Distribution is all about getting your product/service to the right people at the right time with special consideration for profit and effectiveness.
Successful marketing does not end when a business has developed a product/service and has found its appropriate target audience with a view to selling it at the ‘right price’.
A distribution channel (also known as a marketing channel) is a set of interdependent organizations or intermediaries involved in the process of making a product available for consumption.
A channel directs the flow of products from producers to customers. In other words, the ways through which the goods and services are distributed from the manufacturers to the consumers, are called channels of distribution.
“Distribution channels are system of economic institutions through which a producer of goods delivers them into the hands of their users” — Richard Buskrik.
Learn about:- 1. Introduction to Distribution Channel 2. Concept and Definitions of Distribution Channel 3. Factors Affecting the Choice of Distribution Channel 4. Types 5. Selection 6. Structure 7. Designing 8. Features 9. Elements 10. Objectives 11. Significance 12. Importance.
What is Distribution Channel: Introduction, Concept and Definitions, Factors, Types, Selection, Structure and Importance
- Introduction to Distribution Channel
- Concept and Definitions of Distribution Channel
- Factors Affecting the Choice of Distribution Channel
- Types of Distribution Channels
- Selection of Distribution Channel
- Structure of Distribution channel
- Designing of Distribution Channel
- Features of Distribution Channel
- Elements of Distribution Channel
- Objectives of Distribution Channel
- Significance of Distribution Channel
- Importance of Distribution Channel
What is Distribution – Introduction
It is important to communicate with potential customers about your products, and the key benefits they offer. There are only a few products which customers will make the effort to seek out. For this to happen it has to be a product that the purchaser really values.
These products, which potential customers would value, could be based on exclusivity, for example a designer dress or an individually crafted piece of jewellery, or perhaps another type of ‘aspirational’ product. There are really very few products where customers will beat a path to your door.
It is therefore very important that products are made readily available to customers. Marketing as ‘making it easier for your customers to say yes’. Certainly the decision to purchase can be helped by making products available where potential customers can find them.
If the product required is specialised, or maybe one that needs to be made to an individual design as is common in industrial markets, then experienced purchasing officers will use all their skills to locate a potential supplier with the necessary abilities.
Here they might ‘beat a path to your door’. But this is unusual and this search is not necessarily going to find all organisations which can fulfil the requirements. It will be more likely to find those organisations which take positive action to develop channels linking them to potential customers.
The purchasing department must procure the right goods, at the right time, in the correct quantities, at the right price. The key decisions of the purchaser or the purchasing organisation regarding which goods to purchase will be taken to meet the objectives of the purchaser or the purchasing organisation.
You might consider the role of a buyer for the Sainsbury organisation responsible for jams and marmalade and how his or her actions would affect both a major supplier and a customer for this product.
The example overleaf considers how to make products easily available to customers, and it might suggest a sales-based solution. In fact it also highlights the fact that while Sainsburys are a customer for Hartleys, the final consumer is in fact a customer of the retailer. The term ‘trade marketing’ is used regarding that part of the exchange process between supplier and intermediary. It is as important a marketing job as dealing with final consumers.
Distribution, when considered by a marketer, is not merely concerned with physical distribution.
i. The choice of channels – direct or indirect
ii. Decisions on whether to use a single channel or several different (complementary) ones
iii. Decisions on how to make those channels available
iv. Decisions on building relationships with intermediaries
v. Ownership and investment within the channels.
The problem of channel choice is not restricted to physical products alone, but can just as easily apply to a service. Consider a student insurance policy made available through an insurance broker, such as Endsleigh Insurance. It is covered in the 4 Ps of marketing by the word ‘place’, but ‘place’ really does not describe all the elements involved in the task of making products easily available to customers.
1. Bringing customers into contact with offered products / services
2. Offering a sufficient choice to meet customers’ needs
3. Persuading customers to develop a favourable attitude to a particular product
4. Maintaining adequate levels of sales both for your organisation, and if appropriate, for the intermediaries
5. Providing appropriate services and information to help purchase decisions
6. Maintaining an acceptable price, including the payments to members of the distribution channel.
What is Distribution Channel – Concept and Definitions Given by William J. Stanton and Philip Kotler
The place mix is one of the four elements of marketing mix. An organization or set of organizations (go-between) involved in the process of making a product or service available for use or consumption by a consumer or business user.
Products must be available to consumers who want to purchase them conveniently, quickly and with a minimum of efforts. The distribution system determines a product’s marketing presence and the buyer’s accessibility to the product. Distribution involves activities that make products available to customers when and where they need them.
Distribution is all about getting your product/service to the right people at the right time with special consideration for profit and effectiveness. Successful marketing does not end when a business has developed a product/service and has found its appropriate target audience with a view to selling it at the ‘right price’.
