Distribution Channels The various goods and services produced are meant for the customer.

The customer can purchase only those products which are available in the market. The availability of the products in the market depends on the efficiency of distribution channel. Therefore the distribution channels play an important role in marketing activities. Distribution channels can be defined as: Distribution channels are systems of economic distribution through which a producer of goods deliver them into the hands of the user. Every producer seeks to link together the set of marketing intermediaries that best fulfill the firms objectives. This set of marketing intermediaries are called marketing Channel. !hillip "otler# $hoever is engaged between the producer % consumer constitutes the distribution channel. &'( ) vertical marketing system is the distribution channel network in which the producer* wholesalers % retailers act as a unified system. + channel member can own another channel* have a contract with them or power such that they all co,operate. The primary channel participants are retailers* wholesalers and the manufacturer. -'( : -ori.ontal marketing system : partnership between / or more firms with the idea of taking advantage of certain special benefits of ach other. 0estle and Coke had a -'( to promote 0estles beverage. Terms: 'iddleman: 1nybody who is acting as an intermediary between the producer and the consumer. 1gent 23roker: 4ntermediaries with legal authority to market goods and services % to perform other functions on behalf of the producer are called agents or brokers. 4n certain cases the agent can sell to other intermediaries and can act on behalf of the buyer rather then the seller. The difference between an agent and broker is that while an agent is on a continuous basis* a broker would typically work on a project 2ad,hoc basis. 3oth earn commissions. $holesaler : organi.ations 2 individuals that buy products and sell to retailers and other customers. They deal in bulk 5etailer : last link in the marketing Channel . They sell directly to final customer. They purchase goods from wholesaler2producer directly in some cases. Distributor: 6eneral term applied to a variety of intermediaries. They perform several functions like inventory management* personnel* sales and financing. $holesalers can also act as a distributor. Dealer ) general term &alue added reseller : 4ntermediaries that buy basic products from producers and add value to it or modify it and resell to final customer.

'erchants : 1ssume ownership and physical possession of goods and then sell to other intermediaries. 7acilitating agents: These are people and organi.ation that assists in the flow of products and information to marketing channels* including banking and insurance. C % 7s : function of storage and transport 4nsurance: provides risk coverage 7inancial services: provides credit and funds. 7unctions performed by the channels +. 3uying: !urchasing a broad assortment of goods from the producer 2other channel members. /. Carrying inventory: 'aking the goods available over a wide area and over a time period ) adding to the convenience for customers. 1lso assuming the risks associated with purchasing and holding inventory 8. (elling: !erform all activities re9uired to sell goods to consumers2 channel members. :. Transport : The channel members also participate in shipping of goods to the desired destination. ;. 7inancing : !rovides funds to cover costs of channel activities <. !romoting : Contributes to advertisement and engages in personal selling =. 0egotiating: The final price of goods and services as well as the terms of payment and delivery is often arrived at after negotiations b2w the producer and intermediaries. >. 'arket 5esearch : 4ntermediaries provide information about the customers needs and feedback about the product as well as about the competition and other channel members Types of market channel for diagram and flow as well as e?amples please refer to class notes# +. Direct channel: Direct marketing channel is also called @ level intermediaries. /. 4ndirect Channel a. + level intermediary : Anly + intermediary between the producer and consumer b. / level: / intermediaries between the producer and consumer. c. 8 level : 8 intermediaries between the producer and consumer d. : level : : intermediaries between the producer and consumer. Strategy decisions The selection of different channel is dependent on the nature of the product itself. There are / sets of decisions re9uired. + set of decision involves selection of channel and the other set involves the e?tent and intensity of distribution. Channel selection criteria:

