Unit 5

Introduction about Distribution Channel

• Most producers do not sell their goods directly to the final
users; Between them stands a set of intermediaries
performing a variety of functions.
• These intermediaries constitute a marketing channel (also
called a trade channel or distribution channel).
• Marketing Channels are sets of interdependent organizations
participating in the process of making a product or service
available for use or consumption.
 Multichannel Marketing
• Today’s successful companies typically employ multichannel
marketing, using two or more marketing channels to reach
customer segments in one market area.
HP uses its
• sales force to sell to large accounts,
• outbound telemarketing to sell to medium-sized accounts,
• direct mail with an inbound phone number to sell to small
accounts,
• retailers to sell to still smaller accounts,
• Internet to sell specialty items.
• Each channel can target a different segment of buyers, or
different need states for one buyer, to deliver the right products in
the right places in the right way at the least cost.
 Functions of marketing channel:
• Helps in physical flow of goods from one place to another.
• It will transfer ownership from one party to another.
• It assists in getting payment.
• It will help the organisations to gather information regarding
the market.
• It communicates the company’s messages to the customers.
Marketing Channel Flows
 Channel Levels
• A zero-level channel, also called a direct marketing
channel, consists of a manufacturer selling directly to the final
customer.
• Ex - mail order, online selling, TV selling, telemarketing,
door-to-door sales, and manufacturer-owned stores.
• A one-level channel contains one selling intermediary, such as
a retailer.
• A two-level channel contains two intermediaries, typically a
wholesaler and a retailer,
• A three-level channel contains three intermediaries.
• In the meatpacking industry, wholesalers sell to jobbers,
essentially small-scale wholesalers, who sell to small retailers.
Channel Levels
Channel Levels
 Industrial Marketing Channels
• Diagram in the previous slide shows channels commonly used in
B-to-B marketing.
• An industrial-goods manufacturer can use
– its sales force to sell directly to industrial customers, or
– it can sell to industrial distributors who sell to industrial
customers, or
– it can sell through manufacturer’s representatives or
– its own sales branches directly to industrial customers or
– indirectly to industrial customers through industrial
distributors.
– Zero-, one-, and two-level marketing channels are quite
common.
 Distribution Channel Members
Merchants:
• Intermediaries—such as wholesalers and retailers—buy, take
title to, and resell the merchandise; they are called merchants.
Agents:
• brokers, manufacturers’ representatives, sales agents—
search for customers and may negotiate on the producer’s
behalf but do not take title to the goods; they are called agents.
Facilitators:
• Transportation companies, independent warehouses,
banks, advertising agencies—assist in the distribution
process but neither take title to goods nor negotiate purchases
or sales; they are called facilitators.
 Designing & Managing the Distribution
Channel:

1. Selecting channel members:

2. Training channel members:
3. Motivating channel members:
4. Evaluating channel members:
5. Modifying the Channel Arrangements:
 1.Selecting channel members:
Market Consideration:
– Nature of the market:
• Consumer market  Indirect channel
• Industrial market  Direct Channel
– Number of potential customers:
• Larger number of customers Indirect channel
• Smaller number of customers Direct channel
– Geographic Concentration of the market:
• Target customers are concentrated on few regions Direct channel
• Target customers spread all over the world  Indirect channel
Product Consideration:
– Value of the product: high value Direct channel, low value Indirect channel
– Perishable nature: perishable goods shorter channel or direct channel
– Technicality: highly technical product  Direct channel
– Seasonal Product : Indirect Channel
– Standardisation: For standardized products  Indirect Channel
 1.Selecting channel members:
Company Consideration:
– Financial Strength of the company:
• Financially good Direct channel
• Financially Poor Indirect channel
– Reputation:
• Company with good reputation can use indirect channel.
Middlemen Consideration:
– Middlemen are the intermediaries in the Indirect Channel.
– They must have good storage facility
– Good Financial strength
– Geographical location of the outlet
Consumer Consideration:
– Depending on the number of customers
– Frequency of purchase
– Quantity of purchase, the company should select the distribution channel.
 2. Training channel members:
• Company need to plan and implement careful training programs
for their intermediaries , because they will be viewed as the
company by end users.
 3. Motivating channel members:
– We can motivate the channel members in two ways.
• Coercive power: producer threatening the intermediaries.
• Reward Power: Producer offering reward to the best
performing intermediaries.
 4.Evaluating channel members:
 Channel members are evaluated in the following :
 Inventory level,
 Customer delivery time,
 Sales target achievement,
 treatment of damaged goods,
 cooperation in promotional and training programs.
