Various Distribution Alternatives

Distribution-Scope Strategies

 Intensive distribution
 Distribute from as many outlets as
possible to provide location
convenience
 Selective distribution
 Appoint several but not all retailers
 Exclusive Distribution
 Limiting the distribution to only one
intermediary in the territory
Approaches to Channel Based
Distribution
 Intensive--essential to
low involvement goods
 Selective--desire to
maintain image
 Exclusive--very high
prestige needed or
very high service Admission By
INVITATION

requirements ONLY
Mass/ Intensive distribution

 Distribute from as many outlets

as possible to provide location
convenience
 Intensive Distribution

Characteristics
 Low value, repeat purchase items

 Low involvement products, least effort

by customers
 Biggest imbalance between the
production levels and consumption
levels
 Low shelf life in many cases

 Maximum no. of intermediate players

Example of Intensive
Distribution
 Commodities, Food & grocery,
stationery, medicines, mobile prepaid
cards etc.
 Cigarettes, Matches, Tobacco products
 Pharmaceuticals
 Intensive Distribution

 Advantages:
 Increased sales, wider customer
recognition, and impulse buying
 Disadvantages:
 Characteristically low price and low-margin
products that require a fast turnover
 Difficult to control large number of retailers
 Average retailer order size very small (shop
size & money constraints)
Which are the largest selling
FMCG brands in India?
 Gold Flake – 3000 crore
 Wills – 2000 crore
 Pepsi – 2000 crore
 Thums Up
 Britannia
 Parle
 Colgate
 Coca-Cola
 Wheel
 Nirma
Source: Brand Equity research 2006
Which are the largest selling
FMCG categories in India?
 Personal care – 9000 crore+
 Cigarettes – 8000 crore+
 Soft drinks – 7000 crore+
Source: Brand Equity research 2006

 One common factor for the largest

brands is the greatest distribution width
and scale
Typical FMCG distribution
( Intensive distribution)
Factory

Depot / C&F

Distributor Wholesalers Retailers

Distributor 2 Consumers

Distributor 3
Host of Intermediaries
 Between Distributor to Consumer,
there can be wholesalers, sub-
wholesalers, commission agents,
store based retailers, patri-wallas,
mobile retailers (push carts and
pheri-wallas) etc.
Life is not so simple
Potential conflict areas
Factory

Depot / C&F

Distributor Wholesalers Retailers

Distributor 2 Consumers

Distributor 3
Another Conflict
Factory

Depot / C&F

Distributor Wholesalers Retailers

Distributor 2 Consumers

Distributor 3
More Confusion
Factory

Depot / C&F

Distributor Wholesalers Retailers

Distributor 2 Consumers

Distributor 3
New Developments: growth of
organized retailing
Factory

Depot / C&F Direct co. to retailer

Organized
Retailers
Distributor No
intermediary

Distributor 2 Consumers

Distributor 3
Collapsing outbound supply chain
 Earlier – Carpet bombing technique

Manufacturer Mother godown CFA

Retailer Wholesaler Distributor

Consumer
Collapsing outbound supply chain
 New trend – Precision bombing
technique

Manufacturer Retailers w/h or DCs

Consumer Retail stores

Intensive Distribution – a specific
case
 Q. Which is the most perishable
commodity today?
Answer
Newspapers
 Average shelf life: 3 hours
Typical newspaper distribution

 The printed newspaper is dispatched to

various distributors across the country
through transportation.
 Transportation is normally through
private contract carriers within local
area, public transport in case of longer
distances and through couriers in other
cases.
Contd..
 The newspaper distributor has sole
rights to distribute the newspaper
in his area. His revenue is based on
a commission on the sale of every
newspaper.
 He achieves circulation through
salesmen appointed and salaried
by him, who in turn pass it on to
hawkers.
Contd…
 Hawkers, vendors and book stall
owners are the last link of the
supply chain before newspaper
reaches readers.
 The hawkers’ remuneration is
based on a commission system and
is the highest in the entire supply
chain.
Optimization model

 The entire distribution network can be

segregated into various hawker points and an
optimized route proposed for each of them,
based on the vehicle capacity constraints.

