DISTRIBUTION CHANNEL

DISTRIBUTION CHANNEL

Distribution Channel is concerned with getting the right products to the right customers
at the right price, at the right place, at the right time and in the right condition.

It is a set of people and firms that facilitates the flow of product from manufacturer to
end user.

A major cost center

(Transportation, Storage, Bank & Insurance, Trade margins)

The key to competitive advantage

(Reach, Market share, Develop market for product category, Growth & Profits)

The only P that can’t be mimicked

(Trust, Relationship, Commitment, Investment, Critical mass for ROI, Protracted process)

“Logistics management is a major cost factor of a product; it can be a

means to achieve a competitive advantage by lowering the cost to
accomplish cost leadership strategy or by providing superior services
to customers to attain a differential advantage.”
Marketing Flows in the Marketing Channel
 DISTRIBUTION CHANNEL

Managing the Determining the

Channels
6. 1. Types of Channel

Designing Determining the

Defining Functions of
5. Distribution
2. Types of Distribution
Intermediaries
Channels

Evaluating Channel Factors influencing

Alternatives 4. 3. Distribution Channel
 DISTRIBUTION CHANNEL

1. Determining the types of Channel

Indirect / Intermediaries
Direct Hybrid
Manufacturer Manufacturer Manufacturer Manufacturer Manufacturer

End User End User End User End User End User
 DISTRIBUTION CHANNEL

1. Determining the types of Channel

Indirect / Intermediaries
Direct Hybrid
Manufacturer Manufacturer Manufacturer Manufacturer Manufacturer

Distributor
Dealer

Dealer Dealer
Dealer

Retailer
Retailer

End User End User End User End User End User
 Marketing Channels
 Industrial marketing channels

Manufacturer Industrial
Consumer
ABB

Manufacturer Industrial Industrial

distributor Consumer
Bombay Dyeing

Industrial Industrial
Manufacturer Manufacturer’s
distributor Consumer
sales branch
Car spares
 DISTRIBUTION CHANNEL

1. Determining the types of Channel

Types of intermediaries

Merchants : wholesalers, retailers

Agents : Brokers, manufacturer’s representatives

Facilitators : transportation companies, independent warehouses, banks,

insurance companies
 DISTRIBUTION CHANNEL

1. Determining the types of Channel

DIRECT INTERMEDIARIES HYBRID

When High value Large no. of customers Combination of

High volume Large area D&I
Prompt/High service Market penetration Using; Web,
High risk Stores, Catalogue
Few customers
Limited area
Example Dell, L&T, Tanishq, Bottled drinks, FMCG, Readers Digest
UCB, M&S, Airlines, White goods, Perishable Book publishers
Hotels, Branded Jewellery, goods, Automobiles, Medical devices
Bank Loans, Real Estates, Amway, Tupperware, Air tickets, Travel
Designer cloths Electronic goods & Holidays
 DISTRIBUTION CHANNEL

2. Determining the types of Distribution

INTENSIVE SELECTIVE EXCLUSIVE

Vast area coverage Limited area coverage Specific geographic area

Increased sales volume Brand image Enhance brand image/prestige
Wide consumer awareness Customer service Better control on intermediary
Considerable purchases Quality improvement Better services
Low unit cost Price influence Better one-to-one selling
Established products New products/Firm Higher margins
Many intermediaries Few intermediaries Best customer connect
More cost Lesser cost
Low price High price
Low margins Better margins
Small lots Better customer connect
Less customer connect
Shampoos Household appliances TBZ, Designer wear, BMW,
Bread Consumer electronics Rolex, Luxury yachts
Colas Medical electronics
Biscuits
 DISTRIBUTION CHANNEL

