Module 5

Channels of Distribution and Promotion

What is a channel of distribution?
A channel of distribution is an organized network or a system of
agencies and institutions which, in combination , perform all the
activities required to link producers with the users and users with
producers to accomplish the marketing task.
Definition:
“ the structure of intra-company organization units and extra-company
agents and dealers, wholesalers and retailers, through which a
commodity, product or service is marketed.”
American Marketing Association.
 .
A distribution channel, in simple terms, is the flow that a good or service follows from
production or manufacturing to the final consumer/buyer. Distribution channels vary
but typically include a producer, a wholesaler, a retailer, and the end buyer/consumer.

Channels of Distribution or Distribution Channel can be defined as the path taken by the
good or service when they move from manufacturer to the end consumers. The
movement of the goods implies the physical distribution of the goods or the transfer of
ownership.
Marketing channel
Marketing channel is a set of practices or activities necessary to
transfer the ownership of goods, and to move goods, from the
point of production to the point of consumption and, as such, which
consists of all the institutions and all the marketing activities in the
marketing process.

According to Stanton , “ A distribution channel consists of the set of

people and firms involved in the transfer of title to a product as the
product moves from producer to ultimate consumer or business user .”
Types of channels
I. Conventional Marketing
Channels
i) Producer (manufacturer) –
consumer / Zero level channel /
Direct channel.
ii) Producer – Retailer – Consumer
channel / One Level Channel
iii) Manufacturer – Wholesaler –
Retailer – Consumer channel /
Two Level Channel
iv) Producer – Agent / Middlemen –
Wholesaler – Retailer – Consumer
Channel / Three Level Channel
II. Vertical Integrated Marketing
Channels or Modern Channels of
Distribution
i) Corporate system – owns
production and distribution facilities
ii) Contractual system - works
through franchises or retail co-
operatives, voluntary chains.
iii) Administrative system -
manufacturer controls the
marketing of a particular line of
merchandise rather than complete
store operation.
 FACTORS AFFECTING THE CHOICE OF
CHANNELS OFDISTRIBUTION

1. Considerations Related to Product

2. Considerations Related to Market
3. Considerations Related to
Manufacturer/Company
4. Considerations Related to Government
5. Other factors
 FACTORS AFFECTING THE CHOICE OF
CHANNELS OFDISTRIBUTION

(A) Considerations Related to Product

1. Unit Value of the Product:
When the product is very costly it is best to use small distribution channel. For example, Industrial Machinery or Gold
Ornaments are very costly products that is why for their distribution, shorter distribution channel is used. On the other hand,
for less costly products long distribution channel is used.
2. Standardized or Customized Product:
Standardized products are those which are pre-determined and there is no scope for alteration. For example: utensils of
MILTON. To sell this long distribution channel is used.
On the other hand, customized products are those which are made according to the discretion of the consumer and also there is
a scope for alteration, for example; furniture. For such products face-to-face interaction between the manufacturer and the
consumer is essential. So for these Direct Sales is a good option.
3. Perishability:
A manufacturer should choose minimum or no middlemen as channel of distribution for such an item or product which is of
highly perishable nature. On the contrary, a long distribution channel can be selected for durable goods.
4. Technical Nature:
If a product is of a technical nature, then it is better to supply it directly to the consumer. This will help the user to know the
necessary technicalities of the product.
 FACTORS AFFECTING THE CHOICE OF
CHANNELS OFDISTRIBUTION

(B) Considerations Related to Market

1. Number of Buyers:
If the number of buyer is large then it is better to take the services of middlemen for the distribution of the goods. On
the contrary, the distribution should be done by the manufacturer directly if the number of buyers is less.
2. Types of Buyers:
Buyers can be of two types: General Buyers and Industrial Buyers. If the buyers of the product belong to general
category then there can be more middlemen. But in case of industrial buyers there can be less middlemen.
3. Buying Habits:
A manufacturer should take the services of middlemen if his financial position does not permit him to sell goods on credit
to those consumers who are in the habit of purchasing goods on credit.
4. Buying Quantity:
It is useful for the manufacturer to rely on the services of middlemen if the goods are bought in smaller quantity.
5. Size of Market:
If the market area of the product is scattered fairly, then the producer must take the help of middlemen.
 FACTORS AFFECTING THE CHOICE OF
CHANNELS OFDISTRIBUTION

(C) Considerations Related to Manufacturer/Company

1. Goodwill:
Manufacturer’s goodwill also affects the selection of channel of distribution. A manufacturer enjoying good reputation
need not depend on the middlemen as he can open his own branches easily.
2. Desire to control the channel of Distribution:
A manufacturer’s ambition to control the channel of distribution affects its selection. Consumers should be approached
directly by such type of manufacturer. For example, electronic goods sector with a motive to control the service levels
provided to the customers at the point of sale are resorting to company owned retail counters.
3. Financial Strength:
A company which has a strong financial base can evolve its own channels. On the other hand, financially weak
companies would have to depend upon middlemen.
 FACTORS AFFECTING THE CHOICE OF
CHANNELS OFDISTRIBUTION

