Designing Channels of

Distribution
II
 Stages
• Identify homogenous customer segments
• Identifying and prioritizing the customers’ channel
functions requirements.
• Benchmarking existing channels and competitors
• Creatively interpreting the output to arrive at feasible
options
• Evaluating the benefits and costs associated with each
option
• Elaborating the channel overlaps for multi-product,
multi-market businesses.
Where online scores
Direct online distribution
Direct Shipping
Distribution

Intermediate distribution through subsidiaries

Intermediate distribution through agents
 Selection of Proper Channels
Channels of distribution means the paths followed to make the goods easily available to
the consumer. Distribution channel is a continuous chain starting from supplier to the
consumer i.e. end users. It can involve various steps in between like distributor,
wholesaler, stockiest, dealer, retailer, etc. The number of steps involved in any
distribution network varies depending on various other factors. Factors to be
considered for the selection of proper channel of distribution are as follows:
•  Quantity of goods that will be normally purchased by the consumer at a time: If
the quantity of goods required at a time is small then it must be available at more
outlets so that it is easily available whenever required. These are the items that lie
under the category of daily consumables.
•  Number of people that may be requiring the similar product at a time: if a large
group of customer may require the similar product at a time, then it must be
available at more than one outlets.
•  Type of commodity: If the commodity is fashionable like clothes, shoes, etc then
the customer is not going to stock it. And it will be required by the customer at very
short intervals with the changing fashions.
 Selection of Proper Channels
• Urgency of the product to the customer at a particular time: if the
product is always urgently required like medicines then it must be readily
available and that too at number of locations.
• Cost added due to intermediaries will be acceptable to the customers: if
the cost added due to intermediaries is small as compared to that
incurred in travelling to a distant place, then it hardly matters to the
customers.
• Whether the customer can stock the commodity: It depends on how
frequently the need for that commodity is going to arise for the customer.
• Price of the good: if the price of the good is high, the customer will try to
purchase the commodity whenever required rather than blocking the
funds available.
• Life of the product: if the life of the product is small then it must be
available at more no. of outlets because in that case nobody is going to
stock that material. They are going to purchase it whenever they require it
and only in that quantity.
 Managing Retailer/Supplier Relations

If retailers want to
improve their
performance in these
channels, they must
understand the
interorganizational
management.
• DEPENDENCY
• POWER
• CONFLICT
 Power - One channel member’s ability to
influence the decisions of the other channel
members

• Reward power
• Expertise power
• Referent power
• Coercive power
• Legitimate power
• Informational power
 Conflict
• Perceptual incongruity- different
perceptions of reality
• Goal incompatibility – achieving goals
hampers other members of channel
– Dual Distribution –
• Domain disagreements
– Diverter
– Gray marketing
Keys to developing a channel partnership

• Must be based on mutual trust, admiration

and respect
• Development of an interdependency in
establishing and maintaining the same high
standards to achieve common goals
• Open honest communication
• Total focus on quality and outstanding
customer service
• Performance coupled with innovative
visionary leadership
 Eight marketing functions must be
performed:
• Buying
• Selling
• Storing
• Transporting
• Sorting – Sorting, Accumulation,
Allocation, Assortment
• Financing
• Information gathering
• Risk taking
Exhibit 5.1

Marketing System
Facilitating Facilitating Facilitating
Institutions Institutions Institutions

Manufacturers Wholesalers Retailers Consumers

Eight Marketing Eight Marketing Eight Marketing

Functions Functions Functions

Consumer EXTERNAL FORCES Competitor

Behavior Behavior
Socioeconomic Technological Legal
Environment Environment Environment
Retailing, 3rd Edition, Dunne and Lusch Copyright © 1999 by Harcourt Brace & Company
All rights reserved.