3. Factors influencing Distribution Channel

CHANNEL TYPE Examples

Market size Big: Indirect, Many intermediary, longer,
wider, Intensive
Order size Big: Direct, Shorter, Exclusive
Service level High: Direct/One intermediary, Shorter,
Exclusive/Selective
Product High value: Direct, Exclusive, Shorter
feature High risk: Direct, Exclusive, Shorter
High volume: Direct/Shorter Exclusive
New product: Direct/Indirect, One
intermediary, Selective
Company Established/Mass: Indirect , Many
feature intermediary, longer, wider, Intensive
New Mass/Niche: Indirect/Direct, One
intermediary, Selective
Competition Multi-brand v/s Single brand outlets:
profile Accommodative / Exclusive
Comparative to category offering
FMCG, Packaged water, Pharma, Any
big brand
Industrial product, Tender quotation,
B2B, Capital equipments
Auto mobiles, Banks, Insurance
Capital equipments, Airplanes, Ships
Diamond, Housing, Insurance
Cement, Steel, Pepsi
Foggs, Engage, Urza
HUL, P&G, Marico
Vini, Genzyme,
Pepsi, Coke, Rolex, Audi
HUL & ITC
 DISTRIBUTION CHANNEL

4. Evaluating Channel Alternatives

1. Based on Product Life Cycle (PLC)

Introduction & Early growth: (SELECTIVE)

Innovators & Early Adopters; Price & Place is not a constraint

Peak growth & Early maturity: (INTENSIVE)

Early majority looks for convenience

Later maturity & Decline: (Selective)

Late majority looks for convenience and price & Laggards at the end
 DISTRIBUTION CHANNEL

4. Evaluating Channel Alternatives

2. Vertical Marketing System (VMS): Achieves scale through size, bargaining power and
elimination of duplication of services. Unification of the
system leading to better cooperation or control.

a) Corporate VMS: Successive stages from production to distribution is owned by the

corporate or through single ownership eg. Bata, Raymonds

b) Administered VMS: seeks to control successive stages from production to distribution

not through ownership but through sheer size and power of one of the channel members.
eg. HUL, P&G, TATA, FSL, Maruti (Category leaders or Leader brands)

c) Contractual VMS: Independent firms at different levels of production and distribution

coming together on a contractual basis to achieve scale.
eg. Cocoa Cola, Pepsi, Reliance Fresh, Apna Bazar, NIIT, Parle (Franchise Network)
 DISTRIBUTION CHANNEL

4. Evaluating Channel Alternatives

3. Horizontal Marketing System (HMS): cooperation between two or more parties to come
together to encash available market opportunities. Also, known as symbiotic marketing.
eg. American Airlines & American Express, Citibank and Indian Oil, IBM-Siemens

4. Multi-channel Marketing System (MMS): when single channel fails to achieve

desired results, multi-channels are employed to deliver reach, speed and
cost-effectiveness. Project Shakti, Retail + Internet + Mail Orders, Sales force + Agents
 DISTRIBUTION CHANNEL

5. Defining functions of Intermediaries

1. Transactional Functions

Act as buying agents

Capability for Marketing & Selling
Conducting sales promotion
Managing strong sales force
Territory coverage

2. Physical Functions

Inventory holding
Storing
Repacking
Transporting
Delivery
 DISTRIBUTION CHANNEL

5. Defining functions of Intermediaries

3. Facilitating Functions

Risk taking
Credit term
Discounting
Financing
Stock return
Payment terms
Market intelligence
 DISTRIBUTION CHANNEL

6. Managing the Channel

Channel appointment
Channel policy
Channel performance appraisal
Channel motivation
Channel conflicts (Horizontal, Vertical & Multichannel)

Brick & Mortar V/s Click V/s Brick & Click

 DISTRIBUTION CHANNEL

In summary, ask the following four questions while selecting an appropriate

Channel;

1. Does the channel fit the target customers (will the customer buy there?)

2. Does the channel fit the brand positioning?

3. Is the channel a good fit for the organization?

4. Will the channel achieve cost efficiency?

 SUPPLY CHAIN MANAGEMENT
S-M Interface M-D Interface D-R Interface R-C Interface

Manufacturer Retailer

Supplier Distributor Customer

Relationship Management

Forecasting & Demand Management

Supplier Management

Inventory Management

Manufacturing Management
Order Fulfillment

Warehouse & Distribution Management

Logistics Management
Out Sourcing

Information Management: IT & DSS