The various factors can be grouped into 1) market factors 2) Product factors 3) Producer factors 1. Market factors: understanding and analy.ing the target market is the +st step. Bou would need to know a. Customer Preference; The channel which is preferred by the customer. 7or eg. 1 customer can buy products like shampoo from a chemist as well as a general store. 1 washing machine can be bought through the net as well from a multi,brand outlet. b. Customer Category: The organi.ed customers buying behavior is different from the buying behavior of an individual. -ence the channel adapted for different category would be different. c. Geogra hy: The geographical location of the customer will also influence the type of channel that a manufacturer will adapt. 1 widely scattered customer group will re9uire different channel while a closely gathered customer group will have a different approach. d. Com etitors: 1 good channel choice could be one that has been overlooked 2avoided by the competitor. 1t other times a marketer will have to duplicate the competitors channel in order to have the space meant for competitors products. e. !ature " a#aila$ility of intermediaries: The availability and 9uality of intermediaries that have the capability of handling the product can provide ade9uate services to the final customers. 2. Product factors: The nature of the product and its attributes will also affect the selection of the channels. a. %ife cycle stage: The products stage in life cycle can be an important factor in selecting a channel. The number and kind of channels may have to adjusted over time. Customers would typically re9uire less support once product has established itself. b. Com le&ity: There are certain products that are comple? or re9uire a lot of support from the producer so that they have to be closely involved. 1 product like this would then involve a direct sales force or a limited number of highly 9ualified intermediaries. c. 'alue: of product will affect distribution channel choices. 4tems with low costs and high volume are usually distributed through large* well established distribution networks. $hile a high cost* low volume unit would involve a more selective network distribution. d. Si(e ) *eight: significant si.e and weight of the product can restrict the choice of distribution channel especially if it is of low value. e. Consumer+s erce tions: will also influence the selection of the distribution channel. f. ,ther roduct factors like fragility* perishable products re9uire special customi.ation and hence will re9uire distribution channels accordingly.

3. Producer+s factors: a. Com any+s o$-ecti#es : the companys objectives will determine the distribution channel selection. b. Company resources: Different channels would re9uire commitment of different level of resources. The resources that is available with the company and what the company is willing to spend will affect the distribution network* c. Desire for control: The degree of control that the management desires to have will influence the selection of distribution channels. 6reater control can be e?ercised if the number of channel is small or in case of direct sales force. Policies and strategies $ith regard to channel management the marketer has to take : types of decisions. +. Channel length . the number of levels between the producer and consumer. /. Channel num$er ) how many different marketing channels to employ. 8. Channel mem$er ty e ) what kind of middlemen 2retailers to have :. Channel *idth ) how many outlets2 firms to employ at each channel level. The distribution intensity specifies the number of intermediaries that will carry the product. The level of intensity may differ from case to case depending on: , firm+s roduct , /irm+s o$-ecti#es , Customer The intensity level may be fre9uently modified through the product life cycle. The distribution (trategy can be: 1. 0&clusi#e: (electing and allocating a distributor an e?clusive area of sales called territory. 4t is called an e?clusive selling agreement. The distributor cannot handle any other competing product. 2. Selecti#e: The manufacturer selects a limited number of wholesalers or retail distributors and works closely with them to further the sale of his product. This policy re9uires planning and considerable knowledge of the market. The manufacturer will select the best distributors and concentrate efforts on them only. This strategy could be used for shopping goods* for goods which re9uire Cafter salesD services. 1 selective distribution strategy tends to become intensive over a period of time. The drawback of this strategy is that it limits coverage and the control over dealers is limited as compared with e?clusive strategy

3. 1ntensi#e: !roduct is made available in as many outlets as possible and in as many places as possible. The method is ma?imum e?pansion* usually followed in case of convenience goods. Channel Management: 2here are 2 $asic goals *hich ha#e to $e met. +. There should be sufficiently broad product availability in the market. /. Creation of un,interrupted trading relationships with the middleman is the long term goal. The short run objective: , Coverage of important resellers: ensure product availability over a wide area. , Coverage of 6eographical market: !rompt and 9uick decision. , -ave personal selling support , Ensure sales promotion. 'easure of efficiency: +. 1ccessibility to the market through the channel /. Eocation of retailing outlet in location of consumers 8. 'anufacturers would like retailers to share the burden of promotion with them. :. 'iddlemen should be able to provide after sales services to the customers. ;. 7inancial ability ) middlemen need to have enough financial ability to carry out the functions of intermediary effectively. 0eed for distribution channels 6aps (patial 6ap ) Customers are scattered over a wide geographical area while production is concentrated at a few places. This is the spatial gap* transport is used to bridge this gap % includes all activities concerned with moving of goods from the production place to place of consumption. Temporal 6ap ) Customers make their purchase at regular intervals while production is a continuous process. This is the temporal gap. 4nventories deal with this gap. This includes all activities concerned with holding goods between the time of production and time of sales. Transaction 6ap ) Customers prefer to buy in small lots2units while producers manufacture on a large scale. This is a transactional gap which is covered by promotional activities.

