Distribution Channel Management

Refer to the process of overseeing the movement of

goods from supplier or manufacturer to point of sale.
Components of Distribution Channel

Manufacturer: Refer to an entity that produce the goods or services.

Their main function is to create and develop the product,

ensuring its quality, features and packaging.

Wholesaler: Refer to an intermediary that purchase goods in large

quantities from manufacturers and sell them in smaller quantities to
retailers.

Their main functions include bulk purchasing, inventory

management, warehousing and transportation.
Components of Distribution Channel

Retailer: Refer to the final link in the distribution channel, selling

products directly to the end consumers.

Their functions include buying products from wholesalers or

directly from manufacturers, displaying and merchandising products in
stores or online platforms.

Agent or Broker: Refer to the intermediary between buyers and

sellers without taking ownership of the products. They help in
facilitating the buying and selling process by connecting manufacturer
or wholesaler with retailers.

Their functions may include market research, negotiations,

order facilitation, and building relationships between parties.
Components of Distribution Channel

Transportation and Logistics: They are responsible for physically

moving products from manufacturer to wholesalers, retailers or
customers.

Their functions include selecting the appropriate transportation

modes, managing inventory, coordinating shipments, and ensuring
timely and efficient delivery.
Some Example of Distribution Channel

Fast-Moving Consumer Goods (FMCG) Industry:

Manufacturer Wholesaler Retailer Consumer

Procter & Gamble (P&G) distributes its products like detergents,

personal care items, and cleaning products through wholesaler to
retailers and to consumers.
Some Example of Distribution Channel

Food and Beverages Industry:

Manufacturer Distributor Retailer Consumer

Coca-Cola manufacturers its beverages and distributes them to

distributors, who then supply the products to wholesalers and retailes,
ultimately reaching the consumers.
Types of Distribution Channel

1. Direct Distribution Channel

In a direct distribution channel, the manufacturer sells its

products directly to the end consumers without involving
intermediaries. This type of channel provides a direct connection
between the manufacturer and the customer.

Example:

Online retailers like Amazon, manufacturer-owned stores,

and direct sales through company websites.
Types of Distribution Channel

2. Indirect Distribution Channel

An indirect distribution channel involves the use of

intermediaries between the manufacturer and the end consumers.
Intermediaries may include wholesalers, retailers, agents, or
brokers.

Example:

Manufacturer → Wholesaler → Retailer → Consumer

Manufacturer → Agent/Broker → Retailer → Consumer
Types of Distribution Channel

3. Hybrid Distribution Channel

A hybrid distribution channel combines elements of both

direct and indirect channels. It allows companies to reach
customers through multiple channels simultaneously.

Example:

Manufacturer-owned stores along with online sales, a

combination of direct sales and sales through authorized
dealerships.
Factors Affecting Choice of Distribution Channels

1. Product Characteristics: The nature of the product plays a

crucial role in determining the appropriate distribution channel.
Considerations include the product's size, perishability, fragility,
and complexity.

2. Target Market: Understanding the target market is essential in

selecting the right distribution channels. Factors such as
geographic location, demographics, preferences, and buying
behavior of the target market influence the choice of channels.
Factors Affecting Choice of Distribution Channels

3. Competition: Analyzing the competitive landscape is important to

identify gaps and opportunities in the distribution channels. Assessing
how competitors reach their target market and the effectiveness of
their distribution strategies can help a company differentiate itself or
identify areas for improvement.

4. Company Resources: The available resources of the company,

including financial, operational, and human resources, play a
significant role in channel selection. Companies need to evaluate if
they have the capabilities to manage their own distribution channels
or if they need to rely on intermediaries for logistics, warehousing, or
sales.
Factors Affecting Choice of Distribution Channels

5. Channel Partner: Considerations of the strengths, capabilities,

and reputation of potential channel partners, such as wholesalers,
retailers, or online platforms, influence the choice of distribution
channels.

6. Cost and Efficiency: Assessing the cost implications and efficiency

of different distribution channels is essential. Companies need to
evaluate the cost-to-serve, transportation, storage, and order
fulfillment requirements of each channel option.