 5. Modifying the Channel Arrangements:
• If the performance of the intermediaries is poor, then the
manufacturer can modify their channels.
 Channel Conflict:
• Channel conflict exists when
– one channel member perceives another channel member to
be acting in a way that prevents the first member from
achieving its distribution objectives.
 Types of Channel Conflict:
• Vertical Channel Conflict:
– conflict occurs between the members at different levels
within the same distribution channel.
– Ex Conflict between Producer & Distributor, Distributor &
Wholesaler, Wholesaler & Retailer.
• Horizontal Channel Conflict:
– When the Conflict occurs between the members at the
same level within the same distribution channel.
– Ex – Retailer & Retailer, Wholesaler & Wholesaler,
Distributor & Distributor.
 Ways to manage Channel Conflict:
• Communication: have regular communication between the
manufacturer and the channel members.
• Dealer Meetings: Conducting regular dealer meetings will
reduce the Horizontal conflicts.
• Co-optation: Co-optation is an effort by one organization to
win the support of the leaders of the channel by including
them in advisory councils, boards of directors etc.,
• Strategic Justification: Different channel members serve
distinctive segments and do not compete with each other .
– It might reduce potential for conflict among channel
members.
 Retailing
• Retailing includes all the activities in selling goods or services
directly to final consumers for personal & nonbusiness use.
• A retailer or retail store is any business enterprise whose sales
volume comes primarily from retailing.
 Retailing
• Any organization selling to final consumers—whether it is a
manufacturer, wholesaler, or retailer—is doing retailing.
• It doesn’t matter
– how the goods or services are sold (in person, by mail,
telephone, vending machine, or on the Internet) or
– where (in a store, on the street, or in the consumer’s home).
 Levels Of Service
1. Self-service—Many customers are willing to carry out their
own “locate-compare-select” process to save money.
2. Self-selection—Customers find their own goods, although
they can ask for assistance.
3. Limited service—These retailers carry more shopping goods.
Customers need more information and assistance.
4. Full service—Salespeople are ready to assist in every phase of
the “locate-compare-select” process.
Customers who like to be waited on prefer this type of store.
Here the staffing cost is high.
 Types of Retailers:
• Store Retailing
• Non Store Retailing
• Corporate Retailing and Franchising
 Types of Retailers – Store Retailing:
• Speciality stores: Stores which deals narrow product line
• Ex – showroom for shoes.
• Departmental Stores: Stores which has several product line. Ex
– Kannan Departmental store
• Supermarket: Large, low-cost, low-margin, high-volume, self
service store designed to meet total needs for food and household
products. Ex – Big bazaar
• Convenience store: Small store in residential area, They have
limited product line and high turnover.
 Types of Retailers – Store Retailing::
• Drug Store: Prescription and pharmacies, health and beauty aids,
other personal care items. Ex – Apollo medicals
• Discount Store: low-price, low margin, high-volume stores. Ex –
Walmart
• Off-Price retailer: Irregular merchandise sold at lesser price
than the regular retailer. Example – Factory Outlet.
• Super Store: Huge selling space. hypermarket (huge stores that
combine supermarket, discount, and warehouse retailing) –
Example – Dmart, Lulu hypermarket.
 Types of Retailers – Non Store Retailing:
• 1. Direct marketing has roots in direct-mail and catalog marketing it
includes telemarketing, television direct-response marketing , and online
shopping (Amazon.com). People are ordering a greater variety of goods
and services from a wider range of Web sites.
• 2. Direct selling, also called multilevel selling and network marketing, is a
multibillion-dollar industry, with companies selling door to door or
through at-home sales parties. Well-known in such one-to-one selling are
Tupperware and Amway.
• 3. Automatic vending offers a variety of merchandise, including impulse
goods such as soft drinks, coffee, candy, newspapers, magazines, and
other products such as hosiery, cosmetics, hot food, and paperbacks.
Vending machines are found in factories, offices, large retail stores,
gasoline stations, hotels, restaurants, and many other places.
• 4. Buying service is a storeless retailer serving a specific clientele—
usually employees of large organizations—who are entitled to buy from a
list of retailers that have agreed to give discounts in return for
membership.
 Types of Retailers – Corporate Retailing
and Franchising
• Although many retail stores are independently owned, an
increasing number are part of a corporate retailing
organization.
• These organizations achieve economies of scale, greater
purchasing power, wider brand recognition, and better-trained
employees than independent stores can usually gain alone.