Distribution offers the following utilities:
i. Time – When the customers want to purchase the product.
ii. Place – Where the customers want to purchase the product.
iii. Possession – Facilitates customer ownership of the product.
iv. Form – Sometimes, if changes have been made to the product in the distribution channel.
A distribution channel (also known as a marketing channel) is a set of interdependent organizations or intermediaries involved in the process of making a product available for consumption. A channel directs the flow of products from producers to customers. In other words, the ways through which the goods and services are distributed from the manufacturers to the consumers, are called channels of distribution.
Every producer seeks to link together a set of marketing intermediaries that fulfills the firm’s objectives. This set of marketing intermediaries is called the “Marketing Channels”. Marketing channels are defined as – “a set of interdependent organizations involved in the process of making a product or service available for consumption or use”.
According to William J. Stanton, “A channel of distribution (sometimes called a trade channel) for a product is the route taken by the title to the goods as they move from the producer to the ultimate consumer or industrial user”.
In the words of Philip Kotler, “Marketing Channels can be viewed as sets of interdependent organizations involved in the process of making product or service available for use or consumption”.
Marketing channels are the most complicated phenomena encountered in the study of marketing. Marketing channels decisions are among the most critical decisions faced by management.
From the outset, it should be recognized that not only marketing channels satisfy demand by supplying goods and services at the right place, quantity, quality and price, but they also stimulate demand through the promotional activities of the channel members, e.g. – retailers, manufacturers’ representatives, sales officers, wholesalers, etc., constituting them. A channel of distribution, therefore, should be viewed as a network that creates value for end-users by generating form, possession, time and place utilities.
“Distribution channels are system of economic institutions through which a producer of goods delivers them into the hands of their users” — Richard Buskrik.
“Channel of distribution is the structure of intra company organization units and extra company agents and dealers, wholesale and retail, through which a commodity, a product or service is marketed” — American Marketing Association.
A distribution- system is a key external resource. Normally it takes years to build, and it is not easily changed. It ranks in importance with key internal resources such as -manufacturing, research, engineering and field sales personnel.
It represents a significant corporate commitment to large numbers of independent companies whose business is distribution, and to the particular markets they serve. It represents as well, a commitment to a set of policies and practices that constitute the basic fabric on which is woven an extensive set of long term relationships.
What is Distribution Channel – 6 Major Factors: Product, Market, Cost, Channel used by Rivals Competitors, Marketing Environment and Company
It is very essential that the producer chooses the right channel as it involves long-term commitments to other firms with whom the marketer enters into a contract. A chosen channel cannot be terminated overnight and hence a lot of thought and analysis of a number of factors is done before the channel option is finalized.
The factors influencing the choice of channel are:
Factor # 1. Product:
When deciding the channel to be adopted the first factor to be considered is the product category. A consumer product will require a different channel as compared to an industrial product. The channel of distribution for a consumer product will be a longer one, and that for an industrial product will be shorter. The other factors pertaining to product, which will have to be considered, are uses of the product, frequency of purchase, fashion, habits, perishability, level of service etc.
If a product is perishable or fragile, a producer will prefer few and controlled levels of distribution. For perishable goods, speedy movement needs shorter channel or route of distribution. Similarly for durable and standardized goods a longer channel may be used.
For technical products requiring special selling and servicing talents, the shortest channel may be used. Products of high unit value are sold directly by traveling sales force and not through middlemen. For e.g. milk being a fast perishable item cannot have a long distribution chain. Vacuum cleaners, aqua-guards were once upon a time sold door to door by individual salesman of companies for easy demonstrations and sale.
Factor # 2. Market:
The channel selected depends upon the nature and extent of the market. If the market size is large, we may have many channels. However if it is a small market direct selling will be more profitable. Similarly for consumer markets, the retailer is essential, whereas, in a business market, the retailer can be eliminated. For highly concentrated markets, direct selling is ideal.
But where the market is widely scattered we may have more channels. The size and frequency of the customer’s orders also influence the channel decision. If the ultimate buyers are numerous, the order is small, order frequency is great and the buyers insist on the right to choose from a wide variety of brands/goods, the marketer must have three or more levels of distribution.
Factor # 3. Cost:
The most fundamental criteria for channel decision and channel choice is the economic criteria. Profit organisations are primarily interested in cost minimisation in distribution and assurance of reasonable profit margins. Thus the channel generating the largest sales volume at lower unit cost will be given priority. This will minimize cost.
Factor # 4. Channel used by Rivals Competitors:
The channels used by rivals must be closely watched. Many a times it may be desirable to use the same channel as is being used by the rivals. However sometimes marketers deliberately avoid the channels that are being used by the rivals and chose the one that is not being used by the rivals. This is done to avoid competition. For example, if the rival firm is using the retail channel the marketer may decide to use door to door selling, where there is no competition.
Factor # 5. Marketing Environment:
The marketing environment can also influence the channel decision. During recession or depression, a shorter and cheaper channel is usually preferred. In times of prosperity, we have a wider choice of channel alternatives.
