Distribution ChannelDistribution Channel

• Distribution role within a marketing mix is getting the Distribution role within a marketing mix is getting the product to Target Marketproduct to Target Market

• A middlemen is a business that renders services related A middlemen is a business that renders services related directly to sale/purchase of a product as it moves from directly to sale/purchase of a product as it moves from producer to consumer.producer to consumer.

• Normally middlemen are classified on the basis of whether Normally middlemen are classified on the basis of whether they own /take title of products being distributed or not.they own /take title of products being distributed or not.

• Merchant middlemen take title of product ( Wholesalers & Merchant middlemen take title of product ( Wholesalers & retailers )retailers )

• Agent middlemen never actually own the product but do Agent middlemen never actually own the product but do arrange the transfer of title. Real estate brokers, arrange the transfer of title. Real estate brokers, manufacturers agents ,travel agents.manufacturers agents ,travel agents.

Factors affecting choice of channelFactors affecting choice of channel

Market ConsiderationsMarket Considerations• Type of Market.Type of Market. Reaching ultimate consumers & business users may be different Reaching ultimate consumers & business users may be different

depending upon their individual characteristics. Wholesaler may be depending upon their individual characteristics. Wholesaler may be for business & retailer for ultimate consumer.for business & retailer for ultimate consumer.

Number of potential customers:Number of potential customers:

For few customers company sales might be used, may be for For few customers company sales might be used, may be for business users. More middlemen to reach big number of customers.business users. More middlemen to reach big number of customers.

Geographic concentration of Market:Geographic concentration of Market: Direct sale or lesser no. of middlemen for concentrated marketDirect sale or lesser no. of middlemen for concentrated market More channels for dispersed customer base.More channels for dispersed customer base.

Order Size:Order Size: Direct sales to super markets to serve big orders & wholesalers to Direct sales to super markets to serve big orders & wholesalers to

sell to grocery storessell to grocery stores

Product considerationsProduct considerationsUnit Value:Unit Value:Company can afford to sell caterpillar or Company can afford to sell caterpillar or nuclear reactor directly to customer than to nuclear reactor directly to customer than to reach household to sell ball point.reach household to sell ball point.

Perishability:Perishability:

Quicker pershability requires direct or minimum Quicker pershability requires direct or minimum distribution channel.distribution channel.

Technical nature of product:Technical nature of product:

Technically complexed product may require Technically complexed product may require company sales force to explain product company sales force to explain product features & use to business users.features & use to business users.

Middlemen ConsiderationsMiddlemen Considerations• Services provided by middlemen:Services provided by middlemen:

Each producer should select middlemen offering services which Each producer should select middlemen offering services which producer either can’t provide or can’t economically perform. Like producer either can’t provide or can’t economically perform. Like promotion & explaining product features to customers.promotion & explaining product features to customers.

Availability of desired middlemen:Availability of desired middlemen: Producer’s desired middlemen may not be available so may Producer’s desired middlemen may not be available so may

choose middlemen having distributed focus among different choose middlemen having distributed focus among different competing brands.competing brands.

Producer & Middlemen Policies:Producer & Middlemen Policies: A middlemen may accept products of a brand only after assurance A middlemen may accept products of a brand only after assurance

that the same brand will not be given to other middlementhat the same brand will not be given to other middlemen Credit dealing may also be a matter of choice.Credit dealing may also be a matter of choice.

Company ConsiderationsCompany Considerations

• Desire for Channel control:Desire for Channel control:• Some producers use lesser channel levels to have more control Some producers use lesser channel levels to have more control

over product performance in the market.over product performance in the market.

• Ability of Management:Ability of Management:

Some producers lacking marketing expertise may completely Some producers lacking marketing expertise may completely rely on middlemen for distribution & promotion of their products.rely on middlemen for distribution & promotion of their products.

Financial resources:Financial resources:A company with adequate finances may afford direct distribution A company with adequate finances may afford direct distribution channel.channel.

Selecting type of ChannelSelecting type of Channel

Distribution of Consumer GoodsDistribution of Consumer Goods

• Producer ______ConsumerProducer ______Consumer Producer______Retailers_______ConsumersProducer______Retailers_______Consumers Producer___Distributor Producer___Distributor

Wholesalers____Retailers_____ConsumersWholesalers____Retailers_____Consumers

Distribution of Business GoodsDistribution of Business Goods

• Producer_____User ( For very highly priced goods )Producer_____User ( For very highly priced goods )

• Producer_________Industrial distributor _________UserProducer_________Industrial distributor _________User For small accessory equipment Printer cartridgesFor small accessory equipment Printer cartridges

Distribution of ServicesDistribution of Services

• Producer_____Consumer ( Haircut, weight losing councelling Producer_____Consumer ( Haircut, weight losing councelling ).).

