Distribution ChannelChandan Kumar Behera

14PGP074Sec-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 distribution is 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 market ing 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. Merchant Wholesalers – These wholesale suppliers own and produce a product or service and resell their products to resellers, retailers, distributors and other wholesalers.

2. 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.

3. 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 Retailers1. 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.

2. 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.

3. 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 Ornaments2. Standardised or Customised Product:Standardised products are those for which are pre-determined 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 Direct Sales is a good option.

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. 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. 

2. 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.

3. 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. Goodwill : Manufacturer’s 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.

2. Desire to control the channel of Distribution: manufacturer’s 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

Characteristics of Short Channels

Characteristics of Long Channels

Market factors

Business users Consumers

Geographically concentrated Geographically diverse

Extensive technical knowledge and regular servicing required

Little technical knowledge and regular servicing not required

  Large orders Small orders

Product factors

Perishable Durable

Complex Standardized

Expensive Inexpensive

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Characteristics of Short Channels

Characteristics of Long Channels

Producer factors

Manufacturer has adequate resources to perform channel functions

Manufacturer lacks adequate resources to perform channel functions

Broad product line Channel control important

Limited product line Channel control not important

Competitive factors

Manufacturing feels satisfied with marketing intermediaries’ performance in promoting products

Manufacturer feels dissatisfied with marketing intermediaries’ performance in promoting products

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

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Comparison of Transport Modes

Mode Speed Depend-ability in Meeting

Schedules

Frequency of

Shipments

Availabil-ity in

Different Locations

Flexibility in

Handling

Cost

Rail Average Average Low Low High Average

Water Very slow Average Very low Limited Very high Very low

Truck Fast High High Very extensive

Average High

Pipeline Slow High High Very limited

Very low Low

Air Very fast High Average Average Low Very high

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 customer’s order and make it ready for shipment or production.”

APICS 11th Edition DictionaryRepresents an element of time in a customer’s orderImportant part of customer serviceMay involve intermediaries

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