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CHANNELS OF DISTRIBUTION

Background
Distribution is a key external resource

Logistics, Distribution and Channels Management are the less visible side of marketing The less promoted side when compared to something like advertising but it is as important, if not more India has millions of outlets Poor roads Distributing in Rural India is very, very hard Still, has to be developed... HLL is excellent at this SBI is very strong here

Plus

the increase in malls and large stores is a very big change in the making Imagine you are Nike You produce your shoes in Indonesia/china You have to make your product available in Russia, India, Latin America, Europe, USA - in short, the whole world It is thus mindblowingly complex More so in India.

Distribution - introduction
Distribution (or "Place") is the fourth traditional element of the marketing mix. The other three are : Product, Price & Promotion.

Marketing Channels
The Network of partners in the value chain that cooperate to bring products from producers to ultimate consumers Imagine Nike again All those who help in bringing shoes to the consumer from the factories in Indonesia are the channel members (except transporters) These include wholesalers, retailers, agents, brokers etc They are called intermediaries, middlemen, dealers, resellers or distributors However, the prevailing view is that channel members are more than just middlemen They are marketers first customers and partners; they add value to the marketers offer .

Let us take an example


A farmer in Srinagar has an apple orchard. Once the apples are ripened he sells the apples to an agent of Delhi. The agent collects the apples from Srinagar, packs them, and sells them to a wholesaler at new Delhi sabzimandi. The wholesaler then distributes them to various retail fruit vendors throughout Delhi by selling smaller quantities. Finally, we purchase apples from those vendors as per our requirement. Thus, we find that while coming from the producer at Srinagar, the product reaches the consumers by passing through several hands like an agent, a wholesaler and a retailer. All these three are called middlemen.

These middlemen are connecting links between producers of goods, on one side and consumers, on the other. They perform several functions such as buying, selling, storage, etc. These middlemen constitute the channels of distribution of goods. Thus, a channel of distribution is the route or path Along which goods move from producers to ultimate consumers.

The route taken by goods as they move from


producer to consumer is known as Channel of Distribution.

Agent Retailer

Producer

Consumer

Wholesaler

The Distribution Functions

Designing the Channel


Channel design is a strategic marketing tool. Four decisions can help a firm design a distribution channel: What role distribution is to play in achieving objectives What type of channel is needed? With or without intermediaries? What level of intensity of distribution? Which specific intermediaries to use? Which will be best suited to achieve objectives?

Selecting the Type of Channel


Some firms will distribute directly; others will use a number of intermediaries: Producer consumer (direct) Producer retailer consumer Producer wholesaler retailer consumer Producer agent retailer consumer Producer agent wholesale retailer consumer When would each of these be considered?

Major Distribution Channels


For distribution of consumer goods, five different types of channels are widely used. Business goods are normally distributed through four major types of channels. There are only two common channels of distribution for services. Some producers are not content to use only a single distribution channel and use multiple channels (a.k.a dual distribution distribution) Multiple channels can aggravate middlemen and cause conflicts in the channels.

Consumer Channels
Producers of consumer goods

Agents
Merchant whole salers

Agents
Merchant whole salers

Retailers

Retailers

Retailers

Retailers

Ultimate consumers

Business Channels
Producers of consumer goods

Agents

Agents

Merchant whole salers

Merchant whole salers

Business users

Service Channels
Producers of services
Agents

Ultimate consumers or Business users

Considerations in Channel Choice


Market Considerations: Type of market, concentration, potential customers, order size. Product Considerations: Consider unit value, perishability, technical nature of product. Intermediaries Considerations: Services offered, availability, attitude, dominance. Company Considerations: Desire for channel control, management, money and services seller can provide to support sales.

Types of intermediaries and number


A company should evaluate the various types of intermediaries available to carry out its channel work, and decide on the best. Companies have to decide on the number of middlemen to use at each level. Three strategies are available to them. They are: Intensive distribution: stocking the products in many outlets as possible. Producers of convenience products use this strategy . Ex: Toothpaste, Soaps, Cigarettes, Coke, Pepsi

Exclusive distribution: only limited number of dealers granted exclusive rights distribution in a territory. Ex: Hyundai ,Maruti cars. Selective distribution: appointing more than one , but less than all the dealers willing to carry a product . Consumer durables like TV, fridge , washing machines and grinders are distributed thus. Adequate market coverage with more control and less cost is possible in such a system.

Conflict and Control in Channels


Channel conflict exists when channel members interfere with each others objectives. Horizontal conflict involves firms on same level-- grocery store vs. drug store. Producer/Retailer Conflict Vertical conflict involves firms at different levels producer versus wholesaler producer versus retailer Channel Power is the ability to influence or determine behaviour of others in channel. Based on expertise, rewards and sanctions.

Producer/Retailer Conflict
Small suppliers complaints about large department stores:
Pressure to cut prices. Demands to give the stores exclusivity. Forcing suppliers to contribute advertising and promotional dollars to the stores. Requiring suppliers to invest in elaborate computerized inventory systems.

The Changing Face of Distribution


Internet (click and mortar vs. brick and mortar) a major factor-- where is it heading? Direct Response TV sales are growing in popularity, especially for time-starved shoppers The worlds largest bookstore is on the Internet! (Amazon.com)

Legal Considerations
Dealer Selection: Refusing to sell to some firms. Selection: Can be done carefully. Exclusive Dealing involves shutting out competitors, giving most business to one firm. Tying Contracts involves providing one item on condition other lines be carried as well. Exclusive Territories can create monopolies.

References
http://www.nos.org/srsec319/319-23 http://nptel.iitm.ac.in http://www.jpec.org/handouts/jpec122. http://www.public.iastate.edu/~sjwong/mkt_ distribution Marketing management Dr. K. Karunakaran