Place

(Distribution)
Introduction
● Define distribution.
● Explain the concept of a channel of distribution.
● Identify channel members.
● Distinguish between direct and indirect
channels.
● Explain distribution channels for consumer
products and services.
● Describe distribution intensities.
Introduction
● Distribution strategy
● A plan created by the management of
a manufacturing business that specifies how the
firm intends
to transfer its products to intermediaries, retailers
and end consumers.
 Introduction
● A distribution channel – a set of independent
organizations involved in the process of making a
product or service available to the consumer or
business user
● They are used to move the customer towards the
product or the product to the customer
● One of the 4 P’s of marketing……..place.
Introduction
● Channels of Distribution-
● The path a product takes from its producer or
manufacturer to the final user.
● Industrial user: final user when a product
purchased is for business use
● Consumer: final user when a product
purchased is for personal use
Channel Members
● Intermediaries-(middlemen); businesses
involved in sales transactions that move
products from the manufacturer to the final
user.
● Reduces number of contacts required to
reach the final user
● Classified by whether they take ownership of
goods and services
Contact Efficiency
MFG MFG MFG MFG MFG

Consum Consum Consum Consum Consum

er er er er er

With no intermediaries a lot of transactions are

needed.
Contact Efficiency

MFG MFG MFG MFG MFG

Intermediary

Consum Consum Consum Consum Consum

er er er er er

With 1 intermediary, 10 transactions needed.

 Direct and Indirect Channels
● A direct channel of distribution is the shortest and
simplest form of distribution channel;
● A direct channel of distribution describes a situation
in which the producer sells a product directly to a
consumer without the help of intermediaries.
● A direct chain of distribution may involve
face-to-face sales, computer sales or mail order but
does not involve any form of distributor other than
the original producer.
● it has become increasingly common since the advent
of the Internet.
 Advantages of direct channel
● Interacts with consumers: manufacturers interact
directly with consumers. This gives them the
chance to observe trends in the marketplace and
changes in consumer preferences.
● Lower cost: direct channel eliminates the cost of
middlemen. Cutting down on such distribution
costs by doing away with middlemen typically
translates into a better price for consumers.
● Control: doing away with middlemen gives the
manufacturer better control over a product’s sales
and pricing.
 Disadvantages of direct
channel
● Manufacturers with a good product to offer the
market may not be good at marketing it.
● Time that a manufacturer spends in retailing
activities is time that might be better spent on
production-related activities.
Direct Channels
● Manufacturer Directly to Consumer
● Selling products at the production site

● Having a sales force call on consumers

● Using catalogs or ads to generate sales

● Using telemarketing

● Using the internet to make online sales

Direct and Indirect Channels
● In indirect channels of distribution there are
one or more middlemen between the manufac-
turer and consumers. There is no direct contact
between the producers and the customers.
● Indirect channels of distribution may be
classified as follows:
● Manufacturer -> Retailer -> Consumer

● Manufacturer -> Wholesaler -> Retailer ->

Consumer
● Manufacturer Agent -> wholesaler
-> Retailer -> consumer
 Indirect channels
● Manufacturer -> Retailer -> Consumer
● most commonly used for merchandise that dates
quickly or needs servicing – distribution of goods
and services goes from manufacturers/producers to
retailers to consumer
● Manufacturer -> Wholesaler -> Retailer -> Consumer
● the most common distribution method for staple
goods, which are items that are always carried in stock
and whose styles do not change frequently –
distribution of goods and services goes from
manufacturers/producers to wholesalers to retailers to
consumers
 Indirect channels
● Manufacturer Agent -> wholesaler -> Retailer ->
consumer
● this channel is for manufacturers who wish to
concentrate on production and leave sales and
distribution to others – distribution of goods and
services goes from manufacturers/producers to
agents to wholesalers to retailers to consumers
Advantages of indirect channel
● Frees producer to focus on manufacturing
● Useful when production location is far from
consumers
● Greater sales volume potential
● Allows use of middlemen are professionals in
marketing
Disadvantages of indirect
channel
● The manufacturer has to give up control over
the marketing of its product to another firm.
● The channel may not be permanent because the
intermediary can easily discontinue handling a
manufacturer's product if there is no profit.
Functions of channel members
● Transactional Function
● Buying: Purchasing products for resale or as
an agent for supply of a product –
● Selling: Contracting potential customers,
promoting products, and soliciting orders
● Risk Taking: Assuming business risks in the
ownership of inventory that can become
obsolete or deteriorate.
Functions of channel members
● Logistical function
● Assorting: Creating product assortments from
several sources to serve customers
● Storing: Assembling and protecting products
at a convenient location to offer better
customer service.
● Sorting: Purchasing in large quantities and
breaking into smaller amounts desired by
customers.
● Transporting: Physically moving a product to
customers.
 Functions of channel members
● Facilitating function
● Financing: Extending credit to customers
● Grading: Inspecting, testing, or judging products, and
assigning them quality grades
● Marketing information and research: Providing
information to customers and suppliers, including
competitive conditions and trends
● Negotiations: Reaching an agreement on pricing and
other terms which may be a part of the transaction
● Contacts: Maintaining contacts with existing customers
as well establishing contacts with potential customers
and maintaining the same with the regulatory bodies
 Channel Members
● Wholesalers
● Businesses that buy large quantities of goods
from manufacturers, store the goods, and then
resell them to other businesses.
● Take title to goods they buy for resale.
● Retailers
● Sell goods to final consumer for personal use
from their own physical stores.
● Buy products from manufacturers or
wholesalers.
● Takes title for goods.
 Channel Members
● Agents: Intermediaries that bring buyers and
sellers together
● Independent Manufacturer’s Representative

● Work with several related, but non competing

manufacturer’s in a specific industry.
● Paid commission on what they sell.

