Selecting Channel of

Distribution

BY: VINAY SABHARWAL

PGDM II YR
IME

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 Selecting Channel of Distribution

Distribution Channels
• A distribution channel is a set of independent organizations involved in the
process of making a product or service available to the consumer or business user
• Used to move the customer towards the product….

Channel Functions
1. Information
2. Promotion
3. Contact
4. Matching
5. Negotiation
6. Physical Distribution
7. Financing
8. Risk taking….
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 Distribution Channel Functions
Distribution Key Functions
Channel
Information Gathering and distributing marketing research
about the environment
Promotion Developing and spreading persuasive
communications about an offer
Contact Finding and communicating with prospective
buyers
Matching Shaping and fitting the offer to the buyer’s need

Negotiation Agreeing on price and terms of the offer so

ownership or possession can be transferred
Physical Distribution: transporting and storing goods

Financing Acquiring and using funds to cover the costs of

channel work
Risk Taking Assuming financial risks such as the inability to
sell inventory at full margin
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 Marketing
•
Intermediaries
Middlemen – independent link between producers and consumers. aka intermediaries

• Merchant middleman – actually buys goods and takes title/ownership

• Agent – business unit that negotiates purchases and sales but does not take ownership

• Wholesaler – a merchant who primarily stores and handles goods in large quantities

• Retailer – merchant middleman who sells to final consumers

• Broker – middleman who serves as a go-between for the buyer and seller….

• Manufacturer’s agent – an agent who operates by contract serving a geographic territory

• Distributor – wholesale middleman in lines with selective or exclusive distribution

• Jobber – a middleman who buys from manufacturers and sells to retailers. (A wholesaler)

• Facilitating agent – a firm that performs distribution tasks other than buying, selling and
transferring title might include financing, shipping, warehousing……

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 Why Use Marketing Intermediaries?
• Because it has been seen that selling through wholesalers and retailers usually is much more
efficient and cost effective than direct sales..
Role of Intermediaries
• Greater efficiency in making goods available to target markets.
• Intermediaries provide
• Contacts
• Experience
• Specialization
• Scale of operation
• Match supply and demand….
Wholesalers
• Buy from manufacturers in bulk
• They create value for suppliers and retailers by handling their function efficiently and effectively
• They seek producers of major brands for which sales and profits are greatest…
Store Retailing
• Mass merchandisers carry a broad assortment of goods and compete based on selection and price
• Specialty stores handle deep assortments in a limited number of product categories
• Convenience stores are retailers whose primary advantage is location…..
Non-Store Retailing
• Catalogs
• Direct mail
• Vending machines
• Television home shopping
• Direct sales
• E-commerce…..
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 Number of Channel Levels
Channel Level - Each Layer of Marketing Intermediaries that Perform Some
Work in Bringing the Product and its Ownership Closer to the Final Buyer.
0-level channel
Producer
Producer Consumer
Consumer

1-level channel
Producer
Producer Retailer
Retailer →Consumer
Consumer

2-level channel
Producer
Producer →Wholesaler
Wholesaler Retailer
Retailer →Consumer
Consumer

3-level channel

Producer
Producer →Wholesaler
Wholesaler → Jobber
Jobber → Retailer
Retailer →Consumer
Consumer

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 Conventional Distribution Channel
vs. Vertical Marketing Systems
Conventional Vertical Manufacturer
marketing Manufacturer marketing
channel channel

Wholesaler
Wholesaler

Retailer Retailer

Consumer Consumer

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 Factors Influencing Channel Choice (Channel
Considerations)
Various Channel Considerations are:-
1. Product Characteristics
– Unit value of goods
Channel – Product Features-Weight, size, Volume, Perishable

Considerations – Technical Features

– Product Standardization…..

• Selecting a channel of 2.Consumer Characteristics

– Buying habits
distribution can
– Size and Location of Market
depend on one of
– Order Size
these factors . . . – Number of Customers
1- Distribution coverage – Geographical Dispersion
required – Frequency of Purchase…..

2- Degree of control 3. Middlemen Considerations

– Service render by the middlemen
desired
– Cooperation in implementing promotional activities
3- Total distribution cost – Availability of Suitable Middlemen
4- Channel flexibility…… – Cost of Retaining
– Distribution policy of the firm
– His market exposure
– Reputation n the market….

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4. Company Characteristics
• Reputation of the Firm
• Financial Situation
•
•
Past Channel Experience
Current marketing Policies Franchising
• Company Product Mix
• Status of the Company - Old/New
Advantages Disadvantages
5. Market Characteristics
• Market Size Franchisor
• Nature of the Market – Stable/Volatile 1. Capital for growth 1. Lower potential profits
• Size of Consumer order 2. Faster growth 2. Controlling service quality
3. Additional management 3. Controlling firm image
• Competitors’ Practices
4. Additional income
• Frequency of Customers’ Orders…
6. Environmental Factors Franchisee
• Stage of the Economy – Inflation/Deflation
1. Lower risk 1. Franchisee fees
• Taxation Policies
2. Established brand name 2. Lack of freedom
• Political Influences 3. Successful business plan 3. Controlled by franchisor
• Cultural Influences… 4. Expert assistance
7. Other Factors…..
• Government Attitude
• Competitors’ Policy
• International Trends
• Market Developments
• Market Coverage
• Geographical…

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Channel Behavior
• Channel members are dependent upon one another and must
work together for the channel to operate successfully
• Members should understand and accept their roles, coordinate
their goals and activities, and cooperate to attain overall channel
goals…
Channel Conflict
• Horizontal conflict is conflict between firms at the same level
of the channel
– i.e. retailer to retailer

• Vertical conflict, which is more common, refers to conflicts

between different levels of the same channel
– i.e. retailer to wholesaler…
Logistics
• Involves entire supply chain
• Increasing importance of logistics
– effective logistics is becoming a key to winning and keeping
customers.
– logistics is a major cost element for most companies.
– the explosion in product variety has created a need for improved
logistics management.
– information technology has created opportunities for major gains in
distribution efficiency….
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 Goals
Goals of of Logistics
Logistics
system
• Provide asystem
Targeted Level of Customer Service at the Least Cost.
• Maximize Profits, Not Sales.

Higher Distribution Costs/ Higher Customer Service Levels

Lower Distribution Costs/ Lower Customer Service Levels

Transportation
TransportationModes
Modes
Logistics
Logistics Functions
Functions
Nation’s largest carrier,
Rail
cost-effective
Rail
Nation’s largest carrier, cost-effectivefor
forshipping
shippingbulk
bulkproducts,
products,piggyback
piggyback
 Order Processing Truck
Truck
 Warehousing Flexible
Flexibleininrouting
routing&&time
timeschedules,
schedules,efficient
efficient for
forshort-hauls
short-haulsofofhigh
highvalue
valuegoods
goods
 Inventory
Water
Management Low
Water
Lowcost
costfor
forshipping
shippingbulky,
bulky,low-value
low-valuegoods,
goods,slowest
slowestform
form
 Transportation
Pipeline
 Design system to Ship
Pipeline
Shippetroleum,
petroleum,natural
naturalgas,
gas,and
andchemicals
chemicalsfrom
fromsources
sourcestotomarkets
markets
minimize costs of
Air
attaining objectives…. High
Air
Highcost,
cost,ideal
idealwhen
whenspeed
speedisisneeded
neededorortotoship
shiphigh-value,
high-value,low-bulk
low-bulkitems
items
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