Delivering Value

(Distribution)
Unit 5
Introduction
According to Mossman & Noton,
“Distribution is the operation which creates time, place and form utility
through the movement of goods and persons from one place to another”

Elements of Distribution Mix

1. Channels of distribution
2. Warehousing
3. Transportation
4. inventory
Components of Distribution System
• Physical Distribution
“Physical distribution is moving of finished products from one end of production line to
consumers”. It includes the functions like transportation, warehousing, loading &
unloading, inventory control etc.

• Channels of Distribution or Marketing Channel

The word ‘Channel’ is derived from the French word ‘Canal’.
In the words of Kotler. “Channel is a set of independent organisations involved in the
process of making a product or service available for use of consumption”.
Role & Importance or Functions of Channel of Distribution
1. Information gathering
2. Consumer motivation
3. Placing orders
4. Bargaining
5. Risk-bearing
6. Inventory management
7. Promote higher standard of living
8. Helps to accomplish marketing objectives
9. Value addition
10. Marketing research
11. Demand forcasting
Levels of Channel
1. Zero level channel (Manufacture & Consumer)
2. One level channel (Manufacture, Retailer & Consumer)
3. Two level Channel (Manufacture, Wholesaler, Retailer & Consumer)
4. Three level channel (Manufacture, Wholesaler, Jobbers, Retailer &
Consumer)
Factors influencing selection of Distribution Channel
I. Company or Organisational factors
a. Financial position
b. Business volume of the company
c. Desire to control channel
d. Product mix of the firm
II. Product factors
a. Product nature
b. Product size
c. Product price
d. perishability
Factors influencing selection of Distribution Channel
III. Market or consumer factors
a. Nature of the market
b. Number of consumers
c. Geographical distribution of consumers
d. Buying quantity
e. Size of the market
IV. Middlemen factors
a. Availability of middlemen
b. Services provided by middlemen
c. Reputation of the channel
d. Cost of channel
e. Legal factors
Distribution Policies
1. Intensive or mass distribution
2. Selective distribution
3. Exclusive distribution
Channel Design Decisions (Designing a Channel of Distribution)
Channel design deals with the decisions that are associated with forming a new distribution
channel or modifying an existing one. This is based on the marketing strategy which a
company choose, push strategy or pull strategy.
Steps in Channel Design
I. Analysing customers’ desired service output level
a. Lot size
b. Average waiting of the customer
c. Spatial convenience
d. Selection
e. Service
II. Formulating Objectives
III. Evaluation of distribution environment
IV. Identifying major channel alternatives
V. Evaluating major channel alternatives
Channel Management Decisions
1. Selecting channel members
2. Training channel members
3. Motivating channel members
4. Compensating channel members
5. Evaluating channel members
6. Modifying channel arrangements
Channel Conflicts
Channel conflict is a clash of goals and methods among the members of a
distribution channel.

Types of Channel Conflict

1. Vertical channel conflict
2. Horizontal channel conflict
3. Multi channel conflict
Causes of Channel Conflicts
1. Conflicting objectives
2. Lack of clearly defined roles & responsibilities
3. Fight for the same market
4. Poor performance of the channel members
5. Dependences of one channel member on others
6. Unethical practices
7. Supply of goods directly to key industrial customers
8. Reduction in the area of operation
Managing Channel Conflicts
1. Regular communication
2. Forming dealer councils
3. Co-optation
4. Boundary strategy
5. Interpenetration strategy
6. Market portioning
7. Channel ownership
8. Coercion
9. Conciliation
10. Mediation
11. Arbitration
Channel Co-operation
it is a situation in which the marketing objectives and strategies of the
channel members and the manufacturer are in harmony.

Methods of improving channel co-operation

1. Agreements
2. Defining task of each member precisely
3. Co-marketing
4. Vertical marketing system
5. Horizontal marketing system
Channel Competition
Channel competition refers to the efforts by the marketers within a
channel of distribution to establish dominance over the others.