● Brokers

● Negotiate a sell, paid a commission, and look

for new customers
 Factors affecting selection of
channel of distribution
● Product factors:
● Price of the Product: products of a lower price have a
long chain of distributors. The products having higher
price have a smaller chain.
● Perishability: products which are of a perishable
nature need lesser number of the intermediaries or
agents for their sale. Under this very rule, most of the
eatables (food items), and the bakery items are
distributed only by the retail sellers straight from the
manufacturers.
 Factors affecting selection of
channel of distribution
● Product factors:
● Size and Weight: Generally, heavy industrial goods
are distributed by the producers themselves to the
industrial consumers.
● Technical Nature: products that are complex and
requires a lot of instructions to consumers are by
nature are sold directly by the producers
● Goods Made to Order. The products that are
manufactured as per the orders of the customers
could be sold directly by producers.
 Factors affecting selection of
channel of distribution
● Factors Pertaining to the Consumer or Market
● Number of Customers: If the number of customers
is large, definitely the services of the middlemen will
have to be sought for.
● Expansion of the Consumers: When the consumers
are spread through a small or limited sphere, the
product is distributed by the producer himself or his
agent.
● Size of the Order: When bulk supply orders are
received from the consumers, the producer himself
takes up the responsibility for the supply of these
goods.
Factors affecting selection of
channel of distribution
● Factors Pertaining to the Consumer or Market
● Objective of Purchase: If the product is being
purchased for industrial use; its direct sale is
proper or justified. As opposed to if the
products are being purchased for the general
consumption, the products reach the
consumers after passing innumerable hands.
 Factors affecting selection of
channel of distribution
● Factors Pertaining to the Middlemen
● Services Provided by Middlemen:The selection of
the middlemen is made keeping in mind their
services. If the product is quite new and there is the
need of its publicity and promotion of sales, then
instead of adopting the agency system, the work
must be entrusted to the representatives.
● Scope or Possibilities of Quantity of Sales:
channel are selected based on their possibility of
more sales.
 Factors affecting selection of
channel of distribution
● Factors Pertaining to the Middlemen
● Attitude of Agents towards the Producers'
Policies: producers generally prefer to select such
middlemen who go by their policies. Very often when
the distribution and supply policies of the producers
are disliked by the middlemen, the selection of
middlemen becomes quite limited.
● Cost of Channel of Distribution: While selecting
the channel of distribution, the cost of distribution
and the services provided by the middlemen or agents
too must be put into consideration. The producers
generally select the most economical channel.
 Factors affecting selection of
channel of distribution
● Producer factors
● Producers that offer a broad product line and have
the financial and marketing resources to distribute
and promote their products are more likely to use a
shorter channel of distribution.”
 Factors affecting selection of
channel of distribution
● Other Factors
● Competitors: While determining the channel of
distribution, the channels of distribution of the
competitors too must be borne in mind.
● Social Viewpoint: What is the attitude of society
towards the distribution, this fact too must be put into
consideration while selecting the middlemen.
● Freedom: While selecting the agents, the liberty of
changing or replacing the channel members must be
put into consideration too.
Distribution intensity
Distribution Intensity
● Exclusive Distribution: It is a situation
where suppliers and distributors enter into
an exclusive agreement that only allows the
named distributor to sell a specific product
● It is often characterized by exclusive dealing
where the reseller carries only that producer's
products to the exclusion of all others
● Protected territories for distribution of a product in
a given geographic area.
● Characteristics: prestige, image, channel control,
and high profit margins
Distribution Intensity
● Advantages of exclusive distribution
● Maximize control over service level/output
● Enhance product’s image & allow higher markups
● Promotes dealers loyalty, better forecasting, better
inventory and merchandising control
● Restricts resellers from carrying competing brands
● Disadvantages
● Betting on one dealer in each market
● Only suitable for high price, high margin, and low
volume products.
Distribution Intensity
● Selective Distribution:
● Lies between intensive and exclusive
distribution. A limited number of outlets in a
given geographic area are used to sell the
product
● This basically involves using more than one,
but lesser than all the intermediaries who carry
the company’s products. Select channel
members that maintain the image of the
product and are good credit risks, aggressive
marketers, and good inventory planners.
Distribution Intensity
● Selective Distribution
● Advantages:
● Better market coverage than exclusive distribution
● More control and less cost than intensive distribution.
● Concentrate effort on few productive outlets
● Selected firms capable of carrying full product line and
provide the required service.
● Disadvantages:
● May not cover the market adequately ◦ Difficult to
select dealers (retailers) that can match your
requirement and goals
Distribution Intensity
● Intensive Distribution
● The producer's products are stocked in the
majority of outlets.
● It is a strategy under which a company sells its
product through as many outlets as possible so
that the customers encounter the product virtually
everywhere they go.
● Objective/Goal: complete market coverage
and to sell to as many customers as possible
Distribution Intensity
● Intensive distribution
● Advantages:
● Increased sales, wider customer recognition, and
impulse buying
● Disadvantages:
● Characteristically low price and low-margin
products that require a fast turnover
● Difficult to control large number of retailers
● Mostly used for
● fast moving consumer goods newspapers, soft
drinks.
Group 4; Group Assignment
● Using any product of your choice as an example, describe the
distribution path it follows from the manufacturer to the final
consumer.
● Discuss the factors to be considered in setting up appropriate
channels of distribution for a major food producer introducing
a new brand of yoghurt.
● Instruction
● Power Point Document

● Not more than 10 Slides.

● To be presented in class.
● 5-10 minutes presentation for each group
● Due Date; Before 12pm on 19th March 2019.