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What is distribution?

V This deals with ƝPlaceƞ element of marketing

V This is important to make the product available

to customers in an optimal way- location closer

to customer, lower cost to company,
convenience to customers
Strength in distribution can be a major
competitive advantage for a company
?istribution Management

V ?istribution management is a set of activities

to ensure flow of goods and services to the
end consumers
V This broadly involves managing the physical
movement, storage and inventory
V This also involves managing the resellers and
channel partners

V Set of interdependent organizations involved in the

process of making a product or service available for
use or consumption by the consumer or business
V t provides Ɲtimeƞ, Ɲspaceƞ, and Ɲpossessionƞ utility to
the consumer
V The channel or set intermediaries help the process
of exchange of the product or services at a margin.
The intermediary refers to any channel member
other than the manufacturer or the end users.
xample of distribution channels

Channel level

V umber of Channel evels

u The number of intermediary levels indicates the
length of a marketing channel.
u Producers lose more control and face greater
channel complexity as additional channel levels
are added.
Role of distribution channel

V ?istribution channel create utility. ?istribution channels help

in eliminating four kinds of Ú   that might exist
in market:
1. Spatial ?iscrepancies- When there is a distance between
the producer and consumer. The product needs to be
moved from one point to other , e.g. Amul utter is
produced in Gujarat but consumed all over ndia. This is
also called ƝPlace tilityƞ- making products available in
locations where customers desire them to be available
for buying.
2. Temporal discrepancies: The time gap between
consumption and production. This is also referred as Ɲ
Time tilityƞ - making products available to customers
when they want them. For most of the consumer goods,
products are manufactured well in advance before the
actual consumption takes place.
Role of distribution channel (contd)

3. Quantity ?iscrepancy: The unit of packing is

different than unit of consumption. ne carton
box supplied by the company may contain more
than one unit. Therefore, one has to break the
carton to dispense in units. This breaking the
bulk is also called Ɲpossession utilityƞ- customer
access to obtain (for use or storage) products
through ownership or rental or a lease
4. Assortment discrepancy: Consumer wants to
choose from an assortment of similar products
which only a retailer can offer.
Channel Function/Marketing Flows

V Channel members performs several activities or functions

to produce the desired service output. These activities are
also termed as channel flows. And not every channel
members perform all the activities. Specific member may
specialize in performing one or more flows. Some of these
flows are correlated. Channel flows are:
1. Physical Possession
2. wnership
3. Promotion
4. egotiation
5. Financing
6. Risking
7. rdering
8. Payment
Channel Flows

1. They store the product and ensures subsequent

transportation- helps in maintaining the pipeline
2. The ownership of goods is finally transferred to the
customer through them- channel members take
ownership of goods
3. They invest money in the company business- by
holding inventory and extending credit
4. They do the actual selling and help building the name
of the company
5. Customer service: The customer may like to have
visual inspection of goods that can be provided by a
6. nformation provider: Customer would like to get
product information and may have various product
queries that can be provided by a retailer
Marketing Flows in Channel

Channel Flow ƛ Associated Cost

V Specific channel member specialize in one or

more flows and may not participate in at all in
the performance of other flows
V To replace any of the channel member the
function performed by the member needs to be
moved to some other member
V very channel flow adds value to the service
output but at the same time has cost
Cost implications of market flow

1. Storage & delivery cost
1. Physical Possession 2. nventory carrying cost
2. wnership 3. Sales promotion,
3. Promotion advertising cost
4. egotiation 4. Time & legal cost
5. Financing 5. Cost of credit, T &C of
6. Risking
6. nsurance, warranties,
7. rdering after sale service etc
8. Payment 7. rder processing,
transaction cost
8. Collection, bad debt
Channel Members

V The key channel members are

u Manufacturer/Producer- producer of product or
u ntermediaries- Any channel member other than
producer or end user-C&F Agent, Super Stockist,
wholesaler, Semi- Wholesaler, retailer etc
u nd user
n effective channels, every member add value to
the end user and for a sales person this is
extremely important to understand the value
addition being done by every channel member
Channel ntermediaries- Retailer

V A retailer does retailing. Retailing consists of

activities involving selling goods and services to
end consumers for their own consumption.
The buying motive for retail sales is to satisfy
the needs of the individual or the family.
With the entry of Reliance, A irla group etc
retailing in ndia is rapidly becoming organised
that require a large number of trained
Channel ntermediaries-

V Much stronger personal relationship with the
V Hold a variety of products
V ffer consumers credit
V Promote and merchandise products
V Price the final product
V uild retailer Ɲbrandƞ in the high street
Channel ntermediaries- Wholesaler

V Wholesalers are in the business wholesaling and

do not sale products to the end users. They sale
goods primarily to the other businesses like
retailers, institutional buyers, industrial buyers,
commercial users. They take ownership of goods,
maintain inventory and redistribute the goods.
They play the critical role in distribution by
breaking the bulk and also by handling
information upstream to company and
downstream to retailers
Channel ntermediaries- Wholesaler

V reak down Ɲbulkƞ

V uys from producers and sell small
quantities to retailers
V Provides storage facilities
V Reduces contact cost between producer
and consumer
V Wholesaler takes some of the marketing
responsibility e.g sales force, promotions
Channel ntermediaries-C & F Agent, Sole
Selling Agent etc.

