DISTRIBUTION CHANNEL

Distribution channels are the systems of

economic distribution through which a producer
of goods delivers them into the hands of the
users…Richard Buskirk
 DISTRIBUTION CHANNEL

“Every producer seeks to link together the set of

marketing intermediaries that best fulfil the
firm’s objectives. This set of marketing
intermediaries is called marketing
channel…Philip Kotler
 DISTRIBUTION CHANNEL

Intermediar
Producer Consumer
ies
 MARKETING INTERMEDIARIES
Middlemen: anybody acting as an intermediary between
the producer and the consumer.

Agent or Broker: intermediaries with legal authority to

market goods and services and to perform other functions
on behalf of the producer are called agents or brokers.
Agents generally work for producers continuously, whereas
brokers may be employed for just any deal.
 MARKETING INTERMEDIARIES

Wholesaler: wholesalers are organizations that buy from

producers and sell to retailers and organizational customers
Retailers: they are the last link of the marketing channel.
They sell directly to the consumers.
Dealer: intermediaries that sell only to final customers not
to other intermediaries.
 DIFFERENCE
Distributor Wholesaler
Who are An agent who supplies goods to… An agent who purchases and sells….
they

Serves The distributor serves both, the The wholesaler serves…………

retailer and the wholesaler.
Link They are a link between the…….. They are a link between the…………
between
Type of They may sell similar types of They typically supply a huge range
products products. of contrasting products.
sold
Buys from They are the one, who directly buys They probably sell the goods to the
the products and goods from the consumer.
manufacturer.
Storage of They do not store the goods, they They store the goods and products.
goods directly distribute them.
 DIFFERENCE BETWEEN WHOLESALER & RETAILER
Wholesalers Retailers
(1) They are connecting links between the (1) They are connecting links between the
manufacturers and the retailers. wholesalers and the customers.
(2) They purchase goods in large (2) They purchase goods in small quantities from the
quantities from the manufacturers. wholesalers.
(3) They deal in limited number of (3) They deal in variety of products for meeting the
products. varied needs of consumers.
(4) They need more capital to start their (4) They can start business with limited capital.
business.
(5) The display of goods and decoration of (5) They lay more emphasis on window display and
premises is not necessary for them. proper decoration of business premises in order to
attract the customers.
(6) Their business operations extend to (6) They usually localise at a particular place, area or
different cities and places. city.
 DIFFERENCE BETWEEN WHOLESALER & RETAILER
Wholesalers Retailers
(7) They do not directly deal with the (7) They have a direct link with the customers.
customers.
(8) They do not extend free home delivery (8) They provide free home delivery and after sales
and after sales services. services to the consumers.
(9) They provide more credit facilities to (9) They provide lesser credit facilities to the
retailers. consumers and usually sell goods on cash basis.
(10) They may not possess expert know- (10) They must possess expert knowledge in the art of
ledge regarding selling techniques. selling.
(11) They enjoy the economies of bulk (11) They do not avail such economies.
buying, freights and price etc.
(12) They are not usually classified in (12) They can be divided into categories viz., small
different types. scale and large scale retailers.
(13) Their services can be dispensed with (13) They are integral component of the distribution
or can be eliminated from the chain of chain and cannot be eliminated.
distribution.
 OBJECTIVES/PURPOSE
1. Availability of product in the target market
2. Smooth movement of the product from the producer to
the customer
3. Cost effective and economic distribution and
4. Information communication from the producer to the
consumer.
 OBJECTIVES/PURPOSE
5. To build channel members’ loyalty
6. To stimulate channel members to put greater selling
efforts
7. To develop managerial efficiency in channel
organisation
8. To identify your organisation at the buyer level
 FUNCTIONS
Functions Description
Buying Purchasing a broad assortment of goods from the
producer or other channel members
Carrying Assuming the risks associated with purchasing and
inventory holding an inventory
Selling Performing activities required to sell goods to consumers
or other channel members
Transport Arranging for the shipment of goods to the desired
ing destinations
Financing Providing funds required to cover the cost of channel
activities.
 FUNCTIONS
Functions Description
Promoting Contributing to national and local advertising and
engaging in personal selling efforts.
Negotiating Attempting to determine the final price of goods and
the terms of payment and delivery
Marketing Providing information regarding the needs of
research customers, potential and current customers,
competitors and other actors and forces in the
marketing environment.
Servicing Providing a variety of services such as credit, delivery
and returns
 CHARACTERISTICS
1. ROUTE OR PATHWAY
2. FLOW (FORWARD, BACKWARD)
3. COMPOSITION (RETAILER, WHOLESALER, AGENTS)
4. FUNCTIONS (TRASFER OF OWNERSHIP, TITLE..)
5. REMUNERATIONS (COMMISSION)
6. TIME UTILITY (BRINGS GOODS WHEN NEEDED)
 CHARACTERISTICS
7. CONVENIENCE VALUE (GOODS IN CONVENIENT SHAPE,
SIZE, STYLE, UNIT, PACKAGE)

