Distribution Channel

Chandan Kumar Behera

14PGP074
Sec-B

Placing

Place in the marketing mix refers to

the channel, or the route, through
which goods move from the source to
the final user. Place could be the
intermediaries, distributors,
wholesalers and retailers.

Placing is the process of deciding

about the place

Distribution

Distribution means to spread the product

throughout the marketplace such that a large
number of people can buy it.

Physical distributionis the group of activities

associated with the supply of finished product from
the production line to the consumers.
The physical distribution considers
many sales distribution channels, such as
wholesale and retail, and includes critical decision
areas like customer service, inventory, materials,
packaging, order processing, and transportation
and logistics

Roles and Functions of Distribution

Promotion
:
Marketing intermediaries
attract customers and persuade them to buy
goods and services.
Negotiation : Intermediaries or middlemen
negotiate prices and other terms and condi
tions between buyer and seller.
Information : Middlemen collect information
about demand, competition, etc., from con
sumers and pass on to manufacturers.
Ordering : Intermediaries collect small
orders from consumers and on that basis
place large orders with manufacturers.

Physical possession : Middlemen take

possession of goods from producers and
pass on possession to consumers.
Transfer of title : Middlemen transfer
ownership of goods from producers to
consumers.
Financing
:
Intermediaries
provide
financial, assistances at different stages of
the marketing channel. They buy goods in
cash from producers and sell them to
consumers on credit.
Risk taking : Intermediaries assume most
of the risks involved in the distribution of
goods

Marketing Channel Flows

Product Flow
The movement of the product from manufacturer

through all parties who take physical possession

Negotiation Flow
Interplay of buying/selling tasks associated with

title transfer

Ownership Flow
Movement of title of the product

Information Flow
Information to and from the manufacturer

Promotion Flow
Flow of persuasive communication (advertising,

personal selling, etc.)

Channel Levels Consumer and industrial

marketing channels

1) Zero Level channel / Direct Marketing

Channel Consists of a manufacturer directly
selling to the end consumer.
Ex-Dell online sales is a perfect example of a
zero level channel marketing.
2) One Level channel As the name
suggests, the one level channel has an
intermediary in between the producer and the
consumer
Ex- Insurance companies

3) Two level Channel A widely used

marketing channel which consists of a
wholesaler and a retailer.
Ex- specially in the FMCG and the
consumer durables industry
4) Three level channel The three level
channel can combine the roles of a
distributor on top of a dealer and a retailer.
Ex- FMCG and Consumer Durables
- The distributor stocks the most and
spreads it to dealers who in turn give it to
retailers.

Types of Wholesalers
1.

2.

3.

Merchant Wholesalers These wholesale

suppliers own and produce a product or service
and resell their products to resellers, retailers,
distributors and other wholesalers.
General Wholesalers- Wholesalers that fall
into this category will usually buy large
quantities of products from one or more
suppliers and will be intending to add value to
them by reselling in smaller quantities to
distributors, retailers and resellers.
Speciality Wholesalers- This type of
wholesaler will resell products in a specific
industry or product category, but may have
products from multiple suppliers.

4. Specific Product Wholesalers- These are

wholesalers who only supply 1 type of product for
example footwear or computers.
5. Discount Wholesalers This type of wholesaler
will supply significantly discounted stock.
- Generally the stock is discounted because the
products are discontinued lines, returned goods or
refurbished goods.
6. Drop Ship Wholesalers- This type of
wholesaler will complete the sale of a product but
will have it dispatched from their supplier directly to
their customer without actually handling the goods.
7. On-line Wholesaler- Wholesalers who sell their
products on-line offer discounted prices as they can
reduce their overheads such as rent and rates of
physical premises

Types of Retailers
1.

2.

3.

Department Store This type of retailer is often

the most complex offering a wide range of products
and can appear as a collection of smaller retail
stores managed by one company.
Supermarkets Generally this type of retailer
concentrates in supplying a range of food and
beverage products. However many have now
diversified and supply products from the home,
fashion and electrical products markets too.
Warehouse retailers This type of retailer is
usually situated in retail or Business Park and where
premises rents are lower. This enables this type of
retailer to stock, display and retail a large variety of
good
at
very
competitive
prices.

4. Speciality Retailers Specialising in

specific industries or products, this type of
retailer is able to offer the customer expert
knowledge and a high level of service.
5. E-tailer This type of retailer enables
customers to shop on-line via the internet and
buy products which are then delivered. This
type of retailer is highly convenient and is able
to supply a wider geographic customer base.
6. Convenience Retailer Usually located in
residential areas this type of retailer offers a
limited range of products at premium prices
due to the added value of convenience.

7. Discount Retailer This type of

retailer offers a variety of discounted
products. They offer low prices on less
fashionable branded products from a
range of suppliers by reselling end of line
and returned goods at discounted prices.

Factors influencing choice

of Channel Members
(A)

Considerations Related to Product

1. Unit Value of the Product : When the product is very

costly it is best to use small distribution channel. For
example, Industrial Machinery or Gold Ornaments
2. Standardised or Customised Product:
Standardised products are those for which are predetermined and there has no scope for alteration. For
example: utensils of MILTON. To sell this long distribution
channel is used.
On the other hand, customised products are those
which are made according to the discretion of the consumer
and also there is a scope for alteration, for example;
furniture. For such products face-to-face interaction between
the manufacturer and the consumer is essential. So for these

Considerations Related to Product cont.