 Starting at the first hawker, newspaper

requirements are accumulated until the vehicle
limit is reached. At this hawker, another
vehicle route is begun. The procedure is
continued until all the hawkers are included in
some route.
Contd.
 After the routes that include all the hawkers
and that satisfy the vehicle capacity
constraints have been constructed, the time
constraints must be checked. The routes
describe the distance the vehicle must travel
on each route and the sequence in which
hawkers on that route are visited. For each
route, the distance along the route, from the
production facility to the last hawker point
visited can be calculated. The time the vehicles
stop at each hawker also needs to be
considered.
Production schedule
 The production schedule can be deduced by
arranging the routes in a sequence that will
ensure delivery of all the newspapers by the
prescribed time.
 This sequence is developed by arranging the
routes in descending order of the total route
length distance from the production facility to
the last hawker.
 Usually, newspapers for the farthest locations
are produced and shipped first since the total
delivery time is greater.
 Dark zone -> City edition -> Metro edition ->
local supplements
Mass distribution – some issues
 Differential taxation across states.
 Leads to cross-state movement of
goods, territory infiltration, rate issues
& market conflict.
 Case : Nimulid Tablets
Delhi VAT 4%, UP VAT 9%
Suggest solutions to Panacea Biotech
HUL
 A distribution giant
Selective distribution

 Appoint several but not all retailers

 Selective Distribution
Characteristics
 Somewhat expensive, infrequent purchase
items (life usually more than 6 months)
 Relatively high involvement products, more
effort by customers (can go 3-5 kms)
 Less of impulse purchase

 More impact of store image & atmospherics

 Lower level of distribution

Products Distributed through
Selective Distribution
 Consumer Durables, Mobiles, Apparels,
Watches, Footwear, Sport goods, Toys,
Kitchenware, Jewelry, etc.
 Selective Distribution
 Advantages:
 More control and less cost than intensive
distribution
 Concentrate effort on few productive outlets
 Selected firms capable of carrying full product
line and provide the required service
Selective Distribution (cont’d)
 Disadvantages:
 May not cover the market adequately
 Difficult to select dealers (retailers) that
can match your requirement and goals
Typical Consumer Durables
distribution
Factory

Distribution Center

Dealer1 Sub dealer Customer

Distributor 1 Dealers in
small towns Customer
Dealer 2
Dealers
 Spaced out within a market
 Usually carry Multi-brands
 Product presentation is critical
 Customer handling by sales person is
key
 Clearing of doubts at the purchase point
(dissonance reducing buying behavior)
 After sales service is a must
The biggest selective
distribution model in India
 LG
 T/O 10000 crore+
 43 branches, 150 area offices, 10000+
channel partners
 No. 1 or 2 in most of its product
categories:
 AC – 30%, CTV – 27%, Washing m/c –
35%, Refrigerators – 30%, Microwaves
– 40%
New distribution network
Factory

Distribution Center Exclusive

outlet

Dealer1 Sub dealer Customer

Distributor 1 Dealers in
small towns Customer
Dealer 2
New developments: growth of
organized retailing
 To have better control on their brand
and customer interaction,
manufacturers started retailing activities
 Raymonds shop, Bata Stores
 Exclusive Brand outlets; either owned
or franchised
 EBOs are in addition to the regular
MBOs
A special case of selective
distribution – Film distribution
 The production house (like Yash Raj Banner)
sells the territorial rights to film distributors
(like Shringar Films).
 The price is decided by the cost of the project
and the trade potential of the movie.
 Retailers are the exhibitors (theatres)
 The spectrum has organized chains like PVR
& Imax at one end to single screen theatres
at the other.
Why selective distribution?
 Not feasible to release a movie on all the
screens of a market
 Neither it is desirable
 Multiplexes have clearly sliced the market into
classes & masses.
 Films are now produced with this
segmentation in mind right at the onset.
 Only universally potential movies find
acceptance by all kind of exhibitors.
Further selectivity down south
 South India – more selective distribution
 Thriving vernacular movie industries in 4
languages
 Huge demand and high number of screens
 Depending on the catchment area, the
exhibitor prefers the language of the movie
out of broad 6 choices.
Exclusive Distribution

 Limiting the distribution to only one

intermediary in the territory.

