Distribution/Marketing Channels

Session Coverage
• Marketing Channels – Nature Importance and
Value Delivery, Channel
• Organization, Channel Design and Channel
• Conflict Decisions
• Marketing Logistics and Supply Chain
Management, Wholesaling Retailing,
Disintermediation
• Role of Distribution in the Digital Era, E-tailing
and its Advantages
Supply Chain and Value
Delivery Network
How Channels add Value
 Role/Need of Middlemen or Intermediaries

a) Provide Marketing Intelligence about the market to the

manufacturer

b) Maintain price stability in the market

c) Promotion of the products in his territory

d) Financing by providing the necessary working capital in the form of

advance payments for goods and services

e) Middlemen also take the title of the goods and services and trade in
their own name
 Role of Marketing channels:
 Marketing channel members have the essential role of
taking care of 5 discrepancies (gaps) in the market place :
Where / When / How / What of the consumer needs ?
1. Spatial discrepancy ( Where ?) – Distance between the
production point & consumption point needs to be bridged.
2. Temporal discrepancy ( When ?) – Time difference between the
production time & buying time needs to be bridged.
3. Breaking the bulk ( How ?) – To minimise the production costs ,
products have to be made in bulk. However , consumption of these
products is in smaller quantities.
4. Need for assortment ( What ?) – Consumer grocery list would
typically have 30 to 40 items cutting across companies / brands /
unbranded etc & only the channel members can aggregate all
these products.
5. Need for financial support ( How ?) – Most companies are
reluctant to give credit but the markets need credit & the channel
partners take on this responsibility.
 Channel formats & categories
 A wide variety of channel formats exist & they are typically
categorized into 4 categories namely :
1. Producer driven
Manufacturer produces & tries to reach the product directly to his
consumers.
2. Retailer ( Seller ) driven
The company making the product uses wholesalers & retailers in the
final stage to reach their consumers. Typical to FMCG / intensive
distribution.
3. Service driven
These intermediaries facilitate the distribution but typically are not
involved in title / payment of goods.
4. Other formats
 Producer driven channel formats
• Company owned retail outlets – The company owns & operates the retail
outlet which sells to the consumers.
• Bata shoes ; Apparel brands like LP , Arrow , Allen Solly ; Titan : Indian oil ; Airtel
• Licensed outlets –The company gives exclusive rights to some retail outlets to
sell their products to the consumers. Typically such stores would then retail only
one company’s brands. For Example: Safal outlets.

• Consignment selling agents –The company passes on the physical stocks to

the intermediary who pays the co. only after the products have been sold.
• Widely prevalent in NE which is largely inaccessible.

• Brokers – Intermediary contacts the user and sells the product on behalf of the
company without taking any physical possession of the goods. He takes a
commission when the sale is consummated. Ebay, Flipkart, Amazon,
Metrimonial Websites
• Equity , Real estate , paper manufacturers & textile companies.
• Franchisees –Product , merchandising are decided by the co. & the franchisee
has to buy from the company & sell.
• Bata shoes ; Pepsico ; KFC ; Pizza hut ; The great kabab factory ; Raddison …
 Seller driven channel formats
• Existing retailers – Shops already established in market place & used
by companies to reach the end-users.
• Corner stores ; Paan shops ; Convenience outlets ; Kirana stores.

• Department stores , supermarkets –Larger stores with modern

formats stocking a wider range of SKUs.

• Specialty stores – are retailers who sell one type of merchandise only.
• Shopper’s stop ; Pantaloon ; Tanishq ; Furniture stores

• Discount stores – Similar profile to supermarkets but selling at much

lower prices using the power of volumes and lower overheads.
• Subhiksha

• Door-to-door people
• May be selling vegetables , bread , milk , eggs , carpets ……
 Service driven channel formats
• C&FAs – provide time and place utility. They are
responsible for stocks receipts , storage & dispatch .
• Used by both FMCG & durables companies.
• Transporters – Provide service on contract for companies
to reach their ultimate customers.
• Auto / LCV / HCV owner ; Large transporter with a fleet of
vehicles.