Types of channel competition

1. Vertical competition
2. Horizontal competition
3. Intertype competition
4. Channel system competition
Channel Integration and System
The inter-relation that exists between the channels is known as channel integration.
Together these channels deliver the holistic message of the organization to the
customer. It helps build a unity narrative and helps improve the brand image.
Advantages of Channel Integration
1. Reduces transaction cost
2. Improves inventory management
3. Eliminates stock-outs and delayed delivery
4. Barrier to competitors
5. Stabilizes supply of goods & services
6. Increases co-ordination of channel members
7. Increases ability to respond to changing market needs
Methods or Forms or Types of Channel Integration
1. Vertical channel integration:
A VMS comprises the producer, wholesalers, retailers acting as a unified system and one channel
member (channel captain) owns the others or franchise them and has so much power that they all
co-operate. There are three forms of VMS – corporate VMS, administered VMS and contractual
VMS.
2. Horizontal channel integration:
A horizontal marketing system is one in which two companies at the same channel level—say, two
manufacturers, two wholesalers, or two retailers—agree to cooperate with another to sell their
products or to make the most of their marketing opportunities. The Internet phone service Skype
and the mobile-phone maker Nokia created a horizontal marketing system by teaming up to put
Skype’s service on Nokia’s phones.
3. Value added partnership:
Under this form, small firm come together and form a system. Here each participating channel
member a single channel function at a particular channel level.
Value Networks & Marketing Channel
• A network which creates partnership and value in purchase, production and selling of
products is referred to as value network.
• Value network looks at the whole supply chain system players as partners rather than
customers.
• The purpose of value network is to increase productivity, save cost and increase
revenue. Companies are willing to take the procurement process on online for accuracy and
speed. Companies exactly know each partner’s role in influencing or disrupting normal
operations.
• Companies have developed distribution channel and network through which it supplies final
product to customers. This distribution channel and network are referred to as the
marketing channel.
• Companies invest time and money in a well functioning marketing channel. The marketing
channels are an integral part of marketing and promotional activity of the company.
Ways of Adding Value to Marketing Channel
• Company and firm level
• Distributor level
• Dealer or retailer level
Middlemen in Distribution (Types of Channel of Distribution)
Types of Middlemen
1. Agent Middlemen
2. Merchant Middlemen
3. Facilitators
Functions of Middlemen
• Helps in efficient distribution of goods
• Helps in creation of time, place and form utilities
• Provides valuable marketing information
• Undertake advertising and publicity
• Undertake transportation, warehousing etc
• Helps to keep price steady
Managing Wholesaling
Wholesaler purchase goods from manufacturer in bulk quantity and sells to retailers in small
quantity.
Functions of Wholesaler
• Assembling of varieties of goods from different manufactures
• Storage & warehousing
• Distribution of goods to retailers
• Financing retailers through credit facility
• Grading of goods according to quality, size, quantity, colour etc.
Services rendered by Wholesaler
• Services to manufactures
• Service to retailers
• Services to the society
Managing Retailing
According to Ostrow and Smith “Retails store is a business which regularly goods for sale to
ultimate customers. A retail store buys, stores, promotes and sells the merchandise”
Functions of Retailer
• Collecting and assembling of varieties of goods from different wholesalers
• Undertaking transportation
• Selling products in small quantities to consumers
• Sorting and grading goods
• Making personal relationship with consumers
• Undertaking some sales promotional activities
Services rendered by Retailer
• Services to consumers
• Service to manufactures & wholesalers
Types of Retailing
Modern types of Retail Stores
1. General merchandise retails stores
1. Super markets
2. Hypermarkets
3. Discount stores
2. Specialty stores
1. Specialty retail stores
2. Off price retailers
3. Category killers
3. Sopping malls
4. Destination stores
5. Retails chain
6. Mom and Pop stores
7. E-tailors
Non-store retailing
1. Direct Selling
2. Direct Marketing
1. Catalogue marketing
2. Direct-response marketing
3. Television home shopping
4. Kiosk marketing
5. Telemarketing
6. Social media marketing
Online Marketing
Online marketing means marketing through internet with the use of internet
and related technologies to achieve marketing objectives and support the
modern marketing concept.
Advantages
• More information is provided to consumers
• It has large consumer base
• Customer can compare price
• Distribution channel are shorter
• Direct interactions
• Cost of operations are low
Logistics
Council of Logistics Management (CLM) defines logistics as “a process of planning,
implementing and controlling the efficient, cost effective flow and storage of raw material,
in-process inventory, finished goods and related information from point of origin to the point
of consumption for the purpose conforming customer requirements”
• Inbound and outbound logistics
Key activities involved in logistics management
• Network design
• Order processing
• Procurement
• Material handling
• Inventory management
• packaging and labelling
• Warehousing
• transportation