 Depending on the market strength,

the territory can be one entire state,
town or a major region of a city.
 Exclusive Distribution
Characteristics

 Generally expensive, capital expenditure,

once in a lifetime purchase items
 Can be meant for a particular class or
community
 High involvement products, more effort by
customers (can go fair distance to purchase
the products)
 More impact of store image & atmospherics
 Generally 1-level distribution
Examples of Exclusive
Distribution
 Two-wheelers, cars, Luxury goods,
home furnishings & carpets, etc.
Exclusive Distribution

Advantages
 Maximize control over service level/output

 Enhance product’s image & allow higher

markups
 Promotes dealers loyalty, better
forecasting, better inventory and
merchandising control
 Restricts resellers from carrying

competing brands
Exclusive Distribution
Disadvantages
 Betting on one dealer in each
market
 Only suitable for high price, high
margin, and low volume products
Typical Auto Industry
distribution

Manufacturing
Location

Dealer1 Customer

Dealer 2

Dealer 3
Dealers
 Pop & potential: the basic criteria for
selection
 Spaced out within a big city
 Only 1 in a small city
 Exclusive Brand Outlets Only
 Have to give lot of customer education
 Product presentation, demonstration is critical
 Customer handling by sales person is key
 After sales service is a must
After Sales Service network in
auto industry
 Service network has to be more
distributed than sales network
 Mostly through Authorized Service
Stations
 Recently, Companies started realizing
service as a key differentiator
 Maruti itself opened service stations -
MSM
Why should service be more
distributed than sales for auto
industry ?
 Sales – one time purchase activity by the
customer
 High involvement product; more effort by the
customer
 Service – more frequent and routine
 Emergency repairs, accidents
 Bigger earning potential for the company
 Customer would like service station to be as
close to him as possible.
Does Auto Industry require
Mass Distribution?
 Yes – For its spare parts.
 Spare Parts are relatively low value, repeat
purchase products.
 They are sold through car spare parts dealers
in specific markets apart from the authorized
service stations.
 Small repair garages, workshops and
mechanics purchase them from these outlets.
Taking exclusivity to a new level
 World leader in luxury, LVMH (Louis Vuitton
Moët Hennessy)
 Louis Vuitton possesses a unique portfolio of
over 60 prestigious brands. The Group is
active in five different sectors:
 Wines & Spirits
Fashion & Leather Goods
Perfumes & Cosmetics
Watches & Jewelry
Selective retailing
LVMH – The Brands
 Louis Vuitton
 Kenzo
 Givenchy
 Fendi
 Thomas Pink
 Donna Karan
 Mont Blanc etc.
LVMH in India
 Only 3 outlets till 2008:
 The Oberoi, New Delhi, 2003
 The Taj Lands End, Mumbai, 2004
 Taj Mansingh, New Delhi, 2005

 Lack of the right retail environment, where

their target segment can meet them.
The emerging scenario
 A few of the existing malls in India fulfill
their requirements – Select Citywalk.
 Some super-luxury malls are being
developed – DLF Emporio
 Recently, LVMH has signed-up for their
stores in these.
 Has also a store at UB World, Bangalore
Channel Management
 Selecting Channel Members
 Training Channel Members
 Motivating Channel Members
 Conflict Management
 Channel Management
Decisions
 Selecting Channel  Evaluating Channel
Members Members
 Identify characteristics  Performance should be
that distinguish the checked against
best channel members standards
 Managing and  Channel members
Motivating Channel should be rewarded or
Members replaced as dictated
 Partner relationship by performance
management (PRM) is
key
 Channel Management
Decisions

Decisions  Which characteristics

are important?
 Selecting channel  Years in business
members  Lines carried
 Managing and  Growth and profit
motivating channel record
members  Cooperativeness and
reputation
 Evaluating channel
members  Type of customer
 location
Selecting Channel Partners
 Getting good channel partners is a difficult
part of doing business
 Some of the methods employed to select
channel partners are:
 Sales people identify prospects and talk to them
 Press advertising (industrial goods)
 Existing channel partners can give good
references
 Competitors’ channel members for reference, or
poaching
Setting up the Distribution Channel

 Q. Which players do you select and appoint

(have a contract)?
 A. 1. Primary Distributors / Exclusive Dealers
who will become your authorized channel
partners.
2. Franchisees
3. CFAs incase you do not want to have
your own distribution center
Rest of the players ie wholesalers, retailers,
multibrand dealers are only convinced and
motivated to sell your products.
Selection Criteria
 Qualitative: willingness, confidence in
company products, willingness to abide
by company rules, building company
image, innovativeness etc
 Quantitative: financial status,
infrastructure, location, present
businesses, customer relationships,
market standing etc
Selection ..contd.