Factor # 6. Company:
The Company’s size determines the size of the market, the size of its larger accounts and its ability to get cooperation from the middlemen. A big firm may have shorter channels. A company with substantial financial resources need not depend upon middlemen. It can afford to reduce the levels of distribution and have its own exclusive outlets. A financially weaker company has to depend upon the available middlemen. New companies have to rely upon available middlemen due to lack of experience and ability of management. A company desiring to have a better control on its products will use a shorter channel.
In short, the selection of the channel though it seems easy, is not so. The above factors taken together will influence the channel decision. Selecting the best channel will depend upon a balance of these factors and the relative importance which the management attaches to each of the factors in any particular set of circumstances. There is no best channel for all the manufacturers of a single class of products. Each management will have to take their own decisions depending upon their own unique situation and requirements.
What is Distribution Channel – Types of Marketing Channels: Manufacturer – Consumer/User Channel (Direct Sale), Manufacturer – Retailer – Consumer and a Few Others
A marketing channel or a trade channel is the means through which goods move from the producer or the manufacturer to the ultimate consumer or industrial users. Prof. W. Stanton has defined it as “it is the route taken by the title to the goods as they move from producer to the ultimate consumer or industrial user”. Thus a marketing channel is a pipeline through which products flow on their way to the consumer. The manufacturer puts his products in the pipeline or the marketing channel and various marketing people move it along to the consumer at the other end of the channel.
However the persons and institutions that render specialised services to bring about a change in the title of the goods such as banks, transportation agencies, insurance companies, and warehousing organisations are not included in the channel. The channel of distribution includes producers, wholesalers, retailers and agents and consumers or industrial users.
The most common routes used for bringing the products in the market from the producer to the consumer are as follows:
1. Manufacturer – Consumer/User Channel (Direct Sale):
When this kind of a channel is adopted, the goods move from the manufacturer to the consumer without any kind of a middleman, neither an agent, nor a merchant. Direct marketing is defined as an interactive system of marketing, which uses various media of communication (one or more advertised media) to make a sale at any location or to secure a measurable response.
A contact with customers at locations other than a retail store can be made through any communication medium-in person through sales force, by post (mail-order sale), by telephone, radio, television, newspapers, magazines and computers. Merchandise can be displayed and sold through vending machines.
A direct marketer is an organisation that uses personal selling, advertising, sales promotion, electronic media, vending machines etc. to promote and sell products directly to consumers or end users. Thus direct marketing is essentially any advertising activity, which creates and exploits a direct relationship between the marketer and the prospect or customer as an individual. Major direct marketing methods are – Mail order sale, telemarketing, marketing through electronic media (using television, radio, computers) and print media, Vending machines, in house marketing using sales force, and network marketing.
2. Manufacturer – Retailer – Consumer:
This channel option is preferable when the buyers are large retailers like departmental stores, chain stores, supermarkets, shopping malls, big mail order houses or co-operative stores. This channel bypasses the wholesaler, and hence the manufacturer has to perform the functions of a wholesaler such as storage, insurance, financing of inventories, transportation etc. This channel is adopted when the products are perishable and speed in distribution is essential.
Sometimes manufacturers want to have a better control over their products, they want to, know how their product is moving in the market and what is the reaction of the users to their products, and this is another reason why the wholesaler is eliminated and this channel is used. If the products are durable and subject to changes in fashion, the manufacturers prefer to eliminate the wholesaler to shorten the channel. Manufacturers use this channel for products like automobiles, appliances, men’s, women’s and children’s clothing, shoes etc.
3. Manufacturer – Wholesaler – Retailer – Consumer:
When this channel is adopted the goods move from the manufacturer to the wholesaler to the retailer and then to the final consumer. This is the most commonly used channel for marketing goods, and hence is known as the ‘orthodox’ channel of distribution. Nearly 50-60% of manufactured consumer goods are marketed using this channel. This channel is used for goods like groceries, drugs, tobacco products, hardware, dry goods etc.; which have a low per unit price and the market for them is wide spread. In such a situation the services of both the wholesaler and the retailer are inevitable even if it adds to the cost.
4. Manufacturer Agent – Wholesaler – Consumer:
Strictly speaking, the agent- middlemen are not included in the channel of distribution, for they do not take title to the goods. However, in actual practice, they play an important role in negotiating the purchase and sales of goods. It is because of this fact that they are included. This channel is nothing but the traditional ‘orthodox’ channel with the addition of one more middlemen in it. In this channel the manufacturer or producer uses the services of agent middlemen such as a sole selling agent, for the initial dispersion of the goods.
This agent in turn may distribute to wholesalers who in turn sell to retailers. This additional middleman is used to relieve the manufacturer or producer from the worries of selling and helps him to concentrate on production on most efficient lines. This channel is used for products like imported goods, textiles, Oil products, etc. One large national sole selling agent can act as a distributor for many manufacturers. These agent middlemen operate at a wholesale level and are common in both marketing for manufactured goods as well as for agricultural goods.
