the market place or to increase the cost
effectiveness of the firm’s marketing effort
4. Reverse Channels
a. Channels designed to return goods to their producers
b. Growing importance because of rising prices of raw materials, increasing availability
of recycling facilities, and passage of additional antipollution and conservation laws
c. Also used for recalls and repairs
5. Omnichannel
At its core, omni-channel is defined as a multi-channel sales approach that provides the
customer with an integrated customer experience. The customer can be shopping online
from a desktop or mobile device, or by telephone, or in a bricks and mortar store and the
experience would be seamless.

LEVELS IN MARKETING CHANNELS

1. Zero Level: Direct supplies to customers- B2B sales, online sales
2. One Level: Direct marketing companies- direct supplies through depots and local agents
3. Two Level: Companies sell directly to large retailers who sell to customers
4. Three Level: FMCG, food, etc- It has two intermediaries: a wholesaler and a retailer
 5. Hybrid channels: Parallel channels to serve different market segments

STRUCTURAL SEPARATION
1. Logistics
a. Physical movement
b. Order taking
2. Distribution
a. Negotiation
b. Promotion
c. Pricing
d. Credit
e. Advertising

POSTPONEMENT
a. Risk reducing concept
i. Receive order then transport
ii. Receive ordere then produce
b. Form postponement
c. Time postponement

RISK POOLING
1. Reducing storage points to take care of total variability in demand
2. Works because of the possibility of higher than average demand from one point being
offset by lower than average demand from another point

MARKETING CHANNEL FLOWS

CHANNEL MEMBERS
1. Carrying and forwarding agents (CFA) and Carrying and selling agents (CSA):
Transporters who work between the company and its distributors. Goods belong
to the company
2. Distributor:
A wholesaler appointed by the company to exclusively re-distribute the company
products to its customers in a designated territory
3. Dealer:
Role similar to a distributor but may not have a clearly defined territory and may
sell both in the market and from his shop
4. Stockist:
Does not re-distribute stock, sells from their premises.
5. Wholesalers:
Operate out of the main market, deal with a number of products of their choice,
are not in contract with any company
6. Cash and carry model:
Goods transported from manufacturers, bulk packages are displayed, retailers and
bulk customers purchase and pay in cash
7. Retailers:
The final contact with the customers, operate out of their own shops and sell a
large assortment and variety of goods
FRANCHISING
Involves a franchisor and a franchisee. Franchisor is the firm which wants to sell its goods or
services. Franchisee is the firm or group that are willing to sell the products or services on behalf
of the franchisor.
WHY BUILD A FRANCHISE NETWORK?
1. Capital inadequacy
2. Difficulties in managing human capital
3. To expand more rapidly
4. Limited bandwidth

RURAL DISTRIBUTION
1. Rural is going the urban way with respect to consumption
2. Dependence on agriculture is reducing and moving towards manufacturing and services
3. Per capita expenditure is growing faster than urban India
4. Changing consumer behaviour and technology acceptance
New models are coming up which-
1. Embrace technology
2. Make use of platform business models
3. Are transparent
4. More inclusive
5. Increase penetration to rural India

CHANNEL STRATEGY
A channel strategy is a vendor's plan for moving a product or a service through the chain of
commerce to the end customer.

CHANNEL STRATEGY- DEMAND SIDE

CHANNEL STRATEGY- SUPPLY SIDE

CHANNEL DESIGN
Channel design refers to those decisions involving the development of new
marketing channels where none had existed before or to the modification of existing channels.
The channel design decision can be broken down into seven phases or steps. These are:
1. Recognizing the need for a channel design decision
2. Setting and coordinating distribution objectives
3. Specifying the distribution tasks
4. Developing possible alternative channel structures
Whether single – or multiple – channel structures are chosen, the allocation alternatives (possible
channel structures) should be evaluated in terms of the following three dimensions: (1) number
of levels in the channel, (2) intensity at the various levels, (3) type of intermediaries at each
level.
5. Evaluating the variable affecting channel structure
a. Market variables:
 Four basic subcategories of market variables are particularly important in influencing
channel structure. They are (A) market geography, (B) market size, (C) market
density, and (D) market behavior.
b. Product variables:
Product variables such as bulk and weight, perishability, unit value, degree of
standardization (custom-made versus standardized), technical versus nontechnical,
and newness affect alternative channel structures.
c. Company variables:
The most important company variables affecting channel design are (A) size, (B)
financial capacity, (C) managerial expertise, and (D) objectives and strategies.
d. Intermediary variables:
The key intermediary variables related to channel structure are (A) availability, (B)
costs, and (C) the services offered.
e. Environmental variables:
Economic, sociocultural, competitive, technological, and legal environmental forces
can have a significant impact on channel structure.
f. Behavioral variables:
The channel manager should review the behavioral variables as well. Moreover, by
keeping in mind the power bases available, the channel manager ensures a realistic
basis for influencing the channel members.
6. Choosing the “best” channel structure:
The channel manager should choose an optimal structure that would offer the desired
level of effectiveness in performing the distribution tasks at the lowest possible cost.
7. Selecting the channel members
CHANNEL CONFLICTS
A channel conflict may be defined as “A situation in which one channel member perceives
another channel member(s) to be engaged in behavior that prevents it from achieving its goals”.
Conflicts can also be classified as
1. Vertical conflict: Usually between manufacturers and intermediaries. occur due to
the differences in goals and objectives, misunderstandings, and mainly due to the
poor communication
2. Horizontal conflict: Horizontal conflicts are the conflicts between the channel
members at the same level, i.e. two or more retailers, two or more franchisees etc.
These conflicts can offer some positive benefits to the consumers. Competition or
a price war between two dealers or retailers can be in favor of the consumers.
3. Inter type conflict: Inter type conflict occurs when, the Intermediaries dealing in a
particular product starts trading outside their normal product range. Large retailers
often offer a large variety and thus they compete with small but specialized
retailers. This concept is called as “Scrambled Merchandising” where the retailers
keep the merchandise lines that are outside their normal product range.
4. Multi Channel conflict: Multi-channel conflict occurs when the manufacturer uses
a dual distribution strategy, i.e. the manufacturer uses two or more channel
arrangements to reach to the same market.

RESOLVING CHANNEL CONFLICTS

DISTRIBUTION METRICS
Distributor economics: Investment, Income, Expenses, Net Margin
Distributor’s ROI: Net Margin/Net Investment
Numeric Distribution: Number of outlets carrying brand/Total number of outlets
Weighted Distribution: Value (or volume) of sales in the outlets you are present in/Total value
(or volume) of sales across outlets in consideration