UNIT – 5

Marketing Mix- II

Distribution Channel
A distribution channel (also called a marketing channel) is the path or route decided by the company to
deliver its good or service to the customers. The route can be as short as a direct interaction between the
company and the customer or can include several interconnected intermediaries like wholesalers,
distributors, retailers, etc.
Hence, a distribution channel can also be referred to as a set of interdependent intermediaries that help
make a product available to the end customer.

Functions of Distribution Channels

In order to understand the importance of distribution channels, you need to understand that it doesn’t
just bridge the gap between the producer of a product and its user.
 Distribution channels provide time, place, and ownership utility. They make the product available
when, where, and in which quantities the customer wants. But other than these transactional
functions, marketing channels are also responsible to carry out the following functions:
 Logistics and Physical Distribution: Marketing channels are responsible for assembly, storage,
sorting, and transportation of goods from manufacturers to customers.
 Facilitation: Channels of distribution even provide pre-sale and post-purchase services like
financing, maintenance, information dissemination and channel coordination.
 Creating Efficiencies: This is done in two ways: bulk breaking and creating assortments.
Wholesalers and retailers purchase large quantities of goods from manufacturers but break the
bulk by selling few at a time to many other channels or customers. They also offer different types
of products at a single place which is a huge benefit to customers as they don’t have to visit
different retailers for different products.
 Sharing Risks: Since most of the channels buy the products beforehand, they also share the risk
with the manufacturers and do everything possible to sell it.
 Marketing: Distribution channels are also called marketing channels because they are among the
core touch points where many marketing strategies are executed. They are in direct contact with
the end customers and help the manufacturers in propagating the brand message and product
benefits and other benefits to the customers.

Types of Distribution Channels

Channels of distribution can be divided into the direct channel and the indirect channels. Indirect
channels can further be divided into one-level, two-level, and three-level channels based on the number of
intermediaries between manufacturers and customers.

Direct Channel or Zero-level Channel (Manufacturer to Customer)

Direct selling is one of the oldest forms of selling products. It doesn’t involve the inclusion of an
intermediary and the manufacturer gets in direct contact with the customer at the point of sale. Some
examples of direct channels are peddling, brand retail stores, taking orders on the company’s website,
etc. Direct channels are usually used by manufacturers selling perishable goods, expensive goods, and
whose target audience is geographically concentrated. For example, bakers, jewellers, etc.

Indirect Channels (Selling Through Intermediaries)

When a manufacturer involves a middleman/intermediary to sell its product to the end customer, it is
said to be using an indirect channel. Indirect channels can be classified into three types:

 One-level Channel (Manufacturer to Retailer to Customer): Retailers buy the product from
the manufacturer and then sell it to the customers. One level channel of distribution works best
for manufacturers dealing in shopping goods like clothes, shoes, furniture, toys, etc.

 Two-Level Channel (Manufacturer to Wholesaler to Retailer to Customer): Wholesalers

buy the bulk from the manufacturers, breaks it down into small packages and sells them to
retailers who eventually sell it to the end customers. Goods which are durable, standardised and
somewhat inexpensive and whose target audience isn’t limited to a confined area use two-level
channel of distribution.

 Three-Level Channel (Manufacturer to Agent to Wholesaler to Retailer to

Customer): Three level channel of distribution involves an agent besides the wholesaler and
retailer who assists in selling goods. These agents come handy when goods need to move quickly
into the market soon after the order is placed. They are given the duty to handle the product
distribution of a specified area or district in return of a certain percentage commission. The agents
can be categorised into super stockists and carrying and forwarding agents. Both these agents
keep the stock on behalf of the company. Super stockists buy the stock from manufacturers and
sell them to wholesalers and retailers of their area. Whereas, carrying and forwarding agents
work on a commission basis and provide their warehouses and shipment expertise for order
processing and last mile deliveries. Manufacturers opt for three-level marketing channel when
the user base is spread all over the country and the demand of the product is very high.

Dual Distribution
When a manufacturer uses more than one marketing channel simultaneously to reach the end user, he is
said to be using the dual distribution strategy. They may open their own showrooms to sell the product
directly while at the same time use internet marketplaces and other retailers to attract more customers.