• The major types of corporate retailing—corporate chain
stores, voluntary chains, retailer and consumer cooperatives,
franchises, and merchandising conglomerates
 Franchising
• In a franchising system, individual
franchisees are a tightly knit group of
enterprises whose systematic Operations
are planned, directed, and controlled by
the operation’s innovator, called a
franchisor.
 Franchising
Franchises are distinguished by three characteristics:
• 1. The franchisor owns a trade or service mark and licenses it to
franchisees in return for royalty payments.
• 2. The franchisee pays for the right to be part of the system. Start-
up costs include rental and lease equipment and fixtures and
usually a regular license fee. McDonald’s franchisees typically
invest about $1.5 million in total start-up costs and fees. The
franchisee then pays McDonald’s a certain percentage of sales plus
a monthly rent.
• 3. The franchisor provides its franchisees with a system for doing
business. McDonald’s requires franchisees to attend “Hamburger
 Franchising
• Franchising benefits both parties.
• Franchisors gain the motivation and hard work of employees
who are Entrepreneurs rather than “hired hands,” the
franchisees’ familiarity with local communities and
conditions, and the enormous purchasing power of being a
franchisor.
• Franchisees benefit from buying into a business with a well-
known and accepted brand name.
• They find it easier to borrow money for their business from
financial institutions, and they receive support in areas ranging
from marketing and advertising to site selection and staffing.
• Some franchisors are giving their franchisees freedom to run
their own operations, from personalizing store names to
adjusting offerings and price.
 Retailer - Marketing Decisions:
Target Market:
• Without defining the target market, the retailer cannot make
consistent decisions about other marketing activities product
assortment, store decor, advertising messages and media, price, and
service levels.
Channels:
• Retailers must decide which channels to employ to reach their
customers. Increasingly, the answer is multiple channels.
• Ex - traditional retail channel, a direct-response Internet site, virtual
malls, and affiliated sites.
Product Assortment:
• Product assortment means – complete set of all products offered by
a firm.
• The retailer’s product assortment must match the target market’s
shopping expectations in breadth and depth.
 Retailer - Marketing Decisions:
Procurement:
• After deciding on the product-assortment strategy, the retailer must
establish merchandise sources, policies, and practices.
Prices:
• Prices are a key positioning factor and must be set in relationship to the
target market, product-and-service assortment mix, and competition.
• Most retailers will put low prices on some items to serve as traffic
builders or loss leaders or to signal their pricing policies.
Services:
• Prepurchase services include accepting telephone and mail orders,
advertising, window and interior display, fitting rooms, shopping
hours, fashion shows, and trade-ins.
• Postpurchase services include shipping and delivery, gift wrapping,
alterations and tailoring, installations
• Ancillary services include general information, parking, restaurants,
rest rooms, and baby-attendant service.
 Retailer - Marketing Decisions
Store Atmosphere:
• Example – music, fragrances, ambience etc.,
Communication Decisions:
• Retailers use a wide range of communication tools to generate
traffic and purchases.
• They place ads, run special sales, issue money-saving coupons, and
run frequent shopper-reward programs, in-store food sampling etc.,
 Retailer - Marketing Decisions
Location Decisions:
• Department store chains, oil companies, and fast-food franchisers
exercise great care in selecting regions of the country in which to
open outlets, then particular cities, and then particular sites.
• Retailers can place their stores in the following locations:
• Central business districts. The oldest and most heavily trafficked
city areas, often known as “downtown”
• Regional shopping centers. Large suburban malls containing 40 to
200 stores,
• Community shopping centers. Smaller malls with 20 to 40 smaller
stores
• Stand-alone stores.
private label brand - (also called a reseller, store, house, or distributor
brand) is a brand that retailers and wholesalers develop.
Wholesaling
 Wholesaling:
• includes all the activities involved in selling goods or
services to those who buy for resale or business use.
 Wholesalers (also called distributors) differ from retailers in
a number of ways.
Wholesaler
1. They are dealing with business customers.
2. Sales volume is high.
3. They cover large area
4. Few number of buyers.
5. Profit margin is low.
6. Personal selling is the communication tool.
Retailer
1. They deal with final/end customers
2. Sales volume is Low.
3. They cover smaller area.
4. Large number of buyers
5. High profit margin
6. Advertisement, sales promotion are the
communication tool.
 Functions of wholesale:
• Selling & promoting: Wholesalers, sales force help the
manufacturers reach many small business customers at a relatively
low cost.
• Bulk Breaking: Wholesalers achieve savings for their customers
through buying in large and breaking the bulk into smaller units.