• Producer_______Agent_________ConsumerProducer_______Agent_________Consumer• (Advertising / Entertainment )(Advertising / Entertainment )

A producer may use multiple channels to A producer may use multiple channels to reach reach different market segmentsdifferent market segments

Intensity of DistributionIntensity of Distribution

• Intensive Distribution :Intensive Distribution :

• For convenience goods, making available at every retail storeFor convenience goods, making available at every retail store

• Selective :Selective :

• Selling to Few Middle men:Selling to Few Middle men:

• May be due to better control over middlemenMay be due to better control over middlemen

• Exclusive:Exclusive:• Selling through one distributorSelling through one distributor

Channel Management Channel Management DecisionsDecisions• Selecting Channel MembersSelecting Channel Members Producers vary in their ability to attract qualified Producers vary in their ability to attract qualified

marketing intermediaries.marketing intermediaries.

• Motivating Channel Members.Motivating Channel Members. The company must not sell through the The company must not sell through the

intermediaries, but to them.intermediaries, but to them. Positive motivators may include higher margins, Positive motivators may include higher margins,

cooperative adv. Allowance e.t.c.cooperative adv. Allowance e.t.c.• In case of-non-compliance, threat to reduce In case of-non-compliance, threat to reduce

margins & delay in delivery may be used.margins & delay in delivery may be used.

Channel Management Channel Management DecisionsDecisions• Evaluating Channel Members.Evaluating Channel Members. The producer should monitor performance of The producer should monitor performance of

intermediaries against sales quota, average intermediaries against sales quota, average inventory level, customer delivery time, inventory level, customer delivery time, treatment of damaged & lost goods, cooperation treatment of damaged & lost goods, cooperation in company promotion e.t.c in company promotion e.t.c

Horizontal ConflictHorizontal Conflict

• Wholesaler with Wholesaler or Retailer with RetailerWholesaler with Wholesaler or Retailer with Retailer

Vertical ConflictVertical Conflict

• Producer with WholesalerProducer with Wholesaler

• Producer with RetailerProducer with Retailer

Conventional Marketing Conventional Marketing SystemSystem• It consists of one or more independent producer, It consists of one or more independent producer,

wholesalers and retailers.wholesalers and retailers.• Each is separate business seeking to maximize its own Each is separate business seeking to maximize its own

profits, even at the expense of profit for the system as a profits, even at the expense of profit for the system as a whole.whole.

• No channel member has much control over the other No channel member has much control over the other members.members.

Vertical Marketing System Vertical Marketing System (VMS)(VMS)• In contrast to conventional distribution channel, it consists In contrast to conventional distribution channel, it consists

of producers , wholesalers & retailers acting as a unified of producers , wholesalers & retailers acting as a unified system.system.

• How?How?• One channel member owns the other or has contracts with One channel member owns the other or has contracts with

them or has so much power that they all cooperate.them or has so much power that they all cooperate.

Types of VMSTypes of VMS• Corporate VMSCorporate VMS

Coordination & conflict management are attained Coordination & conflict management are attained through common ownership at different levels of channels.through common ownership at different levels of channels.

• Example:Owned by companyExample:Owned by company

• Contractual VMS:Contractual VMS: it consists of independent organizations at different levels of production & it consists of independent organizations at different levels of production &

distribution, which join together through contracts to obtain economies or distribution, which join together through contracts to obtain economies or sales impact than each would do individually.sales impact than each would do individually.

Coordination & conflict management are attained through legal Coordination & conflict management are attained through legal agreementsagreements

Example : Franchise ( three types ) Example : Franchise ( three types )

Types of FranchiseTypes of Franchise• Manufactured sponsored retailer Manufactured sponsored retailer

franchise system. ( Automobile )franchise system. ( Automobile )• Manufactured sponsored wholesaler Manufactured sponsored wholesaler

franchise system.. ( Pepsi / Coca Cola franchise system.. ( Pepsi / Coca Cola ))

• Service firm sponsored franchise Service firm sponsored franchise (Mcdonald’s )(Mcdonald’s )

Types of VMSTypes of VMS• Administered VMS:Administered VMS:

• It coordinates successive stages of production & It coordinates successive stages of production & distribution not through common ownership or distribution not through common ownership or contractual ties, but through the size & power of the contractual ties, but through the size & power of the parties.parties.

• Manufacturers of top brands can obtain such Manufacturers of top brands can obtain such cooperationcooperation