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DefinitionA Distribution channels is a group of people and firms involved in the transfer of title or ownership as the product moves

from the producer to the ultimate consumer . American association defines DC as the structure of intra company organization units and extra company agents ,dealers, wholesalers and retailers through which a commodity , product or service is marketed

Distribution channels are nothing but intermediaries or middle man between the producer and the consumer. 1. they are there as producers cannot reach all their customers 2. They multiply reach and provide efficiency to the marketing process. 3. They facilitate smooth flow and create time place and possession utility 4. They have the core competence and the reach which company may not have and they can do the entire process in a cost effective manner. They also provide contact ,experience ,specialization and scales of operation.

Sales channel.. has the function of motivating the buyers, sharing information between the consumer and the company , negotiating fair bargain for the consumer and financing the transactions E.g... Distributor of Nestle Co. would perform all the functions for Co. by dealing with the retailers and wholesalers who stock and sell the Co . Products

Delivery channel which is meant only for physical transactions . This is primary job of the Carrying and forwarding agent e.g. for Marico company would ensure that the orders received form the Co. for the Co distributors would be physically delivered to them on full time basis The Cand F agent would also receive and stock the Co products for Distribution

Service channel Which performs after sales services like Maruti Suzuki service station A franchisee for HP would help its customers either service or repair the PC or hardware bought by its customers

      

Company owned distribution centers (DC) Carrying or forwarding agent (C&FA) Consignment selling agents (CSA) Distributors stockiest ,value-added resellers and agents who could be exclusive or shared . Wholesaler who stocks and sells a variety of products including that of competition Retailer who are ultimate and direct connect with the end user. Industrial products the Cos own sales force and marketing team could also serve as a part of the channel system

They are called as facilitators' . They are basically transporters acts as midway between the company and its distribution . Role C&FA,CSA to collect the product from the Co plant and store them in a central location for break bulk and dispatching to the distributors agents indents from the company. They take physical possession of good but do not pay for it The goods in CFA warehouse still belong to the company CSAacts as a C&FA but also sell the goods to the market and then remit the value of the goods sold to the company Both are on contract with the company

    

Distributors work in the market and redistribute the stocks to the wholesalers and retailers . Stockiest just invest in the product and expect the company to sell the products to customers Agents or dealers only help distributing with their contacts in the market with retailers wholesalers or institutions. Agents do not invest in the companies product . All belong to the same category of company outsourcing to help distribute product to the retailers.

Characteristic of distributors 1. To invest in product by buying from the company 2. They are on commission or margin or markups 3. They may or may not get credit from the Company 4. They give credit to their customers who are wholesaler and retailer 5. Commission or margin is % of the price at which they buy the product from the company

They operate in the main markets of the city. They deal with large number of company products and packs. They have their own shops in busy trading areas They depend on large volumes of business as there margins are low Characteristics of wholesalers: They choose and decide what products they will sell They are not on contract with any company Eg.. Medical diagnostic industry where the equipments are bought by the distributors but the hospital who buys pays only after 60 days or 90 days of delivery. Intermediaries are involved :distributors, stockiest and wholesalers.

They are shopkeepers who have shops to sell products to hundreds of consumers. If the distributor is based in a busy market place which demands lot of consumer inflow he can demand lot of profitable terms from the distributor and companies like .. Credit ,promotion, renting displays space and so on. The retailer makes highest margin in the entire supply chain Retailers extend credit to only 25 %of their customers They have also started home delivery to their regular customers close to their outlets Value added reseller would purchase the incomplete product or kit and add value by assembling it and selling to the customers depending on his specification e.g. a personal computer assembled by the retailer to the customer Or even a bicycle

The D Channel provide additional benefit of providing service associated with the product Ex TV selling to customer ,delivering home , do installations, set and run prgs for the customer and explain the operation of the remote and TV. EX car , washing machines, IT services software, EX industrial product- maintenance and run down explanation

The intensity denotes the service level that the organization provides to its customer There are 3 types of intensities : 1.Intensive Distribution 2.Selective Distribution 3. Exclusive Distribution

This strategy is to make sure that the product if made available to as many outlets as possible so that anywhere the consumer goes , he should be able to get the product of his choice Ex.. Products of HLL available to millions of customer by intensive distribution  This system helps to increase coverage and hence the sales and is most suitable for FMCG products.  Automobile manufacturer would prefer this intensity of distribution for their spare parts  Objective of intensive distribution is to get maximum coverage of the market , by using all available outlets , make the company's product popular and maximize their sales