5. Manufacturer Agent – Retailer – Consumer:
This is another channel in which the wholesaler is bypassed. The agent performs the function of the wholesaler and acts as an intermediary between the retailers and the manufacturer.
6. Manufacturer Wholesaler – Consumer/User:
The retailer may be bypassed in the channel of distribution when there are large and institutional buyers like the government, business buyers, consumer co-operatives, hospitals, educational institutions, etc.
Thus there are six different channels for a manufacturer to choose from when deciding upon the distribution of his goods. Which channel he will choose depends upon a number of factors.
What is Distribution Channel – Selection of Distribution Channels: Customer Requirements, Organisational Resources, Market Considerations and Legal Issues
The prime aim of any marketing decision relating to distribution channels is how to reach the relevant customers.
This must be in the most appropriate way, given the following four major considerations:
1. Potential customers’ requirements
2. Your organisational resources
3. Competitors’ and distributors’ actions
4. Legal constraints.
Peter Chisnall wrote in his book, Strategic Industrial Marketing:
Products of all types must be readily available to customers. Established firms are likely to have well-defined channels of distribution, with which they may have particularly strong links because of efficient servicing. In other cases, a widespread network of exclusive distributors may be very difficult for a newcomer to challenge, or build up from scratch. Perhaps a non-traditional channel of distribution may offer new entrants an opportunity to develop business.
Established firms do indeed have well-defined channels. These channels often establish the norm for that particular market. While such channels will clearly differ from market to market, the channels themselves develop from the exchange between suppliers and customers. They then come to fit the needs of many customers and again become the expected norm. Such arrangements are usually of a long-term nature, and can prove a challenge to new entrants as described by Chisnall.
The choice of efficient distribution channels relies on a knowledge of a particular market. But, more specifically, it relies on the needs and wants of customers. It may not be possible to satisfy everything a particular customer wants, but that customer’s decision is likely to be based on issues such as cost, convenience, and availability. We could look at the different ways in which varying types of food retailer might offer a particular food item for sale.
The decision facing potential customers is how they rate the different elements of cost and convenience. The supplier of the food product will perhaps see no conflict in supplying all three types of retailers. The attempt by the supplier to obtain maximum coverage is termed intensive distribution.
This is the strategy of giving the product the maximum exposure possible, so that it has the best chance of being found by a customer. However, the supplier is likely to put greatest effort into trying to develop the channel which offers the greatest return. In supplying the hypermarket it is likely that a direct approach will be used. But to supply the neighbourhood store they will probably supply in an indirect way via a wholesaler or Cash and Carry.
Opening times are relevant to the availability decision of customers for such diverse organisations as public libraries and supermarkets. The restrictions on local authority budgets has been blamed for shorter library opening hours, as well as a more limited ‘product’ due to less spending on new books.
However, the visible result is fewer books are being borrowed. It is possible to argue that the reason also has something to do with the ever- increasing presence of substitute products such as TV or video. While marketing is not a term used by many in the library service, the need to satisfy customers is still a key requirement. The use of mobile libraries over many years was one way libraries found of increasing availability. The reduction of opening hours in some towns is the opposite.
Opening hours are also a key competitive issue and Sir Dennis Landau of the Cooperative Wholesale Society commented on it when discussing the (until recently) illegal Sunday trading – ‘there is no virtue in remaining legal and going broke in the process.’ It might be interesting to discuss this in relation to competitive business in general.
The maximum availability of food products, via all chosen channels, is desirable for the food supplier. If the product is not on sale when required then potential customers could buy an alternative (competitor’s) food item. Here there could be an alternative for the customer but the supplier loses a sale. In the library example, a customer might be annoyed if the product was unavailable when required. That could influence future behaviour and decisions.
The situation is very different in an industrial setting for a specialist component required by a manufacturer. The production line could be brought to a halt if the component is not available when required. In the past, firms invested working capital in buffer stocks, but such costs are increasingly being reduced as companies change to sophisticated supply chain systems such as JIT (just in time).
This type of supply chain can only work if there is a close partnership between supplier and customer. Decisions by the customer on whether to source locally, or perhaps import cheaper components, would be determined by issues of convenience and availability. Hence such a situation provides an interesting challenge for the marketing department of a potential supplying company. For this reason knowledge of customers’ behaviour is critical to decisions on suitable channels of distribution.
The choice of channels has to be consistent with the needs and capabilities of the organisation as well as meeting the needs of customers. It might be considered necessary for a qualified person to install a more technical product such as a gas fire or a heavy duty machine.
In this case suitable channels might be restricted to those where such a service is available. The producer could, of course, set up a network of wholly owned outlets. That is, however, very expensive. It may be beyond the resources of a producer and it could also be an inefficient way of achieving the objectives.
