The distribution channel

It is defined as a chain of intermediaries, each passing the product down the chain to the
next organization, before it finally reaches the consumer or end-user. This process is
known as the 'distribution chain' or the 'channel.' Each of the elements in these chains will
have their own specific needs, which the producer must take into account, along with those
of the all-important end-user.
A number of alternate 'channels' of distribution may be available:
 Distributor, who sells to retailers,
 Retailer (also called dealer or reseller), who sells to end customers
 Advertisement typically used for consumption goods
Distribution channels may not be restricted to physical products alone. They may be just as
important for moving a service from producer to consumer in certain sectors, since both
direct and indirect channels may be used. Hotels, for example, may sell their services
(typically rooms) directly or through travel agents, tour operators, airlines, tourist boards,
centralized reservation systems, etc.

If we mention in a single sentence the distribution channel is nothing but it is a process of

transfer the products or services from Producer to Customer or end user.
Channel decisions:

 Channel strategy
 Gravity & Gravity
 Push and Pull strategy
 Product (or service)
 Cost
 Consumer location

Managerial concerns

The channel decision is very important. In theory at least, there is a form of trade-off: the
cost of using intermediaries to achieve wider distribution is supposedly lower. Indeed, most
consumer goods manufacturers could never justify the cost of selling direct to their
consumers, except by mail order. Many suppliers seem to assume that once their product
has been sold into the channel, into the beginning of the distribution chain, their job is
finished. Yet that distribution chain is merely assuming a part of the supplier's
responsibility; and, if they have any aspirations to be market-oriented, their job should
really be extended to managing all the processes involved in that chain, until the product or
service arrives with the end-user. This may involve a number of decisions on the part of the
supplier:

 Channel membership
 Channel motivation
 Monitoring and managing channels.


Type of marketing channel

1. Intensive distribution - Where the majority of resellers stock the 'product' (with
convenience products, for example, and particularly the brand leaders in
consumer goods markets) price competition may be evident.
2. Selective distribution - This is the normal pattern (in both consumer and industrial
markets) where 'suitable' resellers stock the product.
3. Exclusive distribution - Only specially selected resellers or authorized
dealers (typically only one per geographical area) are allowed to sell the 'product'.

Channel Value Proposition is the business case made by a supplier to attract members of

its distribution (business) channel. This is made up of many elements depending upon the
sophistication of the supplier and channel members and the intensity of competition for
share of the channel. the most important elements are:

1) Growth - emphasizing the level of demand for the supplier's products or services and the
investment it will make in stimulating demand.

2) Profitability - showing the margins, contributions, utilisation of overheads and net

profitability that selling the supplier's products or services will deliver to the channel
member. This can be augmented by special funding and other payments made by the
supplier for activities carried out by the channel member (putting items on display or
emphasizing them in marketing materials, etc.) or for performance (achieving volume
thresholds, reaching a specific segment of the market, etc.)

3) Return on capital - demonstrating the productivity of the channel member's investments

in inventory, working capital or fixed assets will be improved by engaging with the
supplier. For example, a fast turning product will accelerate the channel member's
inventory turns, increasing the productivity of its warehouse, shelf space or website.

4) Brand - showing how the association with the supplier will empower the channel
member's own brand, or allow it to "borrow" or leverage the supplier's brand. For
example, often seen when small dealers and retailers post "authorized reseller" or similar
badges on their letterhead and premises to demonstrate credibility to the end customer.

Skilled suppliers research their channel members' needs to ensure that they tune their
channel value proposition to these needs to gain more traction in winning share of the
channel and to minimize the cost of so doing.

Objectives of channels

Firm, Brand, and Product Line Objectives

Firm level objectives:  It is not enough to simply state a firm’s goal as maximizing the
present value of total profit since this does not differentiate it from other firms and says
nothing about how this objective is to be achieved.  Instead, a business and marketing plan
should suggest how the firm can best put its unique resources to use to maximize
stockholder value.  A number of resources come into play—e.g.,

 Distinctive competencies—knowledge of how to manufacture, design, or market

certain products or services effectively;
 Financial—possession of cash or the ability to raise it;
 Ability and willingness to take risk;
 The image of the firm’s brand;
 People who can develop new products, services, or other offerings and run the
needed supports;
 Running facilities (no amount of money is going to get a new microchip
manufacturing plant started tomorrow); and
 Contacts with suppliers and distributors and others who influence the success of the
firm.

