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Third P - Place

Channels of Distribution In marketing channel indicates routes or pathways through which goods and services are moved from producer to consumers. It is a group of individuals and organizations that direct the flow of products from producers to customers. The channel is also described as grouping of intermediaries from first owner to the last owner, who take title to a product during the marketing process. -William Davidson

According to Philip Kotler, Marketing channels are set of interdependent organizations involved in the process of making product or service available for use or consumption. Function/Importance of Channel 1. Transfer of title to the goods involved 2. Physical movement from point of purchase to point of consumption 3. Storage function

4. Communication of info about price, availability, storage, etc. 5. The searching out of buyers and sellers 6. Matching goods to the requirements of the market (merchandizing) 7. Offering products in the form of assortment or packages 8. Implementing pricing strategies as acceptable to consumers 9. Creating new markets 10. Offering credits to retailers/consumers

Marketing Middlemen-Type of Channel Members

Agents They take part in marketing mechanism rending all services required. They do not represent both buyer and seller in same transition Brokers - They do not have direct control of the goods in which they deal. They represent either buyer or seller in negotiating for their principal. Dealers Firms that buy or resell products on retail or wholesale basis.

Distributors They are the wholesalers Retailers Those who are selling directly to ultimate user. Wholesaler Business unit which buys and resells to retailers, other merchants but does not sell in significant amounts to ultimate consumers.

Types of Distribution Channel

Manufacturer User. Ex : Industrial products B2B, Services

sector, furniture, Office products etc.

Manufacturer Door to Door Selling User. Ex : Eureka forbes, Encyclopedias, Holidays package, Cosmetics, Local products. Manufacturer Company Outlet User. Ex: Reebok, Nike etc. Manufacturer Retailer User. Ex : Car showrooms. Manufacturer Wholesaler/Distributor Retailer User. Ex: FMCG, Consumer durables, Most of the Consumer products.

Manufacturer Agent Wholesaler - Retailer User. Ex: Imported products.

Non Store Retailing : Direct selling Door to door One to One selling personal selling One to many selling party selling Multi level marketing Amway Direct selling Telemarketing, email, Home shop 18. Automatic vending machines Buying service Big cos.to employees.

Distribution Strategies Intensive distribution Maximum expansion/outlets needed Non durable, convenience goods Cigarettes. Selective distribution Limited outlets, best selling efforts Household products, consumer durables, after-sales-service products. Computer, T.V, Washing machine, Microwave oven etc. Exclusive distribution One Outlet per territory. Ex: Sports goods, Grand slam fitness equipment.

Selection of Distribution Channel

Factors influencing distribution channel: 1) Nature of Market Number and location of buyers Size and frequency of purchase Consumer or industrial market Buying habits and preferences 2) Nature of Product Size of product (bulk & weight) Unit value

Perishability Technical nature Age of product 3) Nature of Firm Market standing Financial revenues Volume of output Degree of control desired Management competence 4) Nature of Distribution Availability of middlemen Attitudes of middlemen

Services provided by middlemen Sales potential Cost of the channel Legal consideration 5) Consumer buying habits

Size of average sale If small, elaborate channel required ex: Cigarette, matches.

Seasonal character of product Concentration of customers 6) Competition

Channel Selection Process

Identify Target Customer

Determine Consumer Buying Habits Locate Potential Customer Pinpoint Channel Alternatives Evaluate Channel Alternatives Select Channel Members

Channel-Management Decisions
After a company has chosen a channel alternative, individual intermediaries must be selected, trained, motivated, and evaluated. 1. Selecting Channel Members

Companies need to select their channel members carefully as they represent the company to the customers. To facilitate channel member selection, producers should determine what characteristics , numbers of years in business, growth and profit record, financial strength, cooperativeness and service reputation. 2. Training Channel Members Companies need to plan and implement careful training programs for their intermediaries. For example: Microsoft requires third party service engineers to complete a set of courses and take certificate exams. Those who pass should be formally recognized as Microsoft Certifed Professionals. 3. Motivating Channel Members