• Warehousing: Wholesalers hold inventories thereby reducing
inventories costs and risks to the suppliers and customers.
• Transportation: Wholesalers can often provide quicker delivery to
the buyers because they are closer to the buyers.
• Financing: Wholesalers finance customers by granting credit.
• Risk bearing: They absorb some risk by taking the damaged and
expired product.
• Market Information: Wholesalers provide information to the
suppliers and customers regarding competitors activity like new
product launch, new promotional schemes , pricing of the products
etc.,
 Types of Wholesaler:
• Merchant Wholesaler: Independently owned business that
take the title of the merchandise they handle.
• Full Service Wholesaler: They carry stock, maintain sales
force, offer credit, make deliveries, provide management
assistance.
– Example – Distributor for Procter & Gamble products.
• Limited service wholesaler: Cash and carry wholesalers sell
a limited line of fast moving goods to small retailers for cash.
• Brokers & Agents: They facilitate the buying and selling
process and get commission of the selling price. They never
take the title and never hold the inventory.
 Types of Wholesaler:
• Manufacturer branch offices: Wholesaling operations
conducted by sellers themselves rather than through
independent wholesalers. Separate branches offices are
dedicated to sell their products.
• Specialized wholesalers: They deal with specialized products.
• Example - Agricultural assemblers (buy the agricultural output
of many farms),
• petroleum bulk plants and terminals (consolidate the output of
many wells),
• and auction companies (auction cars, equipment, etc., to
dealers and other businesses).
 Marketing Decisions:
Target market:
• They choose the target market by size, type , service and so on.
Product assortment & services:
• Maintaining a large product line is a great pressure for the wholesaler.
• They have to invest huge amount of money, maintain huge inventory.
• They also design the service which build a strong relationship with the
customer.
Pricing decision:
• usually they follow mark-up pricing strategy.
Promotion decision:
• They rely on their sales force to achieve promotional objectives.
Place decision:
• Usually the wholesalers locate their outlet in areas where the rent is low
and low tax areas and put little money into their physical setting.
 Internet Marketing - Types
• (1) Web sites,
• (2) search ads,
• (3) display ads,
• (4) e-mail.
 Internet Marketing – Adv
• companies can offer or send tailored messages that engage
consumers
• Marketers can easily trace their effects by noting how many
unique visitors or “UVs” click on a page or ad, how long they
spend with it, what they do on it, and where they go afterward.
• The Internet also offers the advantage of contextual placement,
which means marketers can buy ads on sites related to their own
offerings.
• They can also place advertising based on keywords customers
type into search engines to reach people when they’ve actually
started the buying process.
 Internet Marketing – Dis-Adv
• Consumers can effectively screen out most messages. Marketers
may think their ads are more effective than they really are if
bogus clicks are generated by software powered Web sites.
• Advertisers also lose some control over their online messages,
which can be hacked or vandalized.
 Web Sites
• Companies must design Web sites that embody or express their
purpose, history, products, and vision and that are attractive on
first viewing and interesting enough to encourage repeat visits.

• effective sites feature seven design elements they call the 7Cs
 Search ADS
• An important component of online marketing is paid search or
pay-per-click ads.
• Thirty-five percent of all searches are reportedly for products or
services.
• Advertisers pay only if people click on the links, but marketers
believe consumers who have already expressed interest by
engaging in search are prime prospects.
• Search engine optimization (SEO) describes activities designed
to improve the likelihood that a link for a brand is as high as
possible in the rank order of all nonpaid links when consumers
search for relevant terms.
 Display Ads
• Display ads or banner ads are small, rectangular boxes
containing text and perhaps a picture that companies pay to place
on relevant Web sites
 E-mail
• E-mail allows marketers to inform and communicate with
customers at a fraction of the cost of a d-mail, or direct mail,
campaign.
• E-mails can be very productive selling tools. The rate at which
they prompt purchase has been estimated to be at least three
times that of social media ads, and the average order value is
thought to be 17 percent higher.25 Firms such as Kellogg,
Whirlpool, and Nissan are emphasizing both e-mail and search
marketing.
 Social Media
• An important component of digital marketing is social media.
Social media are a means for consumers to share text, images,
audio, and video information with each other and with
companies, and vice versa.
• Social media allow marketers to establish a public voice and
presence online. They can cost-effectively reinforce other
communication activities. Because of their day-to-day
immediacy, they can also encourage companies to stay innovative
and relevant. Marketers can build or tap into online communities,
inviting participation from consumers and creating a long-term
marketing asset in the process.