3. Perishability: A manufacturer should

choose minimum or no middlemen as
channel of distribution for such an item or
product which is of highly perishable
nature. On the contrary, a long distribution
channel can be selected for durable goods.
4. Technical Nature:If a product is of a
technical nature, then it is better to supply
it directly to the consumer. This will help
the user to know the necessary
technicalities of the product.

(B) Considerations Related to

Market
1.

2.

3.

Number of Buyers: If the number of buyer is

large then it is better to take the services of
middlemen for the distribution of the goods.
Types of Buyers : If the more buyers of the
product belong to general category then there
can be more middlemen. But in case of
industrial buyers there can be less middlemen.
Buying Habits:A manufacturer should take
the services of middlemen if his financial
position does not permit him to sell goods on
credit to those consumers who are in the habit
of purchasing goods on credit.

(B) Considerations Related to

Market cont.
4.Buying Quantity: It is useful for the
manufacturer to rely on the services of
middlemen if the goods are bought in
smaller quantity.
5. Size of Market: If the market area of the
product is scattered fairly, then the
producer must take the help of middlemen.

(C) Considerations Related to

Manufacturer/Company
1.

2.

Goodwill : Manufacturers goodwill also affects the

selection of channel of distribution. A manufacturer
enjoying good reputation need not depend on the
middlemen as he can open his own branches easily.
Desire to control the channel of Distribution:
manufacturers ambition to control the channel of
distribution affects its selection. Consumers should
be approached directly by such type of
manufacturer. For example, electronic goods sector
with a motive to control the service levels provided
to the customers at the point of sale are resorting to
company owned retail counters.

(C) Considerations Related to

Manufacturer/Company cont.
3. Financial Strength:
A company which has a strong financial
base can evolve its own channels. On the
other hand, financially weak companies
would have to depend upon middlemen.

(D) Considerations Related to

Government
Considerations related to the government
also affect the selection of channel of
distribution. For example, only a license
holder can sell medicines in the market
according to the law of the government.
In this situation, the manufacturer of
medicines should take care that the
distribution of his product takes place
only through such middlemen who have
the relevant license.

(E) Others
1.Cost : A manufacturer should select such
a channel of distribution which is less costly
and also useful from other angles.
2.Availability : Sometimes some other
channel of distribution can be selected if the
desired one is not available.
3.Possibilities of Sales : Such a channel
which has a possibility of large sale should
be given weight age.

Factors influencing choice

of Channel Structure
Market Factors
Products Factors
Producer Factors
Competitive Factors

CharacteristicsofShort
Channels

CharacteristicsofLong
Channels

Businessusers

Consumers

Geographicallyconcentrated

Geographicallydiverse

Extensivetechnicalknowledge
andregularservicingrequired

Littletechnicalknowledgeand
regularservicingnotrequired

Largeorders

Smallorders

Product
factors

Perishable

Durable

Complex

Standardized

Expensive

Inexpensive

Market
factors

Producer
factors

Competitive
factors

CharacteristicsofShort
Channels

CharacteristicsofLong
Channels

Manufacturerhasadequate
resourcestoperformchannel
functions

Manufacturerlacksadequate
resourcestoperformchannel
functions

Broadproductline

Channelcontrolimportant

Limitedproductline

Channelcontrolnotimportant

Manufacturingfeelssatisfied
withmarketingintermediaries
performanceinpromoting
products

Manufacturerfeelsdissatisfied
withmarketingintermediaries
performanceinpromoting
products

13-29

Physical Distribution Activities

1. Transportation
2. Distribution inventory
3. Warehouses
4. Materials handling
5. Protective packaging
6. Order processing

Transportation

Movement of goods
Highest portion of distribution costs
30 - 60%

Adds place value to the product


Mode

Comparison of Transport Modes

Speed

Depend
abilityin
Meeting
Schedules

Frequency
of
Shipments

Availabil
ityin
Different
Locations

Flexibility
in
Handling

Cost

Rail

Average

Average

Low

Low

High

Average

Water

Veryslow

Average

Verylow

Limited

Veryhigh

Verylow

Truck

Fast

High

High

Very
extensive

Average

High

Pipeline

Slow

High

High

Very
limited

Verylow

Low

Air

Veryfast

High

Average

Average

Low

Veryhigh

13-32

Distribution Inventory

Includes all finished goods anywhere in

the distribution system
Second highest cost of distribution
25 - 30%

Inventories add time value to the

product

Warehouses

Used to store inventory

improved customer service
transportation efficiencies

Warehouse management concerned

with:
site selection, number of warehouses
layout and methods of receiving, storing

and retrieving goods

Materials Handling

Movement and storage of goods within

a distribution center
Type of equipment used affects the
costs of operation
High capital cost
Tradeoff between capital cost and
operating (labor) cost

Protective Packaging

Containment, protection and

identification
Packages must fit in storage spaces
and transportation vehicles

item
package
carton
pallet
container

Order Processing
The activity required to administratively
process a customers order and make it
ready for shipment or production.
APICS 11th Edition Dictionary
Represents

an element of time in a
customers order
Important part of customer service
May involve intermediaries

Thank You