Distribution Channel/Marketing Channels by Amitabh Mishra

DISTRIBUTION CHANNEL
OR
MARKETING CHANNEL
1AMITABH MISHRA (Ph.D)

2
Channels of
Distribution
AMITABH MISHRA (Ph.D)

• Product Distribution (or Place) is one of the four
elements of the marketing mix.
• “Distribution is the process of making a product or
service available for use or consumption by a
consumer or business user, using direct means, or
using indirect means with intermediaries”.

• Distribution of products takes place by means of
channels.
• “A Channel of Distribution comprises a set of
institutions (intermediaries) which perform all of the
activities utilised to move a product and its title from
production to consumption”.
Producers Middlemen Final Consumer Or
Business Users

• Intermediaries make distribution and selling
processes more efficient.

Channel Efficiency: How Intermediaries reduce the Number of
Channel Transactions

Types/Levels of
Distribution Channel

• There may be two bases of classification of
distribution channels-
1. ‘Business-to-Consumer’(B2C)Distribution Channels/
Consumer Channels.
2. ‘Business-Business’ (B2B) Distribution Channels/Industrial
Channels.
AMITABH MISHRA (Ph.D) 8

1. “Business-to-Customer (B2C) distribution occurs between
the producer and the final user.”
2. “Business-to-Business (B2B) distribution occurs between a
producer and industrial users of raw materials needed for
the manufacturer of finished products.”

• Both types types/levels of distribution channels may
be-
1. Direct
2. Indirect
3. Hybrid

• Direct Channel: A distribution system is said to be direct when the
product or service leaves the producer and goes directly to the
customer, with no middlemen involved.
• For example,
– Company owned outlets
– Car wash
– Barber utilize direct distribution because the customer receives the
service directly from the producer.
– The jewelry manufacturer who sells its products directly to consumer.

• Indirect Distribution Channel: An indirect distribution
channel relies on intermediaries to perform most or all
distribution functions, otherwise known as wholesale
distribution.
• Hybrid Distribution Channel: Many times companies use
combination/hybrid of Direct and Indirect channels to
distribute its product in the market.
– Ex: A company (suppose Samsung mobiles) may sell the product
through its exclusive company owned outlet and website, as well as
through independent retailers.

Distribution Channel for Consumer Products

• Zero Level channel/Direct Marketing Channel: It consists of a
manufacturer directly selling to the end consumer.
• Ex.
– Door to Door sales,
– Direct mails or
– Telemarketing.
• One Level Channel: It has an intermediary in between the producer
and the consumer. Ex.
– An insurance policy in which there is an insurance agent
between the insurance company and the customer.

• Two level Channel: It consists of two intermediaries between
manufacturer and consumers, usually a wholesaler and a
retailer.
• It is a widely used marketing channel in the FMCG and the
consumer durables industry.

• Three level channel: It can combine the roles of a
distributor on top of a dealer and a retailer. The
distributor stocks the most and spreads it to dealers
who in turn give it to retailers.
• It as usually observed in both the FMCG and the
consumer durables industry.

Distribution Channel for Business Products

Channel Alternatives/
Types of Intermediaries

• Major Channel Alternatives/Types of Intermediaries are:
1. Merchants (Wholesalers and Retailers).
2. Agents and Brokers/ Manufacturers’ Representatives/ Sales
agents
3. Facilitators (Transportation companies, Independent
warehouses, Banks, and Advertising agencies).

• Merchants (Wholesalers and Retailers) are intermediaries that buy
and resell products.
– They take title to, and resell the products.
• Agents and Brokers/ Manufacturers’ Representatives/ Sales
Agents chase customers and may bargain on the producer’s behalf .
– They but do not take title to the products.
• Facilitators (transportation companies, independent warehouses,
banks, and advertising agencies), help in the distribution process .
– They neither take title to goods nor negotiate purchases or sales.

