distribution channels

By:Manu Dhunna

12PGP027Indian Institute of Management Raipur

DISTRIBUTION CHANNELS

MARKETING MANAGEMENT -II

04/08/2023 Indian Institute of Management Raipur

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Distribution Is Important Because:

Firstly, it affects sales - if it's not available it can't be sold. Most customers won't wait

Secondly, distribution affects profits and competitiveness since it can contribute up to 50 percent of the final selling price of some goods

Thirdly, delivery is seen as part of the product influencing customer satisfaction. Distribution and its associated customer service play a big part in relationship marketing


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Definition The path through which goods and services travel from

the vendor to the consumer or payments for

those products travel from the consumer to the vendor.

The chain of businesses or intermediaries through which a good

or service passes until it reaches the end consumer.

An organized network of agencies and institutions which in

combination perform all the functions required to link producers

with end customers to accomplish the marketing task.

The distribution channel determines how materials or services

are sold and how they are distributed to customers, for example,

retail, wholesale, self-collection.


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A Distribution Channel Can Have Several Stages Depending On How Many Organisations Are Involved In

It:


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Channel 1

Channel 1 contains two stages between producer and consumer - a wholesaler and a retailer.

A wholesaler typically buys and stores large quantities of several producers’ goods and then breaks into bulk deliveries to supply retailers with smaller quantities.

For small retailers with limited order quantities, the use of wholesalers makes economic sense.


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Channel 2

Channel 2 contains one intermediary. In consumer markets, this is typically a retailer.

The consumer electrical goods market in the UK is typical of this arrangement whereby producers such as Sony, Panasonic, Canon etc. sell their goods directly to large retailers such as Comet, Tesco and Amazon which then sell onto the final consumers.


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Channel 3

Channel 3 is called a "direct-marketing" channel, since it has no intermediary levels. In this case the manufacturer sells directly to customers.

An example of a direct marketing channel would be a factory outlet store.

Many holiday companies also market direct to consumers, bypassing a traditional retail intermediary - the travel agent.


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What Is The Best Distribution Channel For A Product?

Nature of the Product Technical/complex? Complex products are often

sold by specialist distributors or agents Customised? A direct distribution approach often

works best for a product that the end consumer wants providing to a distinct specification

Type of product – e.g. convenience, shopping, speciality

Desired image for the product – if intermediaries are to be used, then it is essential that those chosen are suitable and relevant for the product.


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The Market Is it geographically spread? Does it involve selling overseas? The extent and nature of the competition –

which distribution channels and intermediaries do competitors use?


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The Business Its size and scope – e.g. can it afford an in-

house sales force? Its marketing objectives – revenue or profit

maximisation? Does it have established distribution network

or does it need to extend its distribution option

How much control does it want over distribution? The longer the channel, the less control is available


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Legal Issues Are there limitations on sale? What are the risks if an intermediary sells the

product to an inappropriate customer?


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How Would You Select A Distributor Or An Agent?

Market Coverage Sales Forecast Cost Other Resources Profitability Control Motivation Reputation Competition Contracts


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Market Coverage: - does the profile of existing customers match your target market profile? - is the number of customers big enough to meet the required distribution penetration? - is the existing sales force big enough to cover the territory? - are they dependant on a single individual? - are the existing delivery fleet and warehouse facilities adequate?

Sales Forecast: How many can they sell? What are their forecasts based upon? Do they give a 'best, worst and average' forecast? Will they invest in large stock commitment? Do they have budgets to run promotions? Some suppliers even ask their distributors for a marketing plan showing how they intend to market the supplier's products.

Cost: What will it cost in terms of discounts, commissions, stock investment and marketing support?


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Other Resources: Does the target market require anything special such as technical advice, installation, quick deliveries, instant availability? If so can the distributor provide it?

Profitability: How much profit will the distributor generate for the supplier?

Control: Do they have a reporting system in place? How do they deal with problems? How often are review meetings scheduled? Can you influence the way they present your products?

Motivation: Does the agent or distributor convey a sense of excitement and enthusiasm about the product? What about its sales force - what's their reaction?


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Reputation: Has it got a good track record? This includes the number of years in business, growth and profit record, solvency, general stability and overall reliability. Is it dependant on one key player?

Competition: Do they distribute any competitor's products?

Contracts: Some distributors demand exclusivity. Some agreements tie the supplier in for certain periods of time. Check for flexibility in case things go wrong

The bottom line is: Can the agent or distributor be motivated, controlled and trusted? Motivated to sell your product among a range of others. Controlled to feed back results or change strategy if requested. And trusted to act as a reliable ambassador of your product?


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Distribution Strategy

Distribution strategy is influenced by the market structure, the firm's objectives, its resources and of course its overall marketing strategy

All these factors are addressed in the section on selecting Distribution Channels


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Distibution Can Be:

Intensive (with mass distribution into all outlets as in the case of confectionery);

Selective (with carefully chosen distributors e.g. speciality goods such as car repair kits);

or Exclusive (with distribution restricted to up-market outlets, as in the case of Gucci clothes)


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The Number Of Levels Within A Channel

The next strategic decision clarifies the number of levels within a channel such as agents, distributors, wholesalers, retailers

In some Japanese markets there are many, many intermediaries involved


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Whether To Go Single Channel Or Multi-channel

Next comes a sensitive strategic decision whether to go single channel or multi-channel

Some producers, like Manchester United FC, use multi-channels - they use many different routes, direct and indirect, to bring their products to their customers

Multi-channel Systems like this are common where intensive distribution is required. So direct marketing is combined with indirect marketing through intermediaries


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Strategic Relationships And Partnerships

Two common strategies are Vertical Marketing Systems and Horizontal Marketing Systems


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Vertical Marketing Systems

Involve suppliers and intermediaries working closely together instead of against each other

They plan production and delivery schedules, quality levels, promotions and sometimes prices. Resources, like information, equipment and expertise, are shared

The system is usually managed by a dominant member, or 'channel captain'

VMS is more flexible than vertical integration where the manufacturer actually owns the distribution channel


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Horizontal Marketing Systems

Occur where organisations operating on the same channel level (e.g. two suppliers or two retailers) co-operate

They then share their distribution expertise and distribution channels

This can speed up the time taken to penetrate the market

There is room for creative alliances here


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Thank You

distribution channels

Education

distribution network

end customers

target market profile

distribution option

direct marketing channelwould

profile of existing

marketing support

marketing task