(A) Considerations Related to Government

Considerations related to the government also affect the selection of channel of
distribution. For example, only a license holder can sell medicines in the market
according to the law.
In this situation, the manufacturer of medicines should take care that the distribution of
his product takes place only through such middlemen who have the relevant license.
 FACTORS AFFECTING THE CHOICE OF
CHANNELS OFDISTRIBUTION

(E) Other factors

1. Cost:
A manufacturer should select such a channel of distribution which is less costly.
2. Availability:
Sometimes some other channel of distribution can be selected if the desired one is not available.
3. Possibilities of Sales:
Such a channel which has a possibility of large sale should be given preference.
Marketing channel
A marketing channel is a set of interdependent organizations involved in the
process of making a product or service available for use or consumption.
Primary functions of channel members:
To be a stockiest of your product
To represent your brand in the market place
To gather market intelligence
To assume risk
To deliver product and offer post-sales support
To add value to the sale
Channel Strategy
The importance of channel strategy is likely to depend upon the
existence of one or more of following conditions:

1. Designing the channel structure

2. Identify the major channel alternatives

3. Training
1. Designing the channel structure:
Designing a channel structure calls for analyzing customer needs,
establishing channel objectives, and identifying and evaluating the
major channel alternatives.
a) Analyzing the service output levels desired by customers – Lot size,
product variety, service backup, waiting time, convenience.
b) Determine the channel objectives and constraints - to minimize total
channel costs with respect to desired levels of service outputs. The
company’s channel objectives are influenced by the nature of its
product, Company characteristics, Characteristics of intermediaries,
Competitor’s channel, Environmental factors.
2. Identify the major channel alternatives:
After channel objectives have been determined, the company should
identify its major channel alternatives in terms of :
A. Types of intermediaries – agent, wholesaler, distributors, retailers.
B. The number of intermediaries needed – exclusive distribution, selective
distribution.
C. The terms and responsibilities of each channel members – price policy,
conditions of sale, distributor’s territorial rights, mutual services and
responsibilities.
D. Evaluate the major channel alternatives - Each channel alternative needs to
be evaluated.
3. Training
Training is a process of providing the intermediaries with specific skills for
performing their task better and helping them to correct deficiencies in their sales
performance.
Training program creates a win-win situation for both individual and the
organization.

Phases of developing and conducting training

Successful program consist of four phases :
Training assessment
Program design
Reinforcement
Evaluation
Promotion
Promotion is one of the market mix elements, and a term used
frequently in marketing.
Promoters use internet advertisement, special events, and
newspapers to advertise their product.
Elements of Promotion:

Advertising Personal Sales

Selling Promotion

Public Direct
relations Marketing
Selecting / deciding on the media(A. Consumer
Sales Promotions)
Free Samples Coupons Exchange scheme

Discounts Premium offers Personality

promotions

Installment sales Contests and Point of purchase

sweepstakes displays

Trade shows Demonstrations &

Personal appearances
Selecting / deciding on the media(B. Trade
oriented sales Promotions)

Cash bonuses Stock return Credit terms

Dealer trophies Push incentives Retail

demonstrations
Functions of Advertising
Communicates information
Creates ground for personal selling
Educates people
Creates and extends demand
Creates image for the product or service
Builds goodwill
Types of advertising media
Indoor Advertising Outdoor Advertising Direct Advertising Media
Media Media Delivered directly to the
Newspapers Posters prospective customers
Magazines Printed displays Handed to persons on the
Radio Electric signs sidewalk
Television Sky writing
Sandwich men

Display Advertising
Media
2 types – Window &
Counter
Attracts the consumers to
the shop
Impulsive buying
Examples

SKY WRITING

SANDWICH MEN
Factors affecting media selection
Nature of product Nature of customers Distribution of product

Advertising objectives Nature of message Size of ad-budget

Media used by Media - availability Media reach and coverage

competitors

Media cost Media frequency

Advertising layout
A visual layout of an advertisement has the following elements:
1. Headlines
2. Illustrations and colours
3. Text
4. Advertiser or sponsor
Advertising copy
The term ‘copy’ covers all items appearing in an advertisement, the
written words, pictures, design, label and logo.
An Ad copy is essentially designed to instigate the reader to take
action.
Well-designed advertising copy uses four basic steps in selling:(AIDA)
1)attracting attention
2) developing interest
3) arousing desire
4) finally, generating action
Elements of a good advertising copy
1. A clear objective
2. A compelling message
3. A compelling offer
4. Evidence of tangible benefits
5. A clearly understood tone
6. A means of responding
7. A call to action