An organisation will normally first make decisions on the market segments to which they want to offer their product. However, there is likely to be an ongoing need for market information to be fed back to the original supplier. In view of this, it could be decided to work with a particular type of channel which will facilitate the process.
Many companies admit they are better off working through intermediaries because they can provide the resources to cover all the potential customers in a cost-effective way. In fact this is another reason why food manufacturers market via retailers rather than directly. In other cases intermediaries are in an excellent position with regards to customers.
This is why certain life insurance and pension companies operate via solicitors, accountants or banks rather than recruiting large direct sales forces. The intermediary gives credibility to the product.
Imported products can also benefit from indirect channels, which is why French mineral water, Perrier, although owned by Nestle, is distributed in the UK by Coca-Cola Schweppes Beverages (CCSB). Both organisations benefit – Perrier from an efficient transport system, and CCSB’s large professional sales force; CCSB by being able to include a very desirable product in their portfolio.
One problem arising from the use of intermediaries is that it almost invariably leads to some form of loss of control over the way markets are served. Obviously, it also involves lower margins, but this needs to be set against the costs of direct distribution, and the breadth of potential customers that any channel can achieve.
Of course, if our manufacturer of the food product wants to reach regular customers of Marks & Spencer he cannot do it without losing his identity and control because he would have to supply an own brand product. This now gives Marks & Spencer a very powerful position in part of the supply chain. But companies who successfully work with them, such as Northern Foods, can gain very large sales by cooperating in this way.
The example above is also relevant when considering which channels are (a) suitable for customers, (b) acceptable to the organisation and (c) feasible within light of existing market conditions. (The test of suitability, acceptability and feasibility is used in another context by Johnson and Scholes as one of the tests of corporate strategy.)
Control of the distributive channels is a very effective barrier to entry in many markets. Even if it is possible to gain access to a general distributor alongside competitive products, it will not be enough if the distributor constantly recommends a competitor’s product rather than your product.
An interesting phenomenon is that brands with small market shares suffer, in what Professor Ehrenburg calls, the ‘Double Jeopardy Effect’. This is reflected by their customers being less loyal to that brand in regular purchases, hence emphasising the poor sales. This effect makes it very difficult for minor brands to compete effectively.
Another case where the use of alternative distribution channels was introduced to avoid direct competition with established products is the way Avon cosmetics use thousands of direct sales agents rather than sell via retail outlets. Avon have a large turnover in the UK and make an excellent profit on their business.
4. Legal Issues:
The legal environment is important. There are obvious issues such as product liability laws, which affect all offerings. These restrictions vary from country to country. It is equally important to appreciate legal issues when developing channels for distribution. Key legislation such as the Sale of Goods Act puts responsibilities on retailers.
In structuring the channels support must be given to the retailers (your customers) even if they are not the final consumers. Policies on returned stock, and replacing faulty goods, are a key element of distribution policy and customer service.
There are many laws restricting business. The legal environment relating to the customers (and the customers’ customers) is part of the environment that must be considered when making products/services available.
What is Distribution Channel – Conventional Distribution Channel, Vertical Marketing System, Horizontal Marketing System and Hybrid Marketing Systems
Distribution channel structure refers to the pattern by which the collections of firms tied together by various flows. They are complex behavioral systems in which people and companies interact to accomplish individual, company and channel goals.
Some channel structures consist only of informal interactions among loosely organized firms. Others are mainly guide by organizational structure. It is dynamic in nature and changing constantly with the changes in marketing concepts in the light of changing technology and modern business concepts.
For the channel as a whole to perform well, each channel participant’s part must be specified and channel conflict must be nullified.
There are basically four types of channel structure:
1. Conventional distribution channel
2. Vertical marketing system (VMS)
3. Horizontal Marketing System
4. Hybrid Marketing Systems
1. Conventional Distribution Channel:
According to Philip Kotler, A channel consisting of one or more independent producer, wholesalers and retailers, each a separate business seeking to maximize its own profits, even at the expense of profits for the system as a whole.
2. Vertical Marketing System:
A distribution channel structure in which producers, wholesalers and retailers act as a unified system. One channel member owns the others, has contracts with them, or has so much power that they all cooperate. The VMS can be denominated by the producer, wholesaler, or retailer.
There are three types of VMS- a. Corporate VMS, b. Contractual VMs, c. Administered VMs.
3. Horizontal Marketing System:
A channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity. In other words ,a channel arrangement in which two or more companies at one level join together to follow a new marketing opportunities where they can combine their resources and use them optimally, e.g McDonalds joining with Coca Cola.
4. Hybrid Marketing Systems:
A distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments. Other definition defines multichannel marketing system as, “Multi-channel distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments.”
In this modern era, generally every big organization uses this structure for expanding its business and distribute through multiple channels.