Distribution
Distribution means the process by which we make the goods or the service available to the end
consumer. Generally, the place of production is not the same as the place of consumption. So the goods
have to be distributed to overcome the barrier of place.
Now the distribution of the products can be done by the organisation itself which is direct distribution. Or
it can hire intermediaries and form distributions channel i.e. indirect distributions. The plan will depend
on several factors, some of which are
 Product: Whether the product is perishable or durable will be a factor in deciding its distributions
model.
 Market: The size of the market will be a factor. In a large market, the direct distribution may not
be a perfect choice. Also if the markets are scattered indirect channel will be more suitable
 Company: The size of the company and its product-mix are also deciding factors in the decision
about distributions.
 Marketing Environment: In a slow economy or depression a shorter distributions chain is
preferable. In a healthy economy, there is a wider choice for alternatives.
 Cost: The costs of the channel like transportation, warehousing and storage, tolls etc are
obviously a factor in this decision.

Types of Intermediaries
These are the middlemen that ensure smooth and effective distribution of goods over your chosen
geographical market. Middlemen are a very important factor in the distribution process. These are
known as intermediaries. Following are the types of intermediaries exist in various distribution channels:

1] Agents: Agents are middlemen who represent the produces to the customer. They are merely an
extension of the company but the company is generally bound by the actions of its agents. One thing to
keep in mind, the ownership of the goods do not pass to the agent. They only work on fees
and commissions.
2] Wholesalers: Wholesalers buy the goods from the producers directly. One important characteristic of
wholesalers is that they buy in bulk at a lower rate than retail price. They store and warehouse huge
quantities of the products and sell them to other intermediaries in smaller quantities for a profit.
Wholesalers generally do not sell to the end consumer directly. They sell to other middlemen like retailers
or distributors.
3] Distributors: Distributors are similar to wholesalers in their function. Except they have a contract to
carry goods from only one producer or company. They do not stock a variety of products from various
brands. They are under contract to deal in particular products of only one parent company
4] Retailers: Retailers are basically shop owners. Whether it is your local grocery store or the mall in your
area they are all retailers. The only difference is in their sizes. Retailers will procure the goods from
wholesaler or distributors and sell it to the final consumers. They will sell these products at a profit
margin to their customers.
In the reality of the market, all producers rely on the distribution to channel to some extent. Even those
who sell directly may rely on at least one of the above intermediary for any purpose. Hence the
distribution channel is of paramount importance in our economy.
Channel Management Decisions
The success of any marketing channel lies in the foundation of right channel design decision. But channel
design is just the planning part; it needs right implementation to be successful. The implementation can
be taken care of, with the help of channel management decisions, it includes right from, selecting a
channel member to training them to motivating them and to evaluating them on their performance. In
case, the performance is not as expected, the modifications are done by the company in the channel
arrangements.

Step # 1. Selecting Channel Members:

The first priority for any company is choosing the right channel members. As the business is dependent
upon the marketing channel partners, it becomes crucial for the success of any company to select the best
channel partner. All the companies whether it’s a product manufacturing company like Colgate or Onida
or a service company like IMS or Career Launcher, needs a good channel partner to succeed.
Generally all the companies advertise through newspapers and trade magazines to look out for channel
partners. If the company is known and successful, it becomes quite easy for the company to find them. But
in the case of a new company launching a new product, then finding a channel partner can be tough. In
both the cases, the parameters for choosing a channel partner should be very clear for the company as
well as the channel partner.
In some businesses, like opening a McDonald’s franchisee, the location becomes more important than in
any other business. As the business is dependent on the footfalls it can get. The company can evaluate any
channel partner on the basis of business experience, financial capabilities, location advantages, growth
and profit record, experience of the promoters. In the case of exclusive distribution, these parameters
become more important for the company.