• Warehouse owners – providers of storage space

• 3P Logistics service providers – 3rd party which takes

care of entire distribution from the factory gate to the retailer
including warehousing , transportation.
• Madura Coats uses ; Gati …
 Channel formats & categories
• Multi-level marketing systems – sales agent sells the
Other
formats
company products and also recruits other sales agents to keep
the chain getting stronger.
• Amway ; Modicare ; Tupperware ; Avon
• Other formats include :
 Cooperative societies
 Telephone kiosks
 TV home shopping
 Internet based selling
 Exhibitions , trade fairs…

• The number of channel members decides the

level of the channel.
Channel  Zero-level channel denotes a direct distribution
Levels set-up where the product is provided to the end-
user directly by the company.
 A one-level channel consists of one intermediary.
 A two-level channel consists of two intermediaries.
 Consumer Marketing Channels
Give 5 Examples for Each

HYBRID
CHANNELS (Diff
channels used by
companies)
 Types of Intermediaries
1. Sole-selling agent / Marketer
2. C & F Agents (CFAs)
3. Manufacturers’ Agents, Stockiest, Guarantors
4. Stockiest / Distributor / Wholesaler
5. Jobber
6. Dealer
7. Retailer
8. Broker /Agents
9. Franchisees
10. Authorized representatives
 1. Sole-Selling
Agent/Marketer
• When a manufacturer prefers to stay out of the marketing and
distribution task, he appoints a suitable agency as his sole selling
agent/marketer and entrusts the marketing job with him.
• A ‘sole-selling agent’ or a ‘marketer’ is usually a large marketing
intermediary with large resources and extensive territory of operation. He
will be having his own network of distributors/stockiest/wholesalers, semi-
wholesalers and retailers.
• It takes care of most of the marketing and distribution functions on behalf of
the manufacturer. Obviously; a sole-selling agent/ marketer will earn a large
margin/commission compared to other types of intermediaries.
• A manufacturer can have one or more marketers; but when he opts for a
sole selling agent, he appoints just one agency as the sole-selling agent (in
a given territory).
 2. C & F Agents or CFA
• In many cases, manufacturers employ carrying and
forwarding agents, often referred to as C&F Agents, or
CFAs.
• WAREHOUSING AND TRANSPORT
• Their Services also get extended to collection of sales
proceeds for dispatches made against distributor orders
• They supply stocks on behalf of the manufacturer to the-
wholesale sector or the retail sector.
• Their distinguishing characteristic is that they do not
resell products, but act as the agent/representative
of the manufacturer.
 3. Manufacturers’ Agents/
Guarantors
• These are businessman who provide the
financial support to sell goods in the
marketplace.
• They provide the credit support to
companies who do not give credit directly
to their customers and distributors
• They work on commissions/discounts.
 4. Wholesalers
Wholesalers buy & resell merchandise to retailers and to industrial
, institutional and commercial users , but do not sell in significant
Definition
amounts to ultimate consumers-VARITEY OF GOODS

 Basic differences between wholesalers and retailers are :

 Wholesalers are less bothered about the location , ambience or
promotions.
 Deal largely with other intermediaries rather than consumers.
Wholesalers
vs
 They usually carry a more limited / specialized assortment ( specific
Retailers group of products only viz – Housekeeping ; catering ; foods &
beverages ; glassware & kitchenware ; ….)
 Their trading area ( catchment ) is much larger vs the retailers’.
 Individual transactions larger for both buying & selling.
 Lower margins but much higher volumes.

 Key role performed by the wholesalers includes :

 Help Company in : Selling / Stocking / Financing / Market information
W/S Role & Risk reduction.
& tasks  Help Retailers’ towards : Buying / Stocking / Market information /
Financing / Risk reduction / Aggregation.
 Definition-Wholesalers
• American Marketing Association
• “A business unit which buys and resells
the merchandise to the retailers and the
merchants or to the industrial, institutional
and commercial users but does not sell or
sells insignificant amounts to the ultimate
consumers”
 Functions of Wholesalers

• Grading and packing of commodities

• Transportation of goods to customers

• Financing the buying of customers

• Bearing the risks associated with the business

• Collecting and disseminating market information to

both suppliers and customers
 5. Distributors
Distributor is a wholesaler ( intermediary) nominated by the company
to exclusively re-distribute the company products to all retailers and
institutions in a designated territory.
 Drive secondary sales – Value / Volume / Brands thru’ :
 Market service ( Visits & productivity)
 New outlet opening
 Merchandising
 Trained sales people ( Qualification & experience)
 Market relations – Market standing & goodwill.
Distr  Invest in infrastructure :
role  Godown Communication / I.T
 Transport
 Working capital towards :
 Inventory Credit to retailers Company claims ( damages / discounts)
 Company selects a redistribution stockist basis his strength & capabilities in
performing the above role.
 Additionally company looks for :
Distr
 Involvement in the business. Location
selection
 Present business portfolio & competencies related to the industry.
 6. Jobber
• One who buys from a wholesaler and sells
to a retailer.
• A jobber, who actually purchases goods
himself and then resells them, is
distinguished from a broker or agent, who
sells goods on another’s behalf.
 7. Dealers

A dealer has a similar role of a distributor but

has two differences:

• He may not have a clearly defined territory

and sells both in the market and from his shop.

• He may deal with competitive products also.