 Determine the number at each level

required in any territory
 Estimate the potential business from each
member
 Identify capable parties (FEED principle at
Gillette)
 Selection
 ROI & cost of servicing the account
 Convince, negotiate, finalize, sign a formal
agreement (in case of primary partners)
The core channel offerings
 The financial returns which the channel
partner will get
 The quality of the product
 The reputation of the brand
 The advertising support
 The price at which it is being offered to
the market
 Delivery reliability
 Market goodwill
Training Channel Members
 Starts from the time of recruitment
 Channel member owner and his staff
 Market views channel member as part of the
company – he has to behave in a like manner
– hence training assumes significance
 Training could be on the job field training or
classroom training
 Training is an ongoing process.
 Channel Management
Decisions

Decisions  Partner relationship

management (PRM) for
 Selecting channel long-term partnerships
members
 Managing and  Software available to
motivating channel coordinate members
members
 Evaluating channel
members
Motivating Channel Members
 Ambitious volume and growth targets –
continuous motivation required to achieve
 Motivation includes:
 Capacity building programs
 Training
 Promotions support
 Marketing research support
 Working with company personnel
 Incentives
 Motivating the distributors
 Through ensuring high secondary sales
 Healthy profit and ROI
 Image building
 Joint publicity – newspaper ads, trade-fairs,
hoardings & banners, road-shows
 Sales promotion schemes – QPS, target
incentives, volume discounts, trips, contests
etc.
 Training to their teams
 Transparency and fairness in dealing
 Regular communication from the seniors
 Motivating the retailers
 Periodic retailer promotions
 Providing display material free or at
subsidized prices
 Cooperative advertising and promotion

 Display contests

 Window hiring

 Mystery shopper

Also training retailers in how to use & where

to use the display is necessary to get his
interest and cooperation.
 Channel Management
Decisions

Decisions  Check channel

performance of:
 Selecting channel  Sales
members
Inventory
Managing and


motivating channel  Customer delivery
members  Promotion and
 Evaluating channel training
members  Customer service
 Role of ROI…..

Channel Members Evaluation

 Effectiveness of the distribution channel
determines the success of the company
 Company would like its channel partners to
perform at the highest standards possible
 Need to constantly evaluate performance on
sales targets, coverage, productivity,
inventory holdings, attending to servicing
requests etc
ROI as a Measure
 Leading FMCG companies feel that an ROI of
30% for a distributor is healthy and is a fair
indication that he is performing well.
 If the ROI is more, additional tasks are given
 If the ROI is less, the company may provide
additional support
 Post evaluation tasks include counseling,
retraining and motivating. In extreme cases it
may result in termination.
Calculating ROI
 The investment by the channel
members is in capital and infrastructure
 For a particular period, R = {S X P – (Tc
+ Sc)} / Wc + Ic
 R=Return, S=Sales volume, P=Profit
per unit, Tc=Transaction cost,
Sc=Shipping cost, Wc=Working capital
cost, Ic=Infrastructure cost
Performance Evaluation
 On pre-agreed tasks only. No surprises.
 Specific targets on periodical basis are set.
 Targets on volume and outlet productivity could
be for a week or a month
 Targets relating to increasing market shares or
total outlet coverage could be for 6 months
 Different weightages could be given for each of
the parameters for evaluation
 The performance appraisal is open and
transparent
 Modifying Channel Arrangements

♦ Modification becomes necessary when the

distribution channel is not working as
planned.
♦ When consumer-buying patterns change.
♦ When the market expands.
♦ When new competition arises.
♦ When innovative distribution channels
emerge.
♦ And when the product moves into the later
stages in the product life cycle.
 Multi-channel Marketing
Systems
♦ Multi-channel marketing occurs when a
single firm uses two or more marketing
channels to reach one or more
customer segments.
♦ By adding more channels, companies
can gain three important benefits:
♦ Increased market coverage.
♦ Lower channel cost.
♦ More customized selling.
 Multi-channel Costs

♦ The gains from adding new channels

come at a price:
♦ New channels typically introduce

conflict and control problems.

♦ Two or more channels may end up

competing for the same customers.