Intensive distributions allows consumer to shop the goods anywhere he pleases and to look for the product of his choice. Ex HLL products The more widely distributed products gives the impression that the product is market leader in its category. Ex Pepsi, Nestle , Colgate A lot of effort is put in by the company in retail so that the consumer finds the products in the retail outlet of its choice Intensive distribution is more expensive and requires more supervision

Here a few selected outlet will be permitted to keep the company products. The outlets are selected by the company in line with the image it wants to project about itself and its exclusive products. Ex.Tanishq Jewellery , it would be made available in few exclusive outlets only . Selective distribution gives advantage of making the product available in outlets that matter the most and keeping distribution cost lower .

Making the product available in only few or one outlet in the market The outlet is set up by the companies for their own products Ex Bata outlets Ex Titan outlets  The producer keeps close watch and control on the distribution of his products.  It requires good relationship with the producer and the seller Ex exclusive women's apparel , electronic appliances

Low value goods :tea ,cigarettes ,soaps ,shampoos etc intensive distribution Intensive distribution seems suitable for routine low investment but mass based purchases like FMCG products , OTC products ,

High value goods: electronic goods or consumer durables where buyers will make comparison across outlets selective distribution Ex if customer wants to buy color TV he would go in 4-5 outlets , look at different brands and models compare and then buy

Speciality goods: like mont blanck pen , BMW car , Merc Car, Raymonds The outlet has to be extremely reputable

A distribution strategy would look at some of these factors Defining customer service level. Defining the distribution objectives to achieve these service level Outlining the steps or activities required to achieve the distribution channel objectives

Deciding on the structure of the network to implement these activities to achieve the distribution objectives (combination of inside resource like sales personnel and out side like C&FA). Clearly defined policy and procedure for the network to carry out its daily activities to achieve the objectives. Understanding the critical success factor to make distribution strategy effective

Marketing channel refers to an organized network of interconnected organizations and agencies involved in the process of making a product or service available to consumers. They are independent business organizations They are also known as middleman ,intermediaries etc. They facilitate the producers and ensure a smooth flow of products and service s to the customers

Direct channel e.g. teleshopping ,online shopping Interact with the customers directly Indirect channel e.g. pharmaceuticals ,FMCG,OTC They take help of some intermediaries to reach to the market Indirect

produce

Direct

producers middleman

Customer

customer

Facilitation Information Promotion Negotiation Transfer of the title of goods and ownership Holding inventory and sharing risk Finance . Providing pre sales and post sales services. change agents- inform customers about changes in products and price acts as CA Warehousing and transportation Market feedback and intelligence market, customers, trends , competitors activity etc Maintain sales record and data base of customers which can be useful to the Manufacturer

Assortment: providing variety of products for the consumer to choose from Break bulk : Converting large quantities produced to small lot sizes suitable for buying by consumers C&FA: channel partners who stock goods and distribute to down streams channel partners,. Customer Service : all activities required to make transfer process of goods from producer to consumer more convenient and pleasurable

Distribution channel Set of independent organizations involved in the process of making a product or service available for consumption or use. Distribution management: broad range of activities concerned with the efficient movement of finished goods from the end of the production line to the consumer . Distribution Objectives: goals to meet the expectations of the customers in the most convenient way to them

Distributor : channel member who buys goods from company for redistribution to wholesaler, retailer or institutions Exclusive distribution making the product available in very few number of outlets Financial support :help by providing monetary support to complete the transaction process to reach the product to the end users

Intensive distribution: making the product available in as many outlet as possible Intermediaries : all middleman and channel partners between the producers and consumers Place utility : making the product available to the customer where he wants Possession utility facilitating transfer of ownership of goods from the producer to the consumer. Redistribution : buying goods from the manufacturer by a distributor for further distribution to the retail or consumption point

Retailer: last link in the distribution chain . Interacts directly with the consumer and sells goods 2 him. Selective Distribution : Making the product available in a few selective outlets Spatial discrepancy: bridging the distance gap between the production point of a product to the point of consumption Temporal discrepancy : bridging the gap of time between the production point of the product to its consumption point Time utility making the product available to the consumer when he wants it Wholesaler: exisisting traders in market buying in bulk and selling in smaller lots to other wholesaler ,retailer or institution