Step # 2. Training Channel Partners:

Once the channel partner is selected, they need to be trained as they are the face of the company. All the
companies have intensive training programmes for its dealers to tell them about their sales and service
capabilities, product knowledge, expected service quality and operational procedures to follow. For
example, LG Electronics India regularly trains its sub-dealers, direct dealers and service franchisees.
The training tries to facilitate performance, improve knowledge, skills and attitude of its dealers and sales
staff. The training is given both through online and offline methods, which covers functional, technical and
behavioural aspects. Similarly Kirloskar Brothers Limited (KBL) makes the customers and dealers aware
of the fundaments and working principles of Centrifugal Pumps, enabling them to operate and maintain
the equipment more efficiently. The training program is designed by KBL to offer best possible theoretical
as well as practical knowledge to their valued customers and dealers.

Step # 3. Motivating Channel Members:

As the channel members are as important as your customers, a company needs to make them happy. Just
like anybody, channel members are also needs to be motivated. On the one hand, the company tries to
train them for their better performance and on the other hand, the company provides them incentives,
higher margins, premiums, display allowances, advertising allowances and special deals.
While managing the relationship with the channel members, a company can use coercive power or it can
use reward power or legitimate power. A company can also use expert power or referent power. In the
case of coercive and legitimate power, the relationship can turn sour and it may not be productive in the
long run. But the widely used reward power works the best to get the cooperation from the channel
members. In the case of expert power, the channel member looks forward to the company for its
expertise and becomes dependent, if the expertise is ever changing.
When a company is highly respected like Sony, LG, Apple, Maruti Suzuki, then they have referent power.
The channel members feel proud to be associated with it. In turn, it makes the channel partners cooperate
with the company. This is the highest authority a company can possess.
The most advanced supply distributor agreement is distribution programming, which can be defined as
building a planned, professionally managed vertical marketing system that meets the needs of both
manufacturers and distributors. The manufacturer establishes a department within the company called
distributor relations planning. Its job is to identify distributor needs and build up merchandising
programmes to help each distributor operate as efficiently as possible.

Step # 4. Evaluating Channel Members:

Channel members are evaluated on the basis of their sales, inventory level, service support, delivery time
performance, complaint redressal, promotional program implementation and training performance.
If the performance of the channel member is satisfactory, then it is rewarded for its efforts and if the
performance falls below mark, it is advised to make necessary changes in the processes. In case of channel
members, where the problems are beyond rectification, they are removed and the company appoints a
new channel member.

Step # 5. Modifying Channel Arrangements:

With the changing times, the company needs to modify its channel arrangements. The product line can
expand, the consumers buying pattern can change, the new competition can come up, a new distribution
channel can emerge or the demand of the product can change by getting into the later stages of product
life cycle. All these factors can lead the company to change its channel arrangement.
When Intex started their operations in 1996, they had just one product – Ethernet card. Now the product
has expanded to 26 product groups with more than 300 stock keeping units. Now their marketing
channel consist of 2 mother warehouses, 2 regional offices, 28 branches, 57 service centres, 183 service
franchises and more than 2000 channel partners. Similarly with the growing usage of Internet, all the
retailers are trying to follow a brick and click model, where they sell their merchandise in their stores and
they sell it online also. Kishore Biyani’s Future group is a good example of the same.
They target their customers through a brick model with Big Bazaar, Pantaloons, E-Zone, Home Town etc.
and follow the customers online through their click model i.e. www(dot)futurebazaar(dot)com and
www(dot)ezoneonline(dot)com . From time to time, a company needs to track the changes in the market
and on this basis; they need to modify their channel members
 Marketing Channel Functions and Flows
A marketing channel performs the work of moving goods from producers to consumers. It overcomes
the time, place, and possession gaps that separate goods and services from those who need or want them.
Members of the marketing channel perform a number of key functions.
Some of these functions (storage and movement, title, and communications) constitute a forward
flow of activity from the company to the customer; others (ordering and payment) constitute a backward
flow from customers to the company. Still others (information, negotiation, finance, and risk taking) occur
in both directions. Five flows are illustrated in Figure 12.1 for the marketing of forklift trucks. If these flows
were superimposed in one diagram, we would see the tremendous complexity of even simple marketing
channels.
A manufacturer selling a physical product and services might require three channels: a sales
channel, a delivery channel, and a service channel. The question for marketers is not whether various
channel functions need to be performed—they must be—but, rather, who is to perform them.