What is Distribution Channel – 5 Important Points for Designing a Channel: Analyzing Customer Needs, Setting an Objective, Searching Major Alternatives and a Few Others
Following important points must be taken into consideration for designing a channel:
1. Analyzing Customer Needs:
Like said before, marketing channels are part of the overall customer- value-delivery network.
Each channel member or group and level adds value for customer. Hence, process of designing a marketing channel starts with finding out customer’s requirement from a channel.
Customer wants to purchase from nearby locations or from centralized location? or from online shopping portals of company? The faster the delivery, the greater assortment provided and the more add on services supplied, the greater the channel’s service level. This requires skill and costs and they are not affordable for producers hence, the company must balance a consumer needs with regards to prices.
If customer wants lower costs for product the above design of channel might not be required.
2. Setting an Objective:
Organization should state their marketing channel objectives in terms of targeted levels of customer services. These objectives are hugely dependant on the nature of company, its product, its marketing intermediaries, its competitors, its environment. Organization’s financial position for example can determine which marketing function it can handle itself and which if can give to intermediaries.
Macro environmental factors such as economic conditions legislative changes may affect channel objectives and design.
In times of depression, producers want to distribute their goods in the most economical way, using shorter channel design, cancelling unneeded levels that ultimately adds to the final price of goods.
Some common objectives from channel are described below:
i. Effective coverage of the target market.
ii. Assisting firm in financing and sub distribution tasks.
iii. Efficient and cost effective distribution.
iv. Minimum efforts on the part of customer to procure product.
3. Searching Major Alternatives:
After studying customer needs and objective setting next step in designing a channel system is of identifying major alternatives in terms of types of intermediaries, the number of alternatives and the responsibilities of each channel member.
a. Types of Intermediaries:
Producer should detect various types of channel members available for carrying out tasks in channel system. There are various choices available as regards to intermediaries. We have seen example of Dell and its distribution process. Now, it has decided to sell through retailers instead of selling only through its own distribution system of direct selling.
Hence, types of intermediaries, can be decided in this process.
b. Number of Marketing Intermediaries:
Companies must also determine, the number of channel members to use at each level. It can be depend on types of product, nature of products, marketing environment, target customer etc.
There are three strategies available for deciding number to marketing intermediaries:
i. Intensive distribution- Many intermediaries are involved and product is available in many outlets possible.
ii. Exclusive distribution- In this producer gives only a limited number of dealers the exclusive right to distribute its product in their respective territories.
E.G. Apple, Rolex products are sold by only handful of authorized dealers.
iii. Selective Distribution- Consumer durable items like LED TV’s, Refrigerators etc. are generally supplied through this type, called as selective distribution which is a middle route between intensive distribution and exclusive distribution.
c. Channel Members Responsibilities:
Companies and intermediaries must agree on terms and responsibilities of each channel partner. They should agree in price policies, conditions of sale, territorial rights, conditions regarding after sale services etc.
These terms and responsibilities must be spelled out carefully.
4. Evaluating Major Alternatives:
Many alternatives are seen regarding intermediaries selection, their number and responsibilities. Next step is to evaluate each and every possible alternative in light of various other factors including economic, social, political and other factors. Economic criteria will provide guidelines in terms of likely sales, costs, profitability analysis of different channel alternatives.
Company should strive for balance between reality and ideal standards. Hence it must possess some control on the target market but need to give control to its intermediaries also. It must be remembered that channel often involve, long term commitments, yet the company wants to keep the channel flexible so that it can adopt to environmental changes. Hence, long term planning, regarding designing of channel is preferable than temporary arrangements.
5. Evaluation of Competitors Channel Designs:
Study of competitors channel patterns before deciding its own channel design is useful in some respects. Company must analyze competitor’s designs, advantages and drawbacks before setting its own design. Sometimes, firm follows other competitor’s policy and just copy it and apply to if own structure.
However, it is not recommended because it can turn out as a bad design not suiting companies’ particular requirements and demands. Hence, only analysis should be made for understanding competitor’s design and after studying that our new design of channel must be made in accordance with specific and unique characteristics of product.
With everything else in marketing, Good channel of distribution begins with, analyzing customer needs. Hence, channels of distribution are customer value delivering networks.
Distribution channel designing is an art of dealing between ideal standards and practical aspects of delivery system.
Low level small scale firm usually sells its products in a limited area. After surveying whole market and doing thorough research, it decides to install proper channel distribution system. It is not difficult to find best channels suiting business requirements. If this venture turns out to be successful then the firm can plan for an expansion activity with opening several branches across the larger area installing various channel of distribution.
In smaller markets, the firm might sell directly to retailers, in larger markets, it might sell through distributors. In some part of country it might sanction exclusive franchisee all available outlets. After this web store can be opened for customers where online shopping can be made available.
In this way, channel systems often evolve to meet market opportunities and conditions.
Channel decisions are important because they determine a products market presence and buyers accessibility to the product. Channel structure is a long term initiative and needs to be planned accordingly unlike promotion and advertising campaigns which are rapidly changing.