DIRECT MAREKTING /zero level marketing  Catalogue marketing  Company showroom  Door to door marketing MFG  Online /internet marketing  Tele shopping  Tele marketing  Direct mail houses Customer  Automatic vending machines

Mfg sell the product directly to consumers eliminating middle man This structure is suitable for luxurious and exclusive products . Co with sound financial position can afford to sell their products directly to through own outlets or exclusive showrooms . Examples Farm products highly perishable in nature use direct channel Escalators Heavy machinery Cranes /glass furnace in industry etc

There is only one middle man between the manufacturer and the customer  mfg---dealer---consumer: Eg automobiles  Mfg---large retailer---consumer Eg supermarkets Mfg---franchisee---consumer Eg food products , designer jewellery  Service provider--agents --consumer Eg life insurances Mfg mfg agent consumer Eg personal computers

MFG

DEALER

customer

There are 2 intermediaries involved Mfgwholesalerretailerconsumer Eg FMCG s Mfgbrokerretailerconsumer Eg food grains, farm products etc

MFG

wholesaler

retailer

customer

It has 3 intermediaries Mfg--C&FA--Stockiest--RetailerConsumers Eg. Drugs, medicines Mfg -- C&FAredistribution stockiest Retailerconsumer Eg. HLL products In Japan food distribution may involve as many as 6 levels

MFG

C&FA

Stockiest

Retailer

consumer

Reverse Channels Channels designed to Channels: return goods to their producers Dual Distribution Network that moves Distribution: products to a firms target market through more than one marketing channel

Door to door known as MLM (multilevel marketing) E.g.newspaper,milk,encyclopedias ,Tupperware, cosmetics, vacuum cleaner cleansing material etc . Consumer cooperatives :A group of consumers buy directly from MFg or wholesaler in bulk and undertakes retailing for its members .as they by pass one or more channel they can save the cost and product can be made available at reasonable prices.

Automatic vending machines It is an impersonal form of retailing in which money or credit card operated machine provides product or services

Vending kiosk : unlike vending machine in vending kiosk customer only get information and can place orders. Not developed in India through interactive video , online ordering technology customers can get information about the products and services as well as they can book orders

Catalogue marketing: Special exclusive and ethnic products can be sold through catalogue marketing. Catalogue are send to potential and repeat customers and orders are booked over phone ,mails ,online etc Eg few cosmetic companies, boutiques, jewellery use this kind of marketing.

Company sponsored selling  Employers contract with Cos for buying the product and services for their employees . The seller gets access to the employee database .  This is used when the employer partly or fully sponsor his employee or wants to give these goods as a special occasion gift.  Sellers dont mind giving the discount as he getting bulk orders  Eg car, 2 wheeler, insurance policy , as diwali gift

There are 3 kinds of flows in the distribution channel called as channel flows 1.Forward flow :from the company to the customer basically goods and services 2.Backward flows: from the customer to the company mostly value of goods or services bought by the customers .some times goods returned from the market for reuse e.g. empty bottles of soft drinks 3.Flow both ways : which is mostly information about customers competitors market etc

These 3 kinds of flow are further broken down into 5 flows 1. physical flow of goods Title flow of goods (includes negotiation, ownershipand risk sharing ) Payment flows of goods (financing and payments) Information flows of goods, orders placed, orders executed , and so on Promotion flows about advertising and other support to the customers

Selection of a Marketing Channel Factors which impact the selection of a marketing channel include:

Market factors Product factors Intermediaries factors Company factors Competitive factors Environmental factors

1. Product factors :  Perish ability  Durability  Unit value  Standardize 2. Market factors :  Number of purchases  Geographical distribution  Size and number of orders  Customer buying habits  Buyers of product

3.MIDDLEMAN / INTERMEDIARIES FACTORS  Service provided by middleman  Attitude of middleman  Availability of middleman  Sales volume potential  Cost of channel usage  Contract with middle man

4.COMPANY FACTORS  Financial resource of company  Size of the company  Production mix  Attitude of the company mix  Marketing polices  Company's image

5.ENVIRONMENTAL FACTORS  Economic conditions  Social and ethical considerations 6.COMPETITIVE FACTORS.  Manufacturer feels dissatisfied with marketing intermediaries performance in promoting products