A company need to view its intermediaries in the same way it views its end users. It needs to determine intermediaries needs and construct a channel positioning such that its channel offering is tailored to provide superior value to these intermediaries. Producers are having channel power ability to alter channel members behavior so that they take actions they would not have taken otherwise. The powers can be: Coercive Power: Power to threaten to withdraw or terminate a relationship if intermediaries fail to cooperate. Reward Power: To offer intermediaries extra benefit for performing specific acts or functions. This power produces better results. Expert Power: Expertise that intermediaries value. Once the expertise is passed to

intermediaries it weakens. The manufacture muse continue to develop new expertise. Referent Power: The manufacture is so highly respected that intermediaries are proud to be associated with it. 4. Evaluating Channel Members:

Producers must periodically evaluate intermediaries performance against standards such as sales-quota attainment, average inventory levels, customer delivery time, treatment of damaged and lost goods, cooperation in promotional and training programs. 5. Modifying Channel Arrangements A producer must periodically review and modify its channel arrangements. Modification becomes necessay when the distribution channel

is not working as planned, consumers buying pattern change, the market expands, new competition arises, innovative distribution channel emerges, and the product moves in the decline stage of PLC.

Channel Integration & Marketing System


Vertical Marketing System A vertical marketing system comprises the producer, wholesaler(s) and the retailer(s) acting as a unified system. One channel member, the channel captain, own the others or franchises them or has so much power that they all cooperate. e.g. Gillette with shaving products and Proctor & Gamble with detergents.

Horizontal Marketing System The marketing system in which two or more unrelated companies put together resources or programs to exploit an emerging marketing opportunity. e.g. Post offices selling insurance and mutual funds and HLL entering into a stragegic tieup with PepsiCo India for bottling and distribution of Liptons ready-to-drink and other beverages.

Multi Marketing Systems Earlier many companies used to sell a single market through a single channel. Today, with the larger customer segments and channel possibilities, more companies have adopted multichannel marketing.

Multichannel marketing occurs when a single firm uses two or more marketing channels to reach one or more customer segments. With this companies get three important benefits: 1) 2)
3)

Increased market coverage Lower channel cost

More customized selling. Ex : DELL.

Channel Conflict, Cooperation, and Competition


No matter how well channels are designed and managed, there will be some conflict, if for no other reason that that the interest of independent business entities do not always coincide. Channel conflict is generated when one channel members actions prevent the channel from achieving its goal.

Channel cooperation occurs when channel members are brought together to advance the goals of the channel, as opposed to their own potentially incompatible goals.

Types of Conflict and Competition


Vertical Channel Conflict: means a conflict between different levels within the same channel. e.g. Petrol pumps all over the country may agitate for increase in commission from the various petrol companies, HLL may have conflict with its distributors. Horizontal Channel Conflict: conflict between members at the same level within the channel. Dealers frequently get into conflict with each

other for the trespassing the domain of operation. Multichannel Conflict: It exists when the manufacturer has established two or more channels that sell to the same market.

Causes of Channel Conflict


1) 2) 3)
4)

Goal Incompatibility Unclear goals and rights Differences in perception

Intermediaries dependence on manufacturer

Managing Channel Conflict


As companies add channels to grow sales, they run the risk of creating channel conflict. Some channel conflict can be constructive and lead to better adaptation to a changing environment but

too much is dysfunctional. The challenge is not to eliminate but to manage it better. Possible way to manage channel conflict: 1) 2) 3) One is the adoption of superordinate Goals Exchange of persons between two or More channel levels Including the leaders of another Organization in advisory councils, board of directors, etc. 4) When the conflict is chronic or acute, the parties may have to resort to diplomacy, mediation, or arbitration.

Managing Retailing
Retailing: is the sale of goods in small quantities to ultimate consumers. The word retailer is of French origin, meaning to cut again. Retail trade is one that cuts off smaller portions from large lump of goods. From the bulk of products procured by the wholesaler, small lots are cut and distributed through retailers. The retailer is the last link in the chain of distribution between the manufacture and the ultimate consumer. A retailer or retail store is any business enterprise whose sales volume comes primarily from retailing. Retailing includes all the activities involved in selling goods or services directly to final consumers for personal, nonbusiness use.