Designing channel decisions is an entire marketing process and not just the physical product movement. It is a set of interconnected and interdependent groups concerned with transferring specific goods and services from the original producer or supplier to the final user or consumer.
Best channel distribution design is that which ensures customer satisfaction with optimum resource utilization of intermediaries as well as producer for efficient supply of goods. So distributor must be appointed after proper understanding of business needs, aims etc.
What is Distribution Channel – 9 Features of Distribution Channel
The characteristics or elements of distribution channel are explained below:
1. Remuneration – On one hand, commission is paid to the intermediaries for the services that they render. On the other hand, manufactures/marketers get compensated in the form of addition to the price of goods sold and commissions allowed by the manufacturers.
2. Supply-Demand Linkage – They serve as a bridge connecting the producers and consumers by resolving spatial (geographical distance) and temporal (relating to time) discrepancies in supply and demand.
3. Marketing Tools – Serving as vehicles for viewing the marketing organisation in its external aspects and for bridging the physical and non-physical gaps which exist in moving goods from the producers to the consumers.
4. Composition – Intermediaries, such as, wholesalers, retailers, agents, distributors, etc., also called middlemen are a part of distributions of channel who participate in the flow voluntarily.
5. Time Utility – They bring goods to the consumers when needed.
6. Convenience Value – They bring goods to the consumers in convenient shape, unit, size, style and package.
7. Possession Value – They make it possible for the consumers to acquire goods with ownership title.
8. Route or Pathway – It is a route or pathway through which goods and services flow from the manufacturers to consumers.
9. Flow – The flow of goods and services is smooth and sequential and usually unidirectional.
What is Distribution Channel – Top 6 Elements: Time Utility, Easy Flow, Route of Supply, Element of Marketing Mix, Convenience and Demand
1. Time utility- Channels of distribution are responsible for bridging the gap between the place of producer and ultimate consumer. So they bring goods and services to the consumers when needed and thus creates time utility.
2. Easy Flow- Smooth flow of goods and services is a result of good channel of distribution.
When demand for goods increased, importance of steady flow of goods from the place of producer is recognized.
3. Route of supply- Channel of distribution is a route or passageway through which goods and services flow from the manufacturer to consumers.
4. Element of Marketing Mix- Management must consider channel of distribution for planning and goal setting purpose because even if product is ready in the factory, if it cannot be distributed on time, it’s of no use to the ultimate customer.
5. Convenience- They bring goods to the consumers in convenient shape, unit, size, style and package.
6. Demand – supply link- It is the link between demand and supply, in other words, to the customer from the producer.
What is Distribution Channel – 6 Objectives
The basic objective of any channel of distribution is a customer satisfaction through the logical delivery system, facilitating speedy, steady and easy flow of goods and services from the manufacturer or provider of those.
The following are the objectives of distribution channel:
1. To ensure availability of products at the point of sale.
2. To stimulate channel members to put greater selling efforts.
3. To build channel member loyalty and satisfaction.
4. To develop managerial efficiency in channel organization.
5. To have an efficient, speedy and effective distribution system, to make products and services available.
6. To create ultimate brand name in the mind of buyer through efficient delivery system.
What is Distribution Channel – Importance of the Channel of Distribution
Now a day’s only few small scale businessmen directly sell their goods to the final users, most of the organizations use intermediaries to bring their products to market. They try to set up marketing channel of distribution, a set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business user.
Distribution channels requires the assistance of others in order for the marketer to reach its target market marketers who are successful without utilizing resellers to sell their product for example world’s leading personal computer seller dell corporation sells its products mainly via internet by taking personal orders. However such marketing techniques also requires assistance with certain parts of the distribution process. In the above case dell use services of courier and other shipping companies.
So the producer must assess the benefits received from utilizing a channel partner and relevant cost incurred for using the services.
1. Reducing Exchange Time:
Distribution agencies perform their job speedily and hence performs fast delivery system enabling supply efficiency and thus customer satisfaction.
Consider one example where one departmental store receives material directly from different manufacturers through different medium such as by air, road and through shipment. This system will result in a chaos and wastage of time because, instead of concentrating on the actual sell and communication with the customer, owner of that store will have to divert his attention on the material dispatched by different manufacturers.
Instead of this situation, a better distribution channel system can be installed by which that particular departmental store can purchase its products from wholesaler who is purchasing that from stockiest or direct producer thus enabling smooth flow of goods.
2. Convenient Shopping Experience:
Producers have to understand customer’s needs and understand the concept of shopping experience. As of today, there are hundreds of shopping markets chains spread across the country with variety of products, different brands at a one place, some departmental store chains have their own brands of the various products (Reliance fresh have various branches all over India and they sell their own MILK, COOKING OIL etc along with all other popular brands.)
3. Cost Savings in Specialization:
Distribution channel participants are professional in their own field and thus enables speedy transfer of goods and services. Producers attempting to handle too many aspects of distribution may result in chaotic situation leading to improper handling of any single issue.