♦ The new channel may be more

independent and make cooperation

more difficult.
Distribution & Logistics Mgmt –
issues involved
 More dependent on outsiders (not
employees
 All the flows in the channel have to be
performed and even one missing link
will make the channel ineffective
 Generally products compete with many
others in the same channel
 Proper ROI to be generated – through
volumes or higher margins
Channel conflict
 Each member is an independent
business entity having own goals and
orientation

 When one member perceives the

behavior of other member to be
impeding its effective functioning.
Channel Behavior
 Channel Conflict
 Occurs when channel members disagree
on roles, activities, or rewards.
 Types of Conflict:
 Horizontal conflict: occurs among firms
at the same channel level
 Vertical conflict: occurs among firms at
different channel levels
 Typical reasons for Channel
conflicts
 Unfulfilled commitment from either side
 Unrealistic expectations
 Ambiguous terms of business
 Personality clash between the party and
the company sales person
 Infringement in assigned sales territory
by other distributor
 Different treatment to different channel
partners
 Lower prices in wholesale (in the case
of mass-products)
 Multi-channel Conflict

♦ Multi-channel conflict exists when the

manufacturer has established two or
more channels that sell to the same
market.
♦ Multi-channel conflict is likely to be
especially intense when the members
of one channel get a lower price
(based on larger volume purchases) or
work with a lower margin.
Four Stages

LATENT

PERCEIVED

FELT

MANIFEST

Each stage is progressively more severe than the earlier one

Conflict Resolution Styles
Avoidance Styles are a combination
of assertiveness and
Aggression co-operation.

Accommodation

Compromise

Collaboration

Least effort and Maximum effort and

results Best results

Kenneth W Thomas
 Utilizing Power in the Channel
In the era of Retailers’ and the influence of the
Internet on retailing, it is interesting to consider which
channel member(s) is/are powerful and how the power
is being utilized.
1. Reward power: The ability of one member to
provide financial or other type rewards to others for
compliance.
2. Coercive power: The ability of one member to
punish others through various means for non-
compliance.
3. Legitimate power: This is based on the notion that
one member has the right to influence others and that
others should accept it.
4. Referent power: The power derived by one member
by identifying with another.
5. Expert power: The power based on the perception
that one member has expertise or special knowledge.
Managing Channel Conflict

•Diplomacy
•Diplomacy
•Mediation
•Mediation
•Arbitration
•Arbitration
 Methods to Manage Channel
Conflict
Mediation
 Motivating Methods 

 Arbitration
 Punitive Methods
The above two are
 Cooptation third party
 Diplomacy mechanisms
At any point,
skillful
negotiations are
very important in
resolving
conflicts
Relationship Marketing
via the Marketing
Channel
Typology of Relationship Marketing

Relationship Nature

Ad Hoc On Going

Strategic Alliance Partnering

Relationship Relationship Relationship
Purpose

Operational Transactional Cooperative

Relationship Relationship
 Strategies for conflict
resolution
Significance of Individual Goals

Low High

Partnering Compromising by Integrating by

sacrifice negotiation
Nature of
Relationship
Maintenance
Transactional Withdrawing by Forcing by
avoidance domination
 Strategic Alliances and
Definition:
Partnerships in Marketing
Channels

Continuing and mutually supportive

relationship between the manufacturer
and its channel members in an effort to
provide a more highly motivated team,
network, and alliance of channel
partners
Traditional “us-against-them” mentality
is replaced with a new cooperative
perception of “us” in an effective
channel partnership or strategic alliance

Thus, partnerships or strategic alliances

go well beyond the ad-hoc, on-again /
off-again interactions typical of
traditional relationships among channel
members
 Requirements for Partnerships or
Strategic Alliances in Marketing Channels

(1) Recognition of interdependence of channel

members
(2) Close cooperation between channel members
(3) Careful specification of roles, rights, and
responsibilities in the relationship
(4) Coordinated effort focused on common goals
(5) Good communications and trust between
channel members
Building Relationships
with Channel Members

Find Out the Needs and Problems of

Channel Members
-informal information system
(“grapevine”)
-research studies of channel
members
-research studies by outside parties
-marketing channel audit
-distributor advisory councils
with Channel Members
Cont’d…

Offer Support to Channel Members that is

Consistent with Their Needs and Helps Solve their
Problems
-cooperative arrangements
-partnerships and strategic alliances
-distribution programming
Provide Leadership to Motivate Channel Members
-use power effectively
-recognize causes of conflict
-resolve conflicts
Key relationship factors and IT-based
distribution system