 8. Stockist
• Common in Pharmaceutical Industry:
• 8% margin of MRP/Trade margin
• Handle business of 6-8 Companies, few may
handle more than 50 companies
• Non Competitive, handle group of retailers
9. Merchants: wholesalers and retailers—buy, take title to, and
resell the merchandise. ITC Selling Aashirwad atta to Nilgiris, title is
now transferred. Patanjli??????

Facilitators: Transportation companies, independent warehouses,

banks, advertising agencies—assist in the distribution process but
neither take title to goods nor negotiate purchases or sales
 10. Brokers/Agents
4. Brokers and Agents: Difference between Brokers and Agents:
Broker is short-term and he will be there for a couple of orders.
Agent is long-term and specialized in repeated purchase so that he
stays for a longer time with the company and specifically works for
the betterment of the company.
Example – Insurance has Agents (repeated buying) whereas real
estate has brokers (single buying)
Most commonly observed in the real estate industry or in the chemical
markets. A broker assumes no risk. He has the producer or the
manufacturer on one side and he has the buyer on the other side.
The work of the broker is to get the deal done and he gets a
commission on the deal.
TYPES OF DISTRIBUTION STRATEGIES
1. Exclusive distribution
2. Selective distribution
3. Intensive distribution
 1. Exclusive Distribution

Situation where suppliers and distributors enter

into an exclusive agreement that
only allows the named distributor to sell a
specific product.
– Limiting intermediaries to a greater extent
– Not allowing competing brands
– Maintain control
e.g.
MERCEDES, TANISHQ, MARUTI, ARMANI SUITS
– Tanishq—Cos exclusive showrooms
– Exclusive dealers
– Huge investments by dealers
 2. Selective Distribution
Type of product distribution that lies between intensive distribution and
exclusive distribution, and in which only a few retail outlets cover a specific
geographical area.

– Use of more intermediaries compared to exclusive

– Need more visibility
– More control
– Less cost
e.g.
SHAHNAZ HUSSAIN HERBAL PRODUCTS
PETER ENGLAND, DELMONTE
– Not available in every Grocery Shop
– Available at selected outlets
– Maintain image
 3. Intensive Distribution
A marketing strategy under which a company sells
through as many outlets as possible, so that the
consumers encounter the product virtually everywhere
they go: supermarkets, drug stores, gas stations, and
the like.

– As many outlets as possible

– Multiple channels
– Consumers widespread
– Problems of control
e.g.
LUX SOAP, LIFEBUOY, COLGATE, SOFT DRINKS, MAGGI, PEPSI
 What is Channel Conflict?
• Channel conflict occurs when one
member’s actions prevent another channel
from achieving its goal.
• Types of channel conflict
– Vertical Channel Conflict:
– Horizontal Channel Conflict:
– Multichannel Channel Conflict:
Causes of Channel Conflict

Goal incompatibility

Unclear roles and rights

Differences in perception

Intermediaries’ dependence
on the manufacturer
 Types of Channel Conflict?
– Vertical Channel Conflict:
Conflict between members of different levels
within the same channels eg. HUL having
conflict with its distributors/Retailers/CFA in
Haryana on issue of commission.
Horizontal Channel Conflict:
Conflict involves the members of same level
within a channel. Eg. Dealers’ conflict
 Channel Conflict?
• Multichannel Channel Conflict:
• Manufacturer has two or more channels in the
same market. Company selling online and
through dealers also or having two different
dealers.
Retailing: An overview
• Retailing is defined as selling of goods or
services directly to final consumers.
• The selling could happen in :
– Shop
– Street or
– Consumer home

• The goods could be sold :

– In person
– By mail / telephone
– On internet
– Vending machine
Retailing: An overview

 How does a consumer choose his/her

retail outlet ?
 Price
 Credit
 Location ( Proximity , parking )
Outlet
selection  Product selection
 Special services ( home delivery , gift wrap ,
valet parking , special orders)
 Helpful sales staff ( courteous , knowledgeable ,
fast check out)
 Fairness in dealings ( honesty , returns )
Retailing: An overview
 So what are the key drivers of retail
business?
 Number of footfalls / day
 Lowest price day ( eg Wednesday @ Big Bazaar)
 Payday specials
 Communication – Press / radio / tv / inserts
Retail  Fresh ( F & V) are biggest pullers of footfall.
strategy
 Number of footfalls converted into purchase
 Attractive offers & Effective mounting of offers
 Impactful merchandising
 Increase the depth of purchase of each customer
 Consumer insights / Shopper insights
 Adjacency of snacks / beverages trigger uptick in
impulse purchasing ( Packaged tea & ?????)
 Retention of the customers
 Innovating constantly ( regular feedback) to meet &
exceed consumer expectations.
 Loyalty programs.