Marketing Channel
Flows

• Marketing channels perform following five
flows-
– Physical flow
– Title flow
– Payment flow
– Information flow
– Promotion flow

Marketing Channel Flows

Tasks of Intermediaries
Wholesalers
&
Retailers

27
Tasks of Intermediaries - Wholesalers
• Break down ‘bulk’
• Buys from producers and sell small quantities to retailers
• Provides storage facilities
• Reduces contact cost between producer and consumer
• Wholesaler takes some of the marketing responsibility
e.g. sales force, promotions

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Tasks of Intermediaries - Retailer
• Much stronger personal relationship with the
consumer
• Hold a variety of products
• Offer consumers credit
• Promote and merchandise products
• Price the final product
• Build retailer ‘brand’ in the high street

Purpose/Objectives
of
Distribution Channels

• Major objectives of Distribution Channel are-
– Physical distribution and insuring product availability.
– Market Information.
– Promotional Support.
– Bearing the risk and reducing the cost.
– Storing
– Providing help , support and services to the customers.
– Negotiation with customers.
– Prospecting (finding, communicating, and tracking prospective buyers)
– Financing (acquiring and using funds to cover the costs or carrying out the
channel work) Break down ‘bulk’

Factors affecting
Distribution Channel Choice

• Factors related to Market/Consumers.
– Number of buyers
– Expansion/spread of the Consumers.
– Size of the Order/Sale.
– Objective of Purchase.
– Need of the Credit Facilities.

• Factors related to Product.
– Price of the product
– Standardised or customised product
– Perishability of the product
– Technical nature of the product
– Goods made to order.
– After-sales service.

• Factors related to the Intermediary/Middlemen
– Services offered by middlemen.
– Scope or possibilities of quantity of sales.
– Attitude of agents towards the producers' policies.
– Cost of channel of distribution.

• Factors related to the Producer /Company
– Level of production.
– Financial resources of the company.
– Managerial competence and experience.
• Other Factors
– Distribution channel of competitors.
– Social viewpoint.
– Freedom of changing the middleman.

Push Strategies
vs.
Pull Strategies

• Push Strategy: “A push strategy uses the manufacturer’s sales
force, trade promotion money, and other means to induce
intermediaries to carry, promote, and sell the product to end
users”
• “Pushing the product “down” through the distribution
channel to the customer”.
– Incentives to agents and intermediaries

• Pull Strategy: “A pull strategy uses advertising,
promotion, and other forms of communication to
persuade consumers to demand the product from
intermediaries”.
• Pulling the customer “up” through the distribution to
the channel
– Traditional media/private sales/CRM.

FUNCTIONS/IMPORTANCE
OF
DISTRIBUTION CHANNEL

• Information (gathering and distributing information and
intelligence)
• Promotion (development and spreading marketing
communications)
• Contacts (Finding and communicating with prospective buyers)
• Negotiation with customers (reaching an agreement on price
and other terms)
• Physical distribution (transporting and storing goods)

41
• Prospecting (finding, communicating, and tracking
prospective buyers)
• Financing (acquiring and using funds to cover the costs or
carrying out the channel work)
• Risk taking (assuming the risks of carrying out the channel
work)
• Break down ‘bulk’
• Provides storage facilities

Channel
Management

• “Channel Management is a process by which a producer or
supplier directs marketing activity by selecting, involving,
training and motivating the entities comprising its channel of
distribution”.
• “Channel Management refers to the administration of
existing channels to secure the cooperation of channel
members in achieving the firm’s distribution objectives”.

• Channel Management involves-
1. Selection of channel members
2. Training of channel members
3. Motivating channel members
4. Evaluation of channel members
5. Conflict management

1. Selection
of
Channel Members

46
• Selecting a distribution channel is an important
aspect of building a competitive advantage for
businesses of every size.
• The right distribution channel ensures that
customers in different locations around the country,
or around the world, can buy products and get the
right level of service from the firm.

Factors in Selection
of
Channel Members

• To select the right distribution channel for business, company need
to consider what a channel can offer to company, including-
– Location
– Reach (The channel must be easily accessible for customers and
prospects)
– Skills (channel member should have the skills and knowledge to sell
products)
– Resources
– Management costs and
– Degree of control

2. Motivating
Channel Members

• “Channel Motivation refers to the actions taken by
the manufacturer to foster strong channel member
cooperation in implementing the manufacturer’s
distribution objectives”.
• Channel motivation can be done by two ways-
– Positive motivation
– Negative motivation

51
• Positive motivation: To motivate intermediaries the
firm can use positive actions, such as-
– Offering higher margins to the intermediary,
– Special deals,
– Premiums and Incentives may be offered for reaching
performance goals
– Allowances for advertising or display.