Channel Member Functions

 Gather information about potential and current customers, competitors, and other actors and
forces in the marketing environment.
 Develop and disseminate persuasive communications to stimulate purchasing.
 Negotiate and reach agreements on price and other terms so that transfer of ownership or
possession can be made.
 Place orders with manufacturers.
 Acquire the funds to finance inventories at different levels in the marketing channel.
 Assume risks connected with carrying out channel work.
 Provide for the successive storage and movement of physical products.
 Provide for buyers’ payment of bills through banks and other financial institutions.
 Oversee transfer of ownership from one organization or person to another.
 All channel functions use up scarce resources; they can often be performed better through
specialization; and they can be shifted among channel members. Shifting some functions to
intermediaries lowers the producer’s costs and prices, but the intermediary must add a charge to cover its
work. If the intermediaries are more efficient than the manufacturer, prices to consumers should be
lower. If consumers perform some functions themselves, they should enjoy even lower prices.

Promotion Decisions

Communication Process
Communication is the process of transmitting data, ideas, information from a source (transmitter) to
a receiver using a communication channel. All these elements form a communication system.

Marketing communication is the process where two sides try to influence each other, using symbols, in
order to achieve their final objectives:
 Producer's objective: to sell the products
 Customer's objective: satisfying the need.

The process of communication is depicted in the following scheme:

The transmitter – is the company that want to send a message to the target market so that it receives a
favorable answer from them:
 Purchase of a product
 Positive attitude
 Image improvement
To assure a high credibility, the company employs public personalities or opinion leaders to effectively
deliver the message. They are the message source and are widely used in advertising.

Message encoding – The intended meaning of the message, the idea the transmitter wants to deliver in
encoded in symbols, text, images, sounds so that it's easily received by the customer. In the encoding
process, the transmitter must take into account the public target characteristics, so that it doesn't
understand the message inaccurately.
The message – is transmitted through a communication channel to the receiver and has a certain
transmitted meaning. On this act various perturbing factors existing at the communication channel level
and are independent of the transmitter or receiver. These perturbing factors are
called interferences or channel noise and are usually a consequence of the message intersecting other
promotional messages.
Message decoding – the message is received having a certain received meaning, that can be different
from the original emitted meaning due to the channel noise.
The understood meaning – results from decoding the received message according to the interpretation
the receiver gives to the symbols the transmitter used to encode the message.
Receiver – is that part of the target market where the message is focused. It can be a person, a group or an
organization.
Feedback – is the answering reaction of the receiver that can be a positive, negative or indifferent. The
purpose of promotional communication is that the public response to be favorable, with a clear finality:
purchasing the products and recovery, by this mean, of the expenses involved in the promotional
activities.
In the communication process, the transmitter must make sure that the understood meaning is as close as
possible to the intended meaning. Otherwise, the message can be distorted and might not generate the
desired effects, representing a total waste of resources.