V Commission agent - does not take title of the goods. Secures

orders.- in industrial goods
V Stockist agent - hold Ɲconsignmentƞ stock- in bulk
V Sole selling Agent (Marketer)/Super ?istributors - When a
manufacturer prefers to stay out of the marketing and
distribution task, he appoints a sole selling agent/ marketer,
usually a large marketing intermediary, operating on
commission basis over an extensive territory with his own
channel partners.
V C&F Agents- Carrying & Forwarding Agents are special
category wholesalers who supply stocks on behalf of
manufacturers to the wholesale and retail trade. They do not
resell products but act as the agents of the manufacturer.
They take physical possession of goods but donƞt take the
title of it.
?istribution ntensity

u ntensive (convenience goods)- Place products in as many

appropriate places as possible
Mass distribution and promotion
u Selective (shopping goods)- A channel strategy, that limits
availability of products to a few carefully selected outlets in a
given market area. High involvement products like T,
Refrigerator or products requiring ASS (after sales service) like
PC, AC, or company owned showrooms
Reduced distribution, assortment breadth, channel cooperation
u xclusive (specialty goods)-An extreme case of selective
distribution in which only one outlet in a market territory is
allowed to carry a product or a product line (expensive cars,
branded jewellery etc.)
Sacrifice market coverage for channel control and prestige
Channel ehavior and organization

V The channel will be most effective when:

u each member is assigned tasks it can do best.
u all members cooperate to attain overall channel goals
and satisfy the target market.
V Focus on individual goals leads to 
   - when channel members disagree on
roles, activities, or rewards.
u Horizontal Conflict occurs among firms at the same
level of the channel.
u ertical Conflict occurs between different levels of the
same channel.
Channel ehavior and organization

V Conventional ?istribution Channels

u Consist of one or more independent channel members
u ach seeking to maximize its own profits
u ften result in poor performance
V ertical Marketing Systems (MS)
u Producers, wholesalers, and retailers act as a unified
u ne channel member owns, has contracts with, or
has so much power that they all cooperate
u enefits should include greater control, less conflict,
and economies of scale due to the size of the system
Channel ehavior and organization

ertical Marketing Systems (MS)

V Corporate
u common ownership at different channel levels
V Contractual
u contractual agreement among channel members
V Administered
u leadership assumed by dominant members
Channel ehavior and organization

V Horizontal Marketing Systems

u Companies at the same level work together with
channel members- ¦ 

V Multichannel ?istribution Systems

u Also called hybrid marketing channels
u ccurs when a firm uses two or more marketing
Channel ?esign- challenges

1. How much coverage the producer should have- how easily a

prospective customer can find the brand ƛintensity of distribution,
saturation vs exclusivity
2. How to combine different channel types to market in multiple ways
mixing different formats (retail stores, web based, kiosks etc)- For
example FMCG products are being sold through medicine stores,
3. Whether the producer should go to the market via its own
channels and via third party- ffective to demonstrate the
brand strength to the independent retailers, display the entire
range of company products
4. Carrier-Rider relationship also called piggybacking-
The rider farm is in need of distribution for its own products, the
carrier has capacity in its distribution system to support the riderƞs
product. The rider avoids the cost of sales force and distribution
and the carrier earns a fee for the service provided
Channel power

V Channel power can be defined as the power to

influence the other channel member-
Modern Trade retailers influencing the
manufacturers to give higher margins, exclusive
sales promotions etc.
V Power is related to the dependence
u tility (value, benefits, satisfaction)provided by the
channel member 1 to the channel member2
u The alternate sources of the utility that the member 2
can find
Six basic channel decisions

V ?irect or indirect channels

V Single or multiple channels
V ength of channel
V Types of intermediaries
V umber of intermediaries at each level
V Which intermediaries? Avoid intrachannel
Channel ?esign ?ecisions

V Step 1: Analyzing Consumer eeds

u Cost and feasibility of meeting needs must be
V Step 2: Setting Channel bjectives
u Set channel objectives in terms of targeted level of
customer service
u Many factors influence channel objectives
Î ature of the company (size/financial position) and its
Î Marketing intermediaries
Î Competition
Î Marketing environment
Channel ?esign ?ecisions

V Step 3: dentifying Major Alternatives

u Types of intermediaries
Î Company sales force, manufacturerƞs agency, industrial
u umber of marketing intermediaries
Î ntensive, selective, and exclusive distribution
u Responsibilities of channel members
V Step 4: valuating Major Alternatives
u conomic criteria
u Control issues
u Adaptive criteria
Channel Management ?ecisions

electing channel members
u Which characteristics are important?
Î üears in business
Î ines carried
Î Growth and profit record
Î Cooperativeness and reputation
Î Type of customer
Î ocation
Channel Management ?ecisions

V O    mot  ch el members

u Partnerrelationship management (PRM) for long-
term partnerships
u Software available to coordinate members

u Check channel performance of:

Î Sales
Î nventory
Î Customer delivery
Î Promotion and training
Î Customer service