Retailing-Functions
1. The physical movement and storage of goods 2. The transfer of title of goods 3. Passing information about nature and use of goods 4. The provision of ready availability 5. The financing of inventory and credit to consumer

Kinds of Retailing
On the Basis of Place of Business 1. Itinerant Retailers These retailers have no fixed business places and move from place to place as the season changes. Their prices are considered to be the cheapest.
a)

Hawkers and Peddlers

b) Market Traders c) Street Traders 2. Fixed Shop Retailers a) The Street Stall-holders b) Second-hand Goods Dealers c) Specialty Shops d) General Shops

On the Basis of Size 1. Small Size Retail Stores a) Independent Stores b) Vending Machines c) Discount Houses d) Syndicate Stores 2. Large Size Retail Stores a) Departmental Stores

b) Chain Stores c) Mail Order Retailing d) Cooperative Retailing e) Supermarkets f) Hypermarkets

Wholesaling
Wholesaling includes all the activities involved in selling goods or services to those who buy for resale or business use. Wholesaling excludes manufacturers and farmers because they are engaged primarily in production and it excludes retailers. Functions of Wholesaling 1.
2.

Buying and assortment building Bulk buying

3. 4. 5. 6. 7.

Warehousing Transportation Financing Risk bearing Market information

Physical Distribution
The term physical distribution is used, generally, to describe a series of interrelated activities concerned with transporting finished goods or raw materials so that the arrive at the designated place when needed and in usable condition.

Objective of Physical Distribution


The basic objective of physical distribution is getting the right goods to the right places at the right time for the least cost.

Components of physical Distribution


1. Distribution, planning and accounting 2. In bound transport 3. Receiving 4. Inventory management 5. In plant warehousing 6. Order processing

7. Packaging/repackaging 8. Dispatch of goods 9. Customer service 10. Communication

Physical Distribution Decisions


1.

Mode and method of transportation

2. Location of warehouse 3. Inventory decisions 4. External distribution agency

Storage and Warehousing


Storage involves the making of proper arrangements for retaining the goods in perfect state till they are needed by the consumers and are to be taken to the market.

What is Warehouse?
A warehouse is a place where surplus goods can be kept safely for future use. Modern warehouses are equipped with latest equipment and facilities for the safety of goods from theft, sun, moisture, rats, etc.

Significance of Warehousing
1. 2. 3. 4. 5. 6. Regular supply Stock of trade Seasonal products Continuous production Perishable goods Quality

Types of Warehouses

1. 2. 3. 4.

Private warehouses Public warehouses Cooperative warehouses Bonded warehouses

Market Logistic and Supply Chain Management


Physical distribution starts at the factory. Managers choose a set of warehouses and transportation carriers that will deliver the goods to final destinations in the desired time at the lowest cost. Physical distribution has now been expanded into the broader concept of supply chain management. Supply chain management starts

before physical distribution. It involves procuring the right inputs (raw materials, components, and capital equipments) converting them efficiently into finished products and dispatching them to the final destinations According to Phillip Kotler: Market logistics involves planning the infrastructure to meet demand and then implementing and controlling the physical flows of materials and final goods from points of origin to points of use, to meet customer requirements at a profit. Market logistics planning has four steps:
1.

Deciding on the companys value proposition to its customers (delivery standards, ordering and billing accuracy, etc)

2.

Deciding on the best channel design and network strategy for reaching the customers (direct channel or through intermediaries) Developing operational excellence in sales forecasting, warehouse management, transportation management, etc Implementing the solution with best information system, equipment, policies and procedures

3.

4.

Market Logistics Objectives


Most of the companies state their market logistics objective as getting the right goods to the right places at the right time for the least cost.

Unfortunately, this objective provides little practical guidance Because maximum customer service implies large inventories, premium transportation, multiple warehouses, all of which raise market logistics costs.

Major Logistics Functions


Warehousing Inventory Management Transportation Logistics Information Management