Promotion Mix
Although the money organizations spend promoting their offerings may go to different media channels, a
company still wants to send its customers and potential consumers a consistent message (IMC). The
different types of marketing communications an organization uses compose its promotion or
communication mix, which consists of advertising, sales promotions, direct marketing, public relations
and publicity, sponsorships (events and experiences), social media and interactive marketing, and
professional selling. The importance of IMC will be demonstrated throughout the discussion of traditional
media as well as newer, more targeted, and often interactive online media.
Advertising involves paying to disseminate a message that identifies a brand (product or service) or an
organization being promoted to many people at one time. The typical media that organizations utilize for
advertising of course include television, magazines, newspapers, the Internet, direct mail, and radio.
Businesses also advertise on mobile devices and social media such as Facebook, blogs, and Twitter.
Consumer sales promotions consist of short-term incentives such as coupons, contests, games, rebates,
and mail-in offers that supplement the advertising and sales efforts. Sales promotions include promotions
that are not part of another component of the communication mix and are often developed to get
customers and potential customers to take action quickly, make larger purchases, and/or make repeat
purchases.
In business-to-business marketing, sales promotions are typically called trade promotions because they
are targeted to channel members who conduct business or trade with consumers. Trade promotions
include trade shows and special incentives given to retailers to market particular products and services,
such as extra money, in-store displays, and prizes.
Direct marketing involves the delivery of personalized and often interactive promotional materials to
individual consumers via channels such as mail, catalogs, Internet, e-mail, telephone, and direct-response
advertising. By targeting consumers individually, organizations hope to get consumers to take action.
Professional selling is an interactive, paid approach to marketing that involves a buyer and a seller. The
interaction between the two parties can occur in person, by telephone, or via another technology.
Whatever medium is used, developing a relationship with the buyer is usually something the seller
desires.
When you interview for internships or full-time positions and try to convince potential employers to hire
you, you are engaging in professional selling. The interview is very similar to a buyer-seller situation. Both
the buyer and seller have objectives they hope to achieve. Business-to-business marketers generally
utilize professional selling more often than most business-to-consumer marketers. If you have ever
attended a Pampered Chef party or purchased something from an Amway or Mary Kay representative,
you’ve been exposed to professional selling.
Public relations (PR) involves communication designed to help improve and promote an organization’s
image and products. PR is often perceived as more neutral and objective than other forms of promotion
because much of the information is tailored to sound as if it has been created by an organization
independent of the seller. Public relations materials include press releases, publicity, and news
conferences. While other techniques such as product placement and sponsorships, especially of events
and experiences, tend to generate a lot of PR, the growth of expenditures and importance of sponsorships
are so critical for so many companies that it is often considered a separate component in the
communication mix. Many companies have internal PR departments or hire PR firms to find and create
public relations opportunities for them. As such, PR is part of a company’s promotion budget and their
integrated marketing communications.
Sponsorships typically refer to financial support for events, venues, or experiences and provide the
opportunity to target specific groups. Sponsorships enhance a company’s image and usually generate
public relations. With an increasing amount of money being spent on sponsorships, they have become an
important component of the promotion mix.
Sales Promotion:
Definition:
Materials that act as a direct inducement, offering added value, or incentive for the product, to resellers,
sales persons or consumers. Designed for immediate (short term) increase in product sales.