Market balance: It is essential that different firms in the same business not attempt to
compete on exactly the same variables.  If they do, competition will invariably degenerate
into price—there is nothing else that would differentiate the firms. 

Risk:  In general, firms that attempt riskier ventures—and their stockholders—expect a

higher rate of return.  Risks can come in many forms, including immediate loss of profit
due to lower sales and long term damage to the brand because of a poor product being
released or because of distribution through a channel perceived to carry low quality
merchandise.

Brand level objectives: Ultimately, brand level profit centers are expected to contribute to
the overall maximization of the firm’s profits.  However, when a firm holds several
different brands, different marketing and distribution plans may be required for each. 
Several variables come into play in maximizing value. A decision that is essential at the
brand level is positioning.  Options here may range from a high quality, premium product
to a lower priced value product.  Note here that the same answer will not be appropriate
for all firms in the same market since this will result in market imbalance—there should be
some firms perceiving each strategy, with others being intermediate.

Product line objectives: Firms make money on the totality of products and services that
they sell, and sometimes, profit can be maximized by settling for small margins on some,
making up on others. For example, both manufacturers and retailers currently tend to sell
inkjet printers at low prices, hoping to make up by selling high margin replacement
cartridges.  Here again, it may be important for the manufacturer that the retailer carry as
much of the product line as possible.

Distribution Objectives

Objectives: A firm’s distribution objectives will ultimately be highly related—some will

enhance each other while others will compete.  For example, as we have discussed, more
exclusive and higher service distribution will generally entail less intensity and lesser
reach.  Cost has to be traded off against speed of delivery and intensity (it is much more
expensive to have a product available in convenience stores than in supermarkets, for
example).

Narrow vs. wide reach: The extent to which a firm should seek narrow (exclusive) vs. wide
(intense) distribution depends on a number of factors.  One issue is the consumer’s
likelihood of switching and willingness to search.  For example, most consumers will switch
soft drink brands rather than walking from a vending machine to a convenience store
several blocks away, so intensity of distribution is essential here.  However, for sewing
machines, consumers will expect to travel at least to a department or discount store, and
premium brands may have more credibility if they are carried only in full service specialty
stores.

Retailers involved in a more exclusive distribution arrangement are likely to be more

“loyal”—i.e., they will tend to

  Recommend the product to the customer and thus sell large quantities;
  Carry larger inventories and selections;
  Provide more services
 Deciding on a strategy.  In view of the need for markets to be balanced, the same distribution
strategy is unlikely to be successful for each firm.  The question, then, is exactly which strategy
should one use?  It may not be obvious whether higher margins in a selective distribution
setting will compensate for smaller unit sales.  Here, various research tools are useful.  In
focus groups, it is possible to assess what consumers are looking for an which attributes are
more important.  Scanner data, indicating how frequently various products are purchased and
items whose sales correlate with each other may suggest the best placement strategies.  It
may also, to the extent ethically possible, be useful to observe consumers in the field using
products and making purchase decisions. 

Here, one can observe factors such as (1) how much time is devoted to selecting a product in
a given category, (2) how many products are compared, (3) what different kinds of products
are compared or are substitutes (e.g., frozen yogurt vs. cookies in a mall), (4) what are
“complementing” products that may cue the purchase of others if placed nearby.  Channel
members—both wholesalers and retailers—may have valuable information, but their
comments should be viewed with suspicion as they have their own agendas and may distort
information.

Choosing the right distribution channel to move products or services to the end user is a
long-term strategic decision and varies according to the product, service and market.  
When choosing a distribution strategy, a marketer must determine what value a channel
member adds to the firm’s products and/or service. A well-chosen channel is necessary
because it constitutes a significant competitive advantage and is designed to save on cost,
improve and increase efficiency, provide routinization of transactions, provide a larger
customer base, and allows businesses to focus on other aspects of the organization.   It is
important that the channel also provide businesses with strategic promotion, brand
strategy, and provide convenience for customers while bridging the gap between the
assortment of goods and services generated by producers and those in demand from
consumers.   Poorly chosen channels can have long-term consequences and can ultimately
lead to a superior product or services failure in the market.   
Having access to good distribution is fundamental to good marketing.   Within the
distribution channel is the ability to use intermediaries to strategically market a product or
service.