 Reasonable ROI Company

&
 Transparency in dealing its
Warehouses
 Prompt info sharing
 QR techniques
 Fixed / smaller replenishment cycles IT-enabled
 Zero-defect delivery dist. channel
 Early recovery system
 Tracking info
 Servqual consistency

Channel
•IT enabled Distribution systems
•Disintermediation vs. Reintermediation

•Cybermediary, Infomediary,
Intermediary empowerment
•Strategic framework
Impact of e-commerce on
Distribution
 Many researchers predicted the demise
of traditional distribution channels with
the advent of e-commerce.
 Most of them wrote about the DTC
model for products / services.
 Has complete disintermediation
happened?
 E-commerce leads to:
 Disintermediation: Elimination of
intermediary organizations by substitution
or consolidation using IT &
communication linkages.
 Does not completely eliminate
intermediary functions in most categories.
 Either automates or shifts intermediary
functions upstream or downstream of a
supply chain.
 The E-Distribution

 Comparison between various channels of

distribution reveal that e-channels have the
lowest cost-per-transaction and low value
added service.

 On the other hand, traditional physical

channels that include salespersons have the
highest cost-per- transaction and the highest
value added service.
 The E-Distribution

 Choice of utilizing the traditional physical

channels (brick only), e-channels (pure-
play, click only) or dual channels (brick &
click).

 While some marketers use brick only

channels (ex. SME’s) or click only
channels (Amazon.com), many have
settled for a dual channel system (ex.
Wal-Mart).
 The E-Distribution

 While some use dual channels for

promotion, sales and distribution of their
products/services, others are confined to
promotion and service via the e-channel of
their products sold through physical
channels.

 For instance, automotive companies use

their websites to drive traffic to their brick
sites (dealerships).
 Dual Channel – Complementary 1
Dealership Honda

Honda.com

In this case, Honda’s Website provides vehicle and dealer

information and directs customers to the nearest dealer.
 Dual Channel – Complementary 2

Best Buy Sony

Sony.com

In this case, Sony sells certain products/services through Best Buy

and others through its own Website.
 Dual Channel – Competing 1
USA Bookstore Prentice Hall

PrenHall.com

In this case, book publisher Prentice Hall sells books via university
book stores and also via their own Website.
 Dual Channel (Retailer) – Competing 2

Supercenters Wal-Mart
Stores, Inc.

