Distribution channel: conceptDistribution channel: concept

It is the link between manufacturer & final customers .

Distribution channel is “the path traced in the direct or indirect transfer of title to a product as it moves from a producer to ultimate consumers or industrial users.”

It is “the set of firms & individuals that take title,or assist in transferring title, to the particular goods or services as it moves from the producer to the consumers.”

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Goal Of Physical Distribution :Goal Of Physical Distribution :

To deliver or make available:

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How a Marketing Intermediary Reduces the Number How a Marketing Intermediary Reduces the Number of Channel Transactionsof Channel Transactions

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Channel ObjectivesChannel Objectives

Marketing channels exist to create utility for customersPlace utility - availability of a product or service in a

location that is convenient to a potential customer Time utility - availability of a product or service when

desired by a customer Form utility - availability of the product processed,

prepared, in proper condition and/or ready to useinformation utility - availability of answers to questions

and general communication about useful product features and benefits

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Distribution Channel FunctionsDistribution Channel Functions

ContactContact

FinancingFinancing

InformationInformationRisk TakingRisk Taking

PromotionPromotion

MatchingMatchingNegotiationNegotiation

PhysicalDistribution

PhysicalDistribution

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Channel DesignChannel DesignInvolves determination of length & width of channel employed.

Channel length:

Number of intermediaries that a product passes through before it reaches final consumer.

Long(more layers of intermediaries) or Short(few of them) or Direct(no intermediary, product sold directly)

Channel Width:

Number of intermediaries employed at a particular layer in distribution channel. Eg. No. of wholesalers employed.

Wide/Intensive: More number of intermediaries at one point.

Narrow/Selective:Fewer number of intermediaries employed at a point.Ritika Sharma

Distribution StrategiesDistribution Strategies

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Factors influencing Channel design decisionsFactors influencing Channel design decisions

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11 C’s or factors to be considered (by Czinkota) :

Customer characteristics (what, why, whom & how customers make purchases)

Culture of market(Existing channel structure, may be a historical practice or statutory requirement)

Competitor’s strategies

Company objectives(market share or profitability)

Character of the product(low priced & high turnover-intensive or high priced,low turnover,speciality products-narrow )

Capital(Finance required to set up channel,financial strength etc)Ritika Sharma

Continued to factors………….

Coverage(No. of areas in which product is represented,relates to both length & width)

Control over marketing(length more-loss of control by manufacturer)

Continuity(Responsibilty of manufacturer-by incentives)

Communication(two-way between manufacturer & intermediary)

Cost( expenditure to maintain channel & vary over PLC ,involves promotional expenses & Subsidies)

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Selection of Channel MembersSelection of Channel Members

Deciding whether to utilise services of distributors or agents & whether the company will use an indirect or direct approach to foreign markets.

Intermediary network construction involves:o Seeking out potential candidateso Selecting those who fit requirements of firmo Establishing working relationships with them.

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Sources of prospective intermediariesSources of prospective intermediaries

Commercial directories & yellow pages.Foreign embassiesChamber of Commerce located abroadBusiness publicationsManagement consultantsTrade facilitating agencies(Banks ,advertisement agencies,

shipping lines & airlines)Commerce department of foreign governmentsAssociation of distributorsAdvertisements in trade journals.

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Factors influencing Choice of intermediariesFactors influencing Choice of intermediaries::

“Selection of right distributors is very important as they are extended arms of manufacturer”

Volume of business handledFinancial strengthManagerial capabilityReputation

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Working with Channel IntermediariesWorking with Channel Intermediaries

Select distributors – don’t let them select you.Look for distributors capable of developing markets, rather

than those with a few good customer contacts.Treat local distributors as long-term partners, not temporary

market-entry vehicles.Support market entry by committing money, managers, and

proven marketing ideas.From the start, maintain control over marketing strategy.Make sure distributors provide you with detailed market

and financial performance dataBuild links among national distributors at the earliest

opportunity

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Intermediaries or middlemen Intermediaries or middlemen Merchants: Who take title to the goods.

Agents: Who do not take title to the goods but who assist in the transferring of the title.

International companies either sell directly or indirectly.

Direct Selling: Foreign company develops its own overseas marketing department or foreign marketing intermediaries & sells the product in the foreign market.

Indirect Selling: It is through market intermediaries.Ritika Sharma

Types of market intermediariesTypes of market intermediaries

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Major International Distribution decisionsMajor International Distribution decisions

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