Every company is looking for cost cutting options and is ready to spend time, special technology to save some extra penny.
4. Benefit of being Retailer:
Suppliers are often reluctant to sell in smaller quantity as per the requirements of the customer.
Suppliers though like to ship products they produce in large quantities since this is more cost effective than shipping smaller amounts. The ability of intermediaries to perform such services as efficient delivery system, speedy supply to next level of distribution.
Therefore, retailer can perform their duties of selling in small and customized quantities as per the customer’s requirements. Hence, producer need not worry about delivery system and channel of distribution.
5. Create Sales:
Resellers and retailers are front face of the product and communicate directly with end users. Therefore they have firsthand information and also have feedback, customer requirements. Hence, they know how to create demand for product and increase sale. Producer therefore can concentrate on other primary tasks such as production activities, cost cutting methods, pricing and other planning methods etc.
6. Reduction in after Sales Service:
Many resellers take the responsibility of after sale service along with sales activities. After sales service is an integral part of today’s customer’s requirements. Many mobile and camera manufacturers, for example, are giving warranty and after sales service free of cost as a promotional tool.
What is Distribution Channel – 8 Important Roles of Distribution Channels
Distribution channels play pivotal role in successful marketing of most products, especially consumer products. No manufacturer can easily command such resources. Even assuming that the resources could be found, the question arises whether it would be advantageous for the manufacturer to carry out the distribution function by himself, totally avoiding marketing intermediaries.
Analysis shows that there are more disadvantages than advantages in doing so, If intermediaries are not there, the firm will have to make direct contacts with far too many and scattered customers. Marketing intermediaries minimize the number of contacts the firm has to make to sell its products. In another words, these intermediaries confer on the firm the vital advantage of distributional efficiency.
Distribution channels combine the products and components manufactured by different firms and offer them in the form of assortments that are convenient to final users. The final users in most cases; actually need an assortment of items; they do not prefer to shop at outlets which fail to provide an assortment of all the products that they require.
By offering merely one’s own products through a network of one’s own outlets, no firm especially a consumer product firm can properly meet the customer needs. Nor would it be feasible for any given firm to enter into the distribution of all the other products which may be required by customers.
Distribution channels render the vital service of assembling the products of different manufacturers into suitable assortments. They also break the bulk and meet the small size needs of individual consumers. In other words, channels assist in matching segments of supply with segments of demand.’
Distribution channels also provide the vital input of salesmanship. In particular, they assist in establishing new products in the market, Dealer recommended selling is common in many consumers product. The dealers promote the products through their word-of-mouth communication.
They also provide the pre-sell and after-sell service to consumers. In addition, they provide market intelligence and feedback to their principals. The channels are in a position to do this authentically, since they are in constant and direct contact with costumers, and are feeling the pulse of the market all the time.
Merchandising is another important function performed by distribution channels. Through merchandising, distribution channel help reinforce the awareness about the product among the customers. When a costumers visits a retail shop, his attention can be allured by an attractive display of a new product/ brand, increasing his awareness of the product and his interest in the product.
The merchandising activities which include display complement the selling efforts of the company and act as a silent salesman at the retail outlet.
Distribution channels also help implement the price mechanism in the market; they assist in arriving at the price level that is acceptable to the maker as well as the user. This is very vital for the consummation of the marketing process, And in several cases, without the active role of these channels, it would be very difficult to accomplish this requirement.
The importance of distribution channels can be understood clearly by analyzing, the wide variety of functions performed by them.
In the first place, distribution channels bring together the makers and the users in an efficient and economic manner. It will not be practical for any manufacturer to organize a network of his own selling points throughout the market and sell his product directly to consumers totally avoiding outside distribution channels. Just like mass manufacturing, mass distribution too needs large resources in terms of money, materials and men.
Marketing intermediaries also look after a good part of the physical distribution functions like transportation, warehousing, sub-distribution and inventory management. In addition, they look after financing of the goods, credit transaction, negotiations with buyers, etc.
Some of the intermediaries, particularly the wholesalers/ stockiest share the financial burden of the manufacturer; they often give substantive amounts to their principals as deposits; alternatively, they pay cash and lift the product; and the manufacturer gets his money long before the product reaches the actual users.
Marketing intermediaries at the wholesale level also extend credit facilities to the subordinate level in the channels and thus relieve the principals of their financial strain. Simultaneously, they help make the product available within easy reach of potential consumers and thereby enhance the chances of sale of the product.
In certain cases, distribution channels go far beyond the conventional functions of distribution. They also accept responsibility for the transfer of technology .The case of agricultural inputs is a good example. The marketing intermediaries in this business often act as ‘change agents’ among the farmers and generate demand for new products.
The importance of distribution channels emanates from the functions performed by them. It is but natural that most business firms consider the channel as a very important component of the marketing mix.