Walmart.com

In this case, retailer Wal-Mart sells certain products thru competing

channels while others thru a single channel.
Emergence of newer forms of
intermediary
 Some functions like information search,
demand aggregation, title exchange
and communication are more efficiently
performed by electronic intermediaries
than traditional distribution channels.
 Other functions like product promotion,
integration, negotiation, logistics are
still the forte of traditional channels.
Major transformations due to IT
environment
 Disintermediation
 Meaning – To remove the middleman
 Biggest benefit – getting closer to the
customer and managing less number of
intermediaries
 What about cost?
 Cost advantage accrues only if service /
control over market is not compromised
2 types of disintermediation
• Partial disintermediation
• Reduction or bypass of a few 3rd party
intermediaries.
• Example – Airlines adopting direct booking / e-
ticketing for their privileged corporate clients.
• They have disintermediated at least one out of
agencies and CRS vendors, and pass on the
savings on commissions to the clients in terms
of value-added offers, loyalty program.
Contd…
• Complete disintermediation
• Remove all channel partners and sell through
the Internet.
• New term coined for this distribution model –
Cybermediary
• Example – Dell uses either its direct sales force
(for B2B dealings) or through Internet (for B2C
business)
• Benefits – fast and wide reach to customers,
automatic paperless record keeping, no brick-n-
mortar outlets and no pipeline inventories
Growth of Reintermediation
• The process of using the Internet to
reassemble sellers, buyers & business partners
in new ways
• Disintermediated players can regroup and fight
back.
• Emergence of new IT-based intermediaries
between customers and suppliers to provide
info based services like source search and
evaluation, price comparisons etc.
• Example – E-bay
2 forms of reintermediation
emerging
• Infomediary
• Marketing intermediary in the business of
providing information
• Serves as an electronic information broker,
providing shopping services or buying
assistance to help buyers and sellers find
each other
• Example - NTE in USA, Job-search sites,
Mutualfundsindia.com, Property-search
sites
2nd type of reintermediation
• Intermediary Empowerment
• To take out costs from the most potent area i.e.
distribution; organizations are using IT for
developing linkage with their strategic channel
partners
• Major advantages of this are – sharing of working
methodology, transparency and real-time
availability of information regarding order-status,
shipment schedules, replies of inquiries, credit-
status, inventory management etc .
• This leads to empowerment of the channel
partners and creates committed team-players.
Disintermediation vs.
Reintermediation
• Concept of disintermediation – even the
smallest producers gain exposure to vast
number of customers. All they need is a
good enough website.
• Reality has proved otherwise.
• In many cases, addition of intermediaries
has happened in the channel
(reintermediation)
• Example – Amazon.com, Indiatimes.com,
Auto-by-Tel, Peapod
The verdict
• The jury is still out on the issue.
• Good examples of reintermediation do not mean it
has prevailed over disintermediation
• A powerful example of successful disintermediation
is Dell ( which sells over $40 million worth of goods
everyday directly)
• No matter how technologically superior Internet is,
the law of economics will always hold true.
• Efficiency in the performance of distribution tasks
is what will determine the form of the channel
structures to emerge.
 Information flow vs. Product
 flow
5 flows in channels – product, money, title, information
and promotion.
 Internet can superbly handle flow 2,3,4 & 5 as all of
them have information which can be digitized.
 However in maximum cases, flow of products i.e. actual
fulfillment of transaction has to be in the ‘old-fashioned’
way i.e. through people, warehouses, packaging,
transportation means etc.
 It is the product flow which is at the core as in the
absence of it, no other flow is required.
 Thus internet is not a ‘complete’ marketing channel.
 Depending on the product category and behaviour of
customer segments, electronic channels will have
different role and impact for companies.
 Strategic framework for adopting various
IT-enabled distribution systems
 1. Product characteristics – All products
are not fit for e-comm. A larger %age of
e-based sales come from products which
can be digitized.
 Product characteristics’ GRID:
Nature of product

Non-physical Physical product

Simple features Cybermediary Partial

Configuration of disintermediation
the product
features Complex features Infomediary Intermediary
empowerment
 2. Consumer Involvement in
Purchase decision
 Involvement can manifest itself in 2
forms – information search and
inspection of product attributes.
 Consumer sensitivity GRID:
Need for info search – Need for info search -
low high

Need for physical Cybermediary Infomediary

inspection - low

Need for physical Partial disintermediation Intermediary

inspection - high empowerment
 3. Distribution Profile of the
organization
 Most firms have limited direct distribution resource
capability.
 Conflicts between established and new channel is

one of the biggest issues, specially in consumer

goods companies.
 Harmonious relationships with entrenched
DD Resource High
intermediaries are very
capability of important
the firm to them for growth
& long-term peformance.
- Low
Need for harmonious Infomediary Cybermediary
 Distribution profile GRID:
channel relationship –
low
High Intermediary Partial disintermediation
empowerment
 4. Role of intermediaries
 It is expected that intermediaries who
primarily facilitate information exchange
will be eliminated by e-comm.
 Depending on the quantum of logistical
and marketing value addition, a GRID
based on role of
Logistical intermediaries
value
addition - low
High is
formed: Cybermediary
Marketing value Partial
addition- low disintermediation

High Infomediary Intermediary

empowerment
 Strategic framework for adoption of Internet-based
Factors Product Consumer
Distribution system Role of Distribution
characteristics involvement intermediaries profile of firm

IT- Nature Product Need Need Logistica Marketi DDS Need

enabled of features for info for l value ng resourc for
system produc search physical add value e harmoni
s t inspecti add capabili ous
on ty channel
relation
Cyberme Non- Simple Low Low Low High High Low
diary physica
l
Partial Physica Simple Low High Low High High High
disint. l
Infomedi Non- Comple High Low Low High Low Low
ary physica x
l
Intmdy. Physica Comple High High High High Low High
empowe l x
Summary of the changes in
distribution due IT
 Metamorphic transformation is possible in
traditional distribution structures.
 Disintermediation (partial or total) as well as
reintermediation in the form of infomediary
and intermediary empowerment is
happening.
 Disintermediation in the short-run with the
bypassed players regrouping and getting
reintermediated through use of IT is a big
possibility.