Selecting Promotional Tools

A marketer must do the following while planning and sending communications to a target audience:
1. Identify the Audience: Individuals, groups, special publics or the general public. Intermediaries vs
Consumer
2. Identify the Stage of Product Life Cycle
o Introductory Inform Publicity/Advertising/Sales force (interm.)/Sales promotion (free
samples)
o Growth Persuade Differentiate from competitors offering
o Maturity Remind Reminder advertising, Sales promotion (coupons)
o Decline Cut budget
3. Product Characteristics
o Complexity How much information must be communicated? The more complex the
message, the greater the need to use personal selling.
o Risk Greater risk, greater need for personal selling
4. Stages of Buying Decision: In many cases the final response sought is purchase, but purchase is
the result of a long process of consumer decision making. Need to know where the target
audience now stands (in the process), and what state they need to be moved to.
Adoption Process
o Not Aware--Advertising/Publicity
o Aware--no knowledge Advertising/Publicity
 o Interest--how do they feel? Personal Selling/Sales Promotion/Advertising
o Evaluation--should they try? sales promotion/personal selling
o Trial--test drive/sales promotion
o Adoption--do they purchase? Reminder/reinforce--advertising
Communication programs goal must lead consumers to take the final step.
5. Channel Strategies -Push Vs Pull Policy
o Push-promotes product only to the next institutions down the marketing channel.
Stresses personal selling, can use sales promotions and advertising used in conjunction.
o Pull-promotes directly to consumers, intention is to create a strong consumer demand,
primarily advertising and sales promotion. Since consumers are persuaded to seek
products in retail stores, retailers will in turn go to wholesalers etc (use channels
overhead)
Nature of Sales Promotion
Encompasses all promotional activities and materials other than personal selling, advertising and
publicity. Grown dramatically in the last ten years due to short term focus on profits. Funds are usually
earmarked for advertising are transferred to sales promotion. Often used in conjunction with other
promotional efforts.
Scope and importance of sales promotion:
o companies are looking to get a competitive edge
o quick returns are possible for short term profits
o more consumers are looking for promotions before purchase
o channel members putting pressure on mf. for promotions
o advances in tech. make SP easier (ie coupon redemption)
Sales Promotion Opportunities and Limitations
o Increase in sales by providing extra incentive to purchase. May focus on resellers (push),
consumers (pull) or both.
o Objectives must be consistent with promotional objectives and overall company
objectives.
o Balance between short term sales increase and long term need for desired reputation
and brand image.
o Attract customer traffic and maintain brand/company loyalty.
o Reminder functions-calendars, T Shirts, match books etc.
o Impulse purchases increased by displays
o Contests generate excitement esp. with high payoffs.
Limitations
o Consumers may just wait for the incentives
o May diminish image of the firm, represent decline in the product quality.
o Reduces profit margins, customers may stock up during the promotion.
o Shift focus away from the product itself to secondary factors, therefore no product
differential advantage
TYPES OF CONSUMER SALES PROMOTION TOOLS
1. Samples
Samples are one of the most important tools of sales promotion. Samples are defined as offers to
consumers of a small amount of a product for trial. Free samples are given to consumers to generate their
interest in the product. Samples help consumers verify the quality of the product.
Samples are delivered at the doors of consumers. They are also sent by mail or given to customers in the
retail store itself. Sometimes, samples are attached to another product.
Though sampling is effective, producing numerous samples of a product is quite expensive. Moreover,
distributing samples to customers also involves expenditure.
Sampling is not justified in case of
 well established product
 a product that is not superior in some way to competing products
 a product with a slow turnover
 a product with a narrow margin of profit, or
 a highly fragile, perishable or bulky product.
2. Coupons
A coupon is a certificate that fetches buyers a saving when they purchase a specified product. Coupons are
generally issued along with the product. They entitle the holder to either a specified saving on a product
or a cash refund.
Coupons are designed
 to introduce a new product
 to promote the sale of an established product
 to sell a product in large sizes
 to stimulate customers to switch brands; and
 to encourage repeat sales.
Coupons are used for consumer convenience goods. They may be distributed door to door, by mail or
they may be inserted in packages. Sometimes, coupons may be part of magazine or newspaper
advertisements.
3. Demonstration
Demonstration is required when products are complex and of a technical nature. Customers are educated
as to how to make proper use of the product. Demonstration of products induces customers to buy.
Demonstrations are provided free of cost.
4. Contests
Contests are the promotion events that give consumers the chance to win something such as cash, trips or
goods. Contests are conducted to attract new customers. They introduce new product by asking the
prospects to state the reasons for the purchase of the product.
The buyer purchases the product and submits the evidence of purchase with entry form for contest. Entry
forms are duly filled by the buyers. A panel of judges selects the best and buyers are given prizes.
5. Cash refund offer
Cash refund offers are rebates allowed from the price of the product. It is an offer to refund part of the
purchase price of a product to consumers who send a proof of purchase to the manufacturer.
Moreover, if the purchaser is not satisfied with the product, the whole price or part of it will be refunded.
Cash refunded offer is stated on the package.
6. Premium
Premium refers to goods offered either free or at low cost as an incentive to buy a product. A premium
may be inside the package, outside it or received through mail. The reusable package itself serves as a
premium.
Premium is generally offered for consumer goods such as soap, toothpaste, etc. Premium may be of
several kinds — direct premium, reusable container free in mail premium, a self liquidating premium,
trading stamps, etc.
Direct premium can be inside the pack or outside it. A reusable container can be reused after the product
is reused. Free in mail premium means a premium item will be sent by mail to consumers who present
proof of purchase to the manufacturer.
A self liquidating premium is the extra quantity offered at the normal price. Trading stamps are given by
the seller to consumers. These are redeemable at the stamp redemption centres.
7. ‘Price off’ offer
Goods are sold at reduced prices during slump season. Reduction in prices stimulates sale of goods.
8. Consumer sweepstakes
A sweepstakes calls for consumers to submit their names for a draw. Names of consumers are included in
a list of prize winning contest. The lots are drawn and the winners get prizes.
9. Buy back allowances
Allowances are granted to buyers on the basis of their previous purchases. In other words, buy back
allowances are given for new purchases, based on the quantity of goods bought previously.