Channels Of Distribution (Session 1)

Learning Objectives

Understanding ;
• Channels of Distribution
• Evolution
• Functions
• Patterns Of Distribution
Marketing Mix
 Channels Of Distribution

Are the internal and

external interdependent
organizations which are
dictated by contractual
terms, using these
organizations the
management operates to
achieve its distribution
objectives.
Evolution of Marketing Channels

• Started with distribution of farm outputs –

selling within limits of physical reach
• Industrial revolution changed the method
of looking at ‘reach’. Movement of raw
materials for production brought in
traders to provide assortment.
• Focus on ‘selling’ brought in independent
intermediaries like wholesalers and
retailers.
• Development of the automobile and
highways changed the way of distribution.

5
Evolution of Marketing Channels

• Early 1950s – focus on

customer needs meant the
‘pull’ system came into effect.
Gathering and using customer
information became important.
• Next stage was in terms of
‘relationship’ marketing.
Sophisticated databases and
interactive technologies
supported distribution.
6
Functions Of Channels

• Information
• Promotion
• Maintain Contact
• Offering to Market as
per Requirement
• Physical Distribution
• Financing
• Risk Assumption
Channel Formats
(a)Producer or Manufacturer Driven

Company Owned Retail Outlets; Licensed Outlets ; Consignment Selling

Agents Franchisee; Brokers; Vending Machine e-Tailing

(b)Seller Driven:
Existing Retailers; Department & Supermarket Stores: Specialty Stores:
Discount Stores: Existing Wholesalers: Door to Door Sales Men:

(c) Service Driven:

Transporters: Ware Housing and Logistics Partners: Carrying and

Forwarding Agents (C&FA): Logistics Service Providers: Distributors
:Aggregators:

(d) Other Formats:

Multi Level Marketing System: Co-operative Societies; Computer Based
Kiosks: Television Home Shopping: Exhibitions, Fairs and Trade Shows
Distribution
• Distribution is a process of ensuring that a
product or service is made reachable or
available at a place for consumption by a
consumer or business user.

• Distribution also is a route to control market access.

Distribution Channels

• Exist because producers cannot reach all

their consumers
• Multiply reach and provide efficiency to the
marketing process
• Facilitate smooth flow and create time, place
and possession utilities
• Have the core competence and reach
• Provide contact, experience, specialisation
and scales of operation
Types Of Channels

Sales: motivates buyers, shares

information between company and its
consumers, negotiates fair bargains for
consumers and finances the transactions
(company salespeople, internet)
Delivery channel meant only for physical
part of the distribution (the railways)
Service channel – performs after sales
service (authorised service centers)
Channel Members
• Company own sales team
• C&FAs and CSAs (consignment selling
agent)
• Distributors, dealers, stockists,
value-added re-sellers
• Commission agents, jobbers and brokers
• Franchisees
• Electronic channels
• Wholesalers
• Retailers
Channels - Industrial Products

Producer Producer

Agent/middleman

Industrial Distributor Industrial Distributor

Industrial Customer Industrial Customer

Customers may also buy direct from company sales force

 14
Consumer
Consumer Retailer
Retailer Jobber
Jobber Wholesaler
Wholesaler Manufacturer
Manufacturer
3-level channel
Consumer
Consumer Retailer
Retailer Wholesaler
Wholesaler Manufacturer
Manufacturer
2-level channel
Consumer
Consumer Retailer
Retailer Manufacturer
Manufacturer
Indirect Channel 1-level channel
Consumer
Consumer Manufacturer
Manufacturer
Direct Channel 0-level channel
bringing the product and its ownership closer to the final buyer.
Channel Level Each layer of marketing intermediaries that perform some work in
Channel Members
Patterns of Distribution

• Determines the intensity of the

distribution

• Intensity decides the service level

provided

Types of distribution intensity or

strategy:
• Intensive
• Selective
• Exclusive
Patterns of Distribution
Types of distribution intensity
or strategy:
• Intensive
• Strategy is to make sure that the
product is available in as many
outlets as possible
• Preferred for consumer,
pharmaceutical products and
automobile spares
Patterns of Distribution

Types of distribution intensity or

strategy:
• Selective
• A few select outlets will be permitted to keep
the products
• Outlets selected in line with the image the
company wants to project
• Preferred for high value products
• Keeps distribution costs lower
Patterns of Distribution
Types of distribution intensity or
strategy:
• Exclusive Distribution
• Highly selective choice of outlets –
may be even one outlet in an entire
market
• Could include outlets set up by
companies
• Producer wants a close watch and
control on the distribution of his
products.
Distribution Channel Strategy

∂ Derived from the corporate strategy and the

marketing strategy
∂ Steps for designing the distribution strategy
are:
• Defining customer service levels
• Distribution objectives and steps
• Structure of the network required
• Policy and procedure to be followed
• Key performance indicators
• Critical success factors
Customer Service Levels
∂ Defined by the nature of the industry,
the products, competition and market
shares.
∂ Affordability also decides the service
level
∂ It should at least match competition.
∂ Customer expectations have no limit
Direct Distribution

∂ Company to consumers without use

of intermediaries. Also includes
reaching Institutional buyers.
∂ Selling on the Internet
∂ If products are technically complex,
this system is normally preferred
∂ Cost is a major consideration to
adopt this mode

21
Direct Distribution-- Examples
∂ Banking services
∂ Credit cards
∂ Petrol / diesel – company own outlets
∂ Broad Band connections
∂ Health services
∂ Utilities – electricity, water
∂ Subsidized ration
∂ Education

22
Indirect Distribution

∂ Goods may move through a set of

intermediaries
• Most FMCG companies follow this route
∂ The intermediary has a far better reach
than the company
∂ The cost of operations of an intermediary
like a wholesaler / retailer is shared with
many businesses.

23
Distribution Channels
∂ Take care of the following ‘discrepancies’
• Spatial
• Temporal
• Breaking bulk
• Assortment
• Financial support

24
Spatial Discrepancy
∂ The channel system helps reduce the ‘distance’ between the producer and the
consumer of his products.
• Consumers are scattered
• Have to be reached cost effectively
∂ Example: companies produce products in one location even for global needs

25
Temporal Discrepancy
∂ The channel system helps in speeding up in meeting the requirement of the
consumers

• Time when the product is made and when it is consumed is different

• Limited number of production points but hundreds of consumers

∂ Fords plant in Chennai – cars and spares are available when the consumer wants

26
Bulk Breaking
∂ The channel system reduces large quantities
into consumer acceptable lot sizes
• Production has to be in large quantities to
benefit from economies of scale
• Consumption is necessarily in small lot sizes
∂ India is the ultimate example in breaking bulk
– you can buy one cigarette, one Anacin, one
toffee etc

27
Need For Assortment
∂ The channel system helps aggregate a range of
products for the benefit of the consumer – it
could be made by one company or several of
them.
• For the same product, it could be a variety of
brands and pack sizes
∂ MICO makes fuel injection equipment, spark
plugs etc in different plants but its dealer will sell
the entire range.

28
Financial Support
∂ The channel system provides
critical working capital to its
customers by extending credit.
∂ Some channel members like
stockiest and wholesalers finance
the business of their customers.
• Medical diagnostic equipment
to hospitals

29
Summary
Thank You