Channels of Distribution

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 Diversity of Indian Market

• Number of towns and cities: 3,700

• Number of Villages: 6,30,700
• Total length of road: 3,319,644 KM
• Length of concrete road: 1,517,077 KM
• Rail Network: 62,915 KM
• Retail outlet/population ratio: 5.5/1000
• No. of accessible villages: 5,00,000

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 Lesson Overview

• Nature and importance of middlemen and

distribution channels
• Decisions in designing a channel
• Major channels for goods and services
• Vertical marketing systems
• Choosing specific channels and middlemen
• Intensity of distribution
• Conflict and control within channels

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 Middlemen

Middlemen
Middlemen AA business
business firm firm that
that
renders
renders services
services directly
directly
related
related toto the
the sale/purchase
sale/purchase
of
of aa product
product asas itit flows
flows through
through
from
from producer
producer to to consumer
consumer

You
You can
can eliminate
eliminate middlemen,
middlemen, butbut not
not the
the
essential
essential distribution
distribution activities
activities they
they
perform
perform
Merchant middlemen; Agent middlemen; Chennaibazaar.com – an online supermarket 4
Middleman Activities

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 Distribution Channels

DISTRIBUTION
DISTRIBUTION CHANNELS
CHANNELS

People
People and
and firms
firms involved
involved
in
in the
the transfer
transfer of
of title
title to
to aa product
product
as
as the
the product
product moves
moves from from producer
producer to
to
ultimate
ultimate consumer
consumer or or business
business user
user

Final
Consumer
Producers Middlemen Or
Business
User
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 Sequence of Decisions to Design a
Distribution Channel

Direct and indirect distribution 7

Major Channels of Distribution
(Consumer Goods)
Producers of consumer goods

Agents Agents

Merchant Merchant
wholesalers wholesalers

Retailers Retailers Retailers Retailers

Ultimate consumers
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Major Channels of Distribution
(Business Goods)
Producers of business goods

Agents Agents

Industrial
distributors

Merchant Merchant
Wholesalers Wholesalers
(industrial (industrial
Reseller
distributors) distributors)

Business users
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 Major Channels of Distribution
(Services)
Producers of services

Agents

Ultimate consumers or Business users

Multiple distribution channels; Dual distribution 10
 Vertical Marketing Systems
Types of Vertical Marketing Systems
Types of System Controlled by Examples

Corporate Ownership BPCL, Bata/Woodlands,

Raymond
Contractual
- Wholesaler-sponsored Contract Many in Vegetables &
voluntary chain Food Markets
- Retailer owned Stock Ownership Amul (Farmer’s Cooper-
cooperatives by retailers ative), Apna Bazaar
- Franchise Organizations Contract Coca-Cola, Pepci,
NIIT, APTEC
Administered VMS Economic Power HUL, P&G, TELCO
Maruti , etc

Operating efficiency and Marketing effectiveness 11

 Vertical Marketing Systems..Contd
Types of Channels
Vertical Marketing Systems
Characteristics Traditional Administered Contractual Corporate

Amount of Little or Same to Fairly good Complete

Co-operation none good to good

Control None Economic Size Contracts Ownership by

maintained by and Power one company

Example Typical HUL, P&G, Coca-Cola, BPCL, Bata,

Channels of TELCO NIIT, APTEC Raymond
‘Independents’ Maruti etc Parle -80- GS
Mazza, Citra,
Limca, etc
How does Big Bazar & More maintain control by? 12
Choice of Channels: Market

Type Number of
of potential
Market customers

Geographic Order
concentration size

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Choice of Channels: Product

Perishability
Unit
Value

Technical
Nature

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Choice of Channels: Middleman

Services
Services provided
provided by
by
middlemen
middlemen

Availability
Availability of
of desired
desired
middlemen
middlemen

Producer’s
Producer’s and
and
middlemen’s
middlemen’s policies
policies
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Choice of Channels: Company

Desire
for channel control

Services provided
by seller

Ability
of management

Financial resources
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Intensity of Distribution Continuum

Distribution Distribution Distribution

through through through a single
every multiple but not, wholesaling
distribution all reasonable middleman
outlet in outlet in and/or retailer
the market the market in the market

Intensive Selective Exclusive

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 Conflict in Channels

Horizontal
Horizontal conflict
conflict

Different
Different types
types
Middlemen
Middlemen of
of middlemen
middlemen
of
of the
the same
same type
type on
on the
the same
same level
level

Retailer Retailer Retailer Retailer

Scrambled merchandising – Supermarket, Drug store, Banks 18

Conflict in Channels ..Contd

Vertical
Vertical conflict
conflict
Producer
vs.
Wholesaler

Producer
vs.
Retailers

Multichannel
Multichannel level
level conflict
conflict
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 Who Controls the Channels?

Expertise

Rewards

Sanctions

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Channel as Partnership

Cooperation Collaboration

Relationship
Coordination
Marketing

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 Key Terms and Concepts
 Middlemen
 Merchant middlemen
 Agent middlemen
 Disintermediation
 Distribution channel
 Gray marketing
 Direct distribution
 Indirect distribution
 Multiple distribution channels
 Vertical marketing system
 Corporate vertical marketing
system
 Contractual vertical marketing
system
 Administered vertical marketing
system
 Intensity of distribution
 Intensive distribution
 Selective distribution
 Exclusive distribution
 Channel conflict
 Chargeback
 Horizontal conflict
 Scrambled merchandising
 Vertical conflict
 Slotting fee
 Channel control
 Channel power
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