Course Title: Principles of Marketing

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COURSE TITLE : PRINCIPLES OF MARKETING
Chapter 6: Distribution Channel

 Explain what channels of distribution are and why organizations use them
 Explain how channels affect the marketing of products and services
 Describe types of retailers and explain how they are used as a channel of
distribution
CHAPTER 6: CHANNELS OF DISTRIBUTION (PLACE)
The process of moving products from the producer to the intended user is called PLACE. It is
how the product is bought and where it is bought. This movement could be through a
combination of intermediaries such as distributors, wholesalers and retailers. In addition, a
newer method is the internet which itself is a marketplace now.
Through the use of the right place, a company can increase sales and maintain these over a
longer period of time. In turn, this would mean a greater share of the market and increased
revenues and profits.
Correct placement is a vital activity that is focused on reaching the right target audience at the
right time. It focuses on where the business is located, where the target market is placed, how
best to connect these two, how to store goods in the interim and how to eventually transport
them.
WHAT IS A DISTRIBUTION CHANNEL?

A distribution channel can be defined as the activities and processes required to move a product
from the producer to the consumer. Also included in the channel are the intermediaries that are
involved in this movement in any capacity. These intermediaries are third party companies that
act as wholesalers, transporters, retailers and provide warehouse facilities.
TYPES OF DISTRIBUTION CHANNELS

There are four main types of distribution channels. These are:
1. Direct
In this channel, the
manufacturer directly provides
the product to the consumer. In
this instance, the business may
own all elements of its
distribution channel or sell
through a specific retail location. Internet sales and one on one meetings are also ways
to sell directly to the consumer. One benefit of this method is that the company has
complete control over the product, its image at all stages and the user experience.
2. Indirect
In this channel, a company will
use an intermediary to sell a
product to the consumer. The
company may sell to a
wholesaler who further
PRINCIPLES OF MARKETING |
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distributes to retail outlets. This may raise product costs since each intermediary will get
their percentage of the profits. This channel may become necessary for large producers
who sell through hundreds of small retailers.
3. Dual Distribution
In this type of channel, a company may use a combination of direct and indirect selling.
The product may be sold directly to a consumer, while in other cases it may be sold
through intermediaries. This type of channel may help reach more consumers but there
may be the danger of channel conflict. The user experience may vary and an
inconsistent image for the product and a related service may begin to take hold.
4. Reverse Channels
The last, most non tradition channel allows for the consumer to send a product to the
producer. This reverse flow is what distinguishes this method from the others. An
example of this is when a consumer recycles and makes money from this activity.
DISTRIBUTION CHANNEL INTERMEDIARIES are middlemen who play a crucial role in the

distribution process. These middlemen facilitate the distribution process through their
experience and expertise.
TWO TYPES OF MIDDLEMEN

1. Merchant middlemen – those who actually take title to the goods they handle. Ex:
wholesaler and retailers
2. Agent middlemen – those who do not take title to the goods but do actually assist in the
transfer of titles. Ex: real estate brokers
TYPES OF TRADE CHANNELS FOR CONSUMER MARKET

1. From producer direct to consumer – this is the simplest, and it is important particularly
for highly perishable goods like fruits or vegetable. Direct selling of goods from producer
to consumer can be accomplished in several ways such as:
a. Roadside stands – these sellers are commonly found in highways from Metro
Manila to provinces, where common products are seasonal fruits or vegetables.
b. Retail public markets – some farmers may decide to bring their harvest to
public markets in their areas that maintaining a roadside stand.
c. Huckstering – these are “hucksters” or peddlers in public places, who go from
one house to another. This is common in bus terminal, railroad stations, trains, in
public areas in some town or cities.
d. Direct orders – some customers require custom-made products.
2. From producer to retailer to consumer – this channel makes use of only one
middlemen – the retailer. Retailers are the nearest channel members to the market.
3. From producer to wholesaler to retailer to consumer – this is the traditional channel

of distribution for consumer goods.
4. From producer to agent or broker to wholesaler to retailer to consumer – if the

producers business is still under small scale category, it is wiser to avail of the services
of agents to dispense with maintenance of regular fixed income for sales personnel.
FOUR MAIN TYPES OF INTERMEDIARIES:

1. Agents
The agent is an independent entity who acts as an extension of the producer by
representing them to the user. An agent never actually gains ownership of the product
and usually make money from commissions and fees paid for their services.
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2. Wholesalers
Wholesalers are also independent entities. But they actually purchase goods from a
producer in bulk and store them in warehouses. These goods are then resold in smaller
amounts at a profit. Wholesalers seldom sell directly to an end user. Their customers are
usually another intermediary such as a retailer.
3. Distributors
Similar to wholesalers, distributors differ in one regard. A wholesaler may carry a variety
of competition brands and product types. A distributor however, will only carry products
from a single brand or company. A distributor may have a close relationship with the
producer.
4. Retailers
Wholesalers and distributors will sell the products that they have acquired to the retailer
at a profit. Retailers will then stock the goods and sell them to the ultimate end user at a
profit.
WHY USE INTERMEDIARIES?

1. Geography – customers may live too far away to be reached directly or spread widely.
2. Consolidation – of small orders into large ones.
3. Better use of resources elsewhere
4. Lack of retailing expertise
5. Segmentation – different segments of the markets can be best reached by different
distribution channels.
SELECTING DISTRIBUTION STRATEGIES

A company may need to use different strategies for different types of products. Three main
strategies that can be used are:
1. Intensive Distribution – This strategy may be used to distribute lower prices products
that may be impulse purchases. Items are stocked at a large number of outlets and may
include things such as mints, gum or candy as well as basic supplies and necessities.
2. Selective Distribution – In this strategy, a product may be sold at a selective number or
outlets. These may include items such as computers or household appliances that are
costly but need to be somewhat widely available to allow a consumer to compare.
3. Exclusive Distribution – A higher priced item may be sold at a single outlet. This is
exclusive distribution. Cars may be an example of this type of strategy.
ACTIVITY
1. We have 4 types of trade channels for consumer market. Give 2 examples each and
explain.
Deadline: TBA
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REFERENCES
Armstrong, G., & Kotler, P. (2018) Principles of Marketing 17th Edition
Medina, R., (2007) Principles of Marketing

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COURSE TITLE : PRINCIPLES OF MARKETING

Chapter 6: Distribution Channel

CHAPTER 6: CHANNELS OF DISTRIBUTION (PLACE)

WHAT IS A DISTRIBUTION CHANNEL?

TYPES OF DISTRIBUTION CHANNELS

DISTRIBUTION CHANNEL INTERMEDIARIES are middlemen who play a crucial role in the

TWO TYPES OF MIDDLEMEN

TYPES OF TRADE CHANNELS FOR CONSUMER MARKET

3. From producer to wholesaler to retailer to consumer – this is the traditional channel

4. From producer to agent or broker to wholesaler to retailer to consumer – if the

FOUR MAIN TYPES OF INTERMEDIARIES:

WHY USE INTERMEDIARIES?

SELECTING DISTRIBUTION STRATEGIES

Armstrong, G., & Kotler, P. (2018) Principles of Marketing 17th Edition

Medina, R., (2007) Principles of Marketing

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