8. POSSESSION VALUE (OWNERSHIP TITLE TO CONSUMER)

9. MARKETING TOOL

10. SUPPLY DEMAND LINKAGES

DISTRIBUTION STRATEGIES

1. EXCLUSIVE
2. INTENSIVE
3. SELECTIVE
 1. EXCLUSIVE DISTRIBUTION STRATEGIES
1. The use of a single or very few outlets
2. Creates high dealer loyalty and considerable sales support
3. Provides greater control
4. Limits potential sales volume
5. Success of the product is dependent upon the ability of a
single intermediary
 2. INTENSIVE DISTRIBUTION STRATEGY
The manufacturer attempts to get as many intermediaries of a
particular type as possible to carry the product
1. Provides for increased sales volume, wider consumer
recognition, and considerable impulse purchasing
2. Low price, low margin, and small order sizes often result
3. Extremely difficult to stimulate and control this large number
of intermediaries
4. Contains some of the strengths and weaknesses of the other
two strategies.
5. It is difficult to determine the optimal number of
intermediaries in each market
 3. SELECTIVE DISTRIBUTION STRATEGIES
An intermediary strategy, with the exact number of
outlets in any given market dependent upon market
potential, density of population, dispersion of sales, and
competitors' distribution policies
• Contains some of the strengths and weaknesses of the
other two strategies.
• It is difficult to determine the optimal number of
intermediaries in each market
 SELECTION CRITERIA
1. Market Factor
2. Product Factor
3. Producer/Manufacturer Factor
4. Consumer Factor
 MARKET FACTOR
1. Considers whether the product is meant for the consumer or industrial
buyers. If it is for consumers market, retailers will have to be
employed. If it is for both, more than one channel will have to be
employed.

2. If a number of potential customers are large, a number of middlemen’s

services will be needed and if small, company’s sales forces may serve
the purpose.

3. If customers are concentrated in a few areas, direct selling may be

done effectively. Otherwise, a large number of middlemen will have to
be used if the customers are widely spread over the entire country.

4. If the sales volume is large, direct selling may be economically feasible.

 PRODUCT FACTOR
1. If the product is of high value, shorter and costly
channels may be used. If the product is of low value,
larger and cheap channels will be used.
2. For perishable products shorter channels will be
preferred and for non-perishable products, wide
choice of channels may be used.
3. Technical and complex product need shorter channel.
 PRODUCER/MANUFACTURER FACTOR

1. Financially sound producers can utilize the services of

its sales force and they can grant credit for long period
or warehouse their product
2. Desired for control of channel may lead the producer
to establish a short and direct channel.
3. Experience and completeness of management also
play a major role.
 CONSUMER FACTOR

1. Consumer consideration with regard to time, form,

place utilities play a significant role in choice of
distribution channel
 CHANNEL MANAGEMENT PROCESS
ANALYSE THE CONSUMER

ESTABLISH THE CHANNEL OBJECTIVES

SPECIFY DISTRIBUTON TASK

EVALUATE AND SELECT FROM CHANNEL ALTERNATIVES

EVALUATE CHANNEL MEMBER PERFORMANCE

 1. ANALYSE THE CUSTOMER
1. To whom shall we sell this merchandise ?
2. Who are our ultimate users and buyers?
i. what are the customer needs?
ii. where they buy?
iii. when they buy?
iv. why they buy from certain outlets? and
v. how they buy?
 2. ESTABLISH THE CHANNEL OBJECTIVES
1. They are based on
1. the requirements of the purchasers and users
2. the overall marketing strategy, and
3. the long-run goal of the organisation
2. the channel objectives may be the dominant objectives.
3. SPECIFY DISTRIBUTION TASK(FUNCTION)
1. Task must be far more specific in describing the tasks,
2. must define how these tasks will change depending
upon the situation.
3. Must be able to Evaluate all phases of the distribution
network.
4. Tasks must be identified fully, and costs must be
assigned to these tasks.
SPECIFY DISTRIBUTION TASK(FUNCTION)
Examples:
1. Provide delivery within 48 hours after order placement
2. Offer adequate storage space
3. Provide credit to other intermediaries
4. Facilitate a product return network
5. Provide readily available inventory (quantity and type)
6. Provide for absorption of size and grade obsolescence
4. EVALUATE & SELECT FROM CHANNEL ALTERNATIVES
1. There are four bases for channel alternatives:

I. number of levels (0-4)

II. intensity at the various levels (how many Retailers?)

III. types of intermediaries at each level (Exclusive, Intensive,

Selective), and

IV. application of selection criterion to channel

alternatives(Company factors, environmental trends,
reputation of the reseller, experience of reseller).
5. EVALUATING CHANNEL MEMBER PERFORMANCE
1. Sales
i. Current sales vs Historical sales
ii. Sales comparison among other channel members
iii. Comparison of channel member’s sales with
predetermined sales quotas.
2. Maintenance of adequate inventory
3. Selling capabilities
4. Competition from other intermediaries
5. Attitudes of channel intermediaries toward the product
 CORRECTING OR MODIFYING CHANNEL
1. Because of other factors such as new competition,
technology, or market potential, changes will be made in the
channel structure.

2. Terminations of channel members not performing at

minimum performance standards.

3. Addition of new channel

4. Deletion of the old channel member