!erceptional2knowledge gap ) customers cannot have full information of producers % products which may hamper flow of e?change. Distribution channel represents 8 types of flows , !roduction flows downwards , Cash flows upwards , 'arketing info flows both ways Critical Decisions ,Distribution channel is an important element of the marketing mi? of a firm. 4t influences other marketing decisions like pricing and promotion. 1 mistake will affect the whole marketing mi?. , Costs: Channel influences sales volume and profits. The cost of the use of the distribution channel enters the price of the product that the ultimate consumer has to pay. 1 wrong choice could lead to high costs and limited sales while a right choice would lead to lowering of costs and increasing sales revenue. Time % place: 1 product2 service is useful only when it is available at the right place and time. The channel decision determines where and when the product will be available to the ultimate consumer. Commitment : 5elations between the manufacturer and middlemen depend largely upon the choice of appropriate channels of distribution. 1ny changes in the channel distribution are difficult and costly. 7luctuation in production: can be reduced by the continuous and effective distribution. (tability of production can be achieved by an effective distribution network.

!hysical Distribution % value network. &alue network: system of partnerships and alliances that a firm creates to source* augment and deliver its services. $hether a company wants to integrate backwards or forwards would depend on whether more money is made upstream2downstream or which area is more critical. 1n increase in awareness of disturbances in the supply chain which can cause costs* prices or supplies to change suddenly. This increase in awareness can lead to better control over the critical areas. 'ore and more cos are willing to network with their partners ) the major push coming in from technology ) in order to reduce their costs* speed up information and accuracy. !hysical Distribution : 1 customer is concerned with how rapidly and reliably a firm can deliver what the customer wants. !ublic distribution says that all transporting* storing and product handling activities of a business and channel system should be coordinated as + system that seeks to minimi.e the cost of distribution for a given customer service level. !ublic distribution refers to the movement of goods from producers to customers. 4t encompasses , order processing , inventory management , material handling , warehousing ,transportation !hysical distribution affects +. !roduct design : Consists of a. !hysical attributes like weight* si.e* value and risk. 'ovement of flowers v2s fruits and vegetables for instance. b. !ackaging: 0eed to have ade9uate protection and compatible with e?isting delivery system. 3lister packs for drugs is an e?ample. c. Differentiation: Delivery can be used as a tool to differentiate the product. The ability to deliver goods 9uickly or as per customers schedule can result in competitive advantage. !romotional activities: when the company runs a special promotion scheme you need to work together to create ade9uate production to meet with increased demand during that period. !ricing : !hysical distribution is a contributor to the total cost of the product and wil therefore influence the pricing. Abjective of !ublic distribution is to achieve a balance between lowering the costs of delivery and increasing customer satisfaction. Total Cost concept takes into account all the costs associated with distribution : , storage costs

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transportation costs handling costs lost sales cost

Customer ser#ice goals: costs and service are often in direct conflict. Time : reducing time from ordering to delivery. Time is the central issue in costs v2s service balance because reducing delivery time often increases the transport and storage costs. Customers may be willing to pay for faster service. Dependability is the ability to deliver on schedule and to be consistent about it Communication is concerned with receiving order* tracking order while in transit and being able to trace deliveries that dont arrive in time. !roduct protection: 4t is imperative to ensure that the goods reach the customer in the correct condition. Therefore ade9uate packaging and careful handling while in transit will be crucial. 1 manufacturer will have to invest in speciali.ed e9uipment and vehicles There could be also a need to train % sensiti.e channel members. 1ccuracy: 1ccurately fill in and deliver the order. $e need to have the right goods at the right location. 2rans ortation : can make upto :;F of the total distribution costs. 4mportant decisions on transport are on the following aspects. , mode of transport , Awn 2 lease vehicles , (cheduling deliveries , 7re9uency of delivery. Considerations would be , cost of transport , (peed , 5egularity , -andling , 7le?ibility , Damages 3arehousing is re9uired for the following reasons : , (easonal production , (easonal consumption , 4mprove 9uality , !reference to store goods rather than sell at a loss 2discount. , -old for further distribution The managements considerations in choosing the number*si.e and kind of warehouses would depend on : , number % si.e of market to be served , location of production centers. , Guality and reliability , Guantity to be transported 2 stored.

4nventory control: 4nventory is stock held by a firm in anticipation of sales. 4nventory control is an operational control to maintain inventory at a optimum level. 4t is also an account control by maintaining proper records. Abjectives : , , , , , minimi.e financial investment in inventory ensure regular supply of goods lower the risk of loss due price fluctuations make use of 9uantity discounts on bulk purchases To meet demand fluctuations and supply fluctuations.

7actors that affect inventory level: Customer service: 1ppropriate balance between holding stock and meeting customer service. 3ase stock: 1mount of inventory re9uired to meet average lead time. (afety stock: base stock H some e?tra inventory in order to meet the variations in demand. 1ccuracy in sales forecast: the more accurate the sales forecast the lower the inventory held. Efficiency in distribution : The more efficient and reliable the distribution system the lower the inventory level.