     

How does the firm make the choices ? How does it determine which one is the best? Should it go for own channels- company showrooms and depots or prefer conventional intermediaries , i.e. wholesale/retail trade. How many levels should be there in the chosen channel design? How many wholesale points should it have to ensure satisfactory market coverage ? Where should be they located How many retail points should it have? which are the places it should have What should be the relationships between the wholesaler and retailer

1. Formulating the channel objectives 2. Identifying the functions to be performed by the

channel 3. Linking the channel design to customer characteristics 4. Linking the channel design to the product characteristics 5. Evaluating the distribution environment , including legal aspects. 6. Evaluating competitors channel design 7. Evaluating company resources and matching the channel design to them. 8. Evaluating the alternative designs and selecting the best 9. Voting for a multi channel model /hybrid distribution you suit diverse customers 10. Choosing channel intensity and number of tiers

Channel objects may be specific and depend on their uniqueness Effective coverage of target market Efficient and cost effective distribution Ensuring consumers incur minimum exertion in procuring the products Helping the firm to carry on manufacturing uninterrupted ,believing that the channels will take care of sales Partnering the firm in servicing the customers and in financing and sub distribution tasks

Examples: Castor oil Objective :Provide location convenience to customer, make the products available every where Channel design : go for vast distribution .

Archies gift & greetings: Objective :proximity to customers, convert low involvement purchase into high involvement purchase , make purchase of greeting cards /gifts enjoyable experience Channel design : go for exclusive outlets , go for trendy interior designs and peppy ambience, stock a wide range of highly appealing merchandise . Others .. Louis Philips Life bouy Philips etc

This depends on the specific functions performed by the channel Different functions could be Break bulk Sub distribution- reselling, retransport, handling, accounting ,handling Stock holding Sales promotion etc

Customers characteristics- channel sell depending on who its customer is Customers are classified depending on demographics and psychographics certain customers desire high touch services and are prepared to pay extra for them Firm can choose to sell through either a discount superstore or a classy boutique ,depending on who the customer base is

Different products require different channel. Consumer goods require different channels and may vary depending if it is convenience goods(intensive) ,specialty(selective or exclusive) goods shopping goods or unsought goods Premium products need special channels e.g. montblanc pens -announces the outlet it is available Industrial product need short channel Consumer products need long channel PLC of product influences channel choice Product influences type of channel and number of members as well

Distribution environment in country or territory has to be taken into consideration including legal aspects The legal implications of the channel design the firm votes for ,must be carefully examined before taking the final decision. The design must confirm to the norms regarding practices such as exclusive dealership, exclusive territorial rights, linking of slow moving products along with fast moving ones resale price maintainance

Firm should study the competitors channel pattern but may not follow the pattern while designing the channel It should analyze the pros and cons of the channel patterns adopted by each of its major competitors .the objective is to attain an edge over the them Ex reliance textiles and Asian paints changed the existing strategy of the distribution after studying competitors and they changed to be successful

Choice of channel is governed by the resource available with the organization Firms with limited resource settle with conventional channel Firms with limited finance and resource will find it difficult for having their own distribution channel and they cant afford having their own retail outlet ,showroom as it will result in high unit cost of distribution.

With completion of foregoing steps firm should settle down the best choice of the available alternatives 3 evaluations possible

EFFICIENCY CRITERION: To find if the alternative provide the right balance among cost, efficiency and risk CONTROL CRITERION The alternative should have high rating on amenability for control ,also to check if choosing alternative is compatible with its business objectives ADAPTIVE CRITERION Channel types and level cannot be change every now and then once channel is created with a specific structure intensity and level and all set it will be difficult for the firm to exist from that structure and put an alternative in its place

In tune with reality a firm may adopt multichannel marketing model distribution system Company goes for a mixture of elements drawn from 2or 3 different channel designs or tow or more different channel designs as parallel choices By Multi channel company gains benefit such as increased market coverage more customized selling and lower costs Disadvantage would be greater propensity of conflict and pose control problem different channel end up competing for same customer

Decide on.. Channel intensity ( how many channel members and how close ) Number of tiers to be had in the channel 1. Selective 2. Intensive 3. Exclusive (Convenience ,shopping, specialty or unsought goods)