• Negative motivation: On the other hand,
negative actions may be used, such as-
– Threatening to cut back on margin, or
– Hold back delivery of product.
–Sanctions may be imposed middlemen not
performing well

3. Training
of
Channel Members

• An effective channel management requires channel
members to be equipped with the right skills to
consistently execute on the companies strategy.
• The channel members must be trained in
– Technical specifications of product
– Hospitality and courtesy
– Company’s policies and strategies
– Ways to stay ahead to competitors in local market
– Etc.

4. Evaluation
of
Channel Members

56
• The company should constantly evaluate the channel
members and monitor-
• What is working?
• What is not working?
• What can be improved?

57
• The company must evaluate intermediaries
performance against various standards as:
• Sales quota attainment
• Average inventory levels
• Customer delivery time
• Treatment of damaged and lost goods
• Cooperation in promotional and training programs.

5. Channel Conflict/
Conflict in
Distribution Channels

• Channel conflict can arise when one intermediary's actions prevent
another intermediary from achieving their objectives.
• Channel conflict is “disagreements between channel members on goals
and roles, who should do what, and for what rewards”
• Channel conflict may be
– Vertical conflict is conflict between different levels of the same
channel (Ex: Manufacturer competes with retailer in selling product to
target market.)
– Horizontal conflict is conflict among members at the same channel
level (Ex: Two retailers compete to carry a supplier’s “exclusive”
product.)

• Vertical channel conflict: Vertical conflict is conflict between
different levels of the same channel.
• It occurs between the levels within a channel and
• Ex: Manufacturer competes with retailer in selling product to
target market.

• Horizontal channel conflict: Horizontal conflict is conflict
among members at the same channel level.
• It occurs between intermediaries at the same level within a
channel.
• Ex: Two retailers compete to carry a supplier’s “exclusive”
product.

• Some conflict encourages healthy competition which
produces innovation and better performance.
• Too much conflict becomes dysfunctional.

Vertical
Producer
vs.
Wholesaler
Producer
vs.
Retailers

Channel Design

• “Designing a channel system calls for analyzing customer
needs, establishing channel objectives, and identifying and
evaluating the major channel alternatives.”
Analyzing
Customer
Needs
Establishing
Channel
Objectives
Identifying
Major Channel
Alternatives
Evaluating
Major Channel
Alternatives

1. Analyzing Customers’ Need/ Service Output Levels
Desired By Customers
• The marketer must recognize the needs of its target customers.
• Channels produce five service outputs:
– Lot size: The number of units the channel allows a particular customer to buy at one time.
– Waiting and delivery time: The average time consumers of that channel wait for receipt of the
goods. Customers generally prefer fast delivery channels.
– Spatial convenience: The extent to which the marketing channel facilitate for customers to
obtain the product.
– Product variety: The variety provided by the channel. Usually, consumers prefer a greater
collection, which enhances the chance of finding what they need.
– Service backup: The add-on services such as credit, delivery, installation, repairs provided by
the channel.

2. Establishing Channel Objectives and
Constraints
• Another factor in designing a marketing channel system is that marketers must
declare their channel objectives in terms of targeted service output levels.
• Channel objectives differ with product characteristics.
• For example-
– Perishable products require more direct marketing.
– Bulky products, such as building materials, require channels that minimize the shipping
distance and the amount of handling in the movement from producer to consumer.
• Channel design is also affected by numerous environmental factors as
competitors’ channels, monetary conditions, and legal regulations and
limitations.

3. Identify Major Channel Alternatives
• Companies may select array of channels to approach customers,
each of which has distinctive strengths as well as limitations.
• Each channel alternative is explained by
• Major Channel Alternatives/Types of Intermediaries:
– Merchants (Wholesalers and Retailers).
– Agents and Brokers, Manufacturers’ representatives, and Sales
agents
– Facilitators (Transportation companies, Independent
warehouses, Banks, and Advertising agencies).

– Wholesalers and Retailers: Some intermediary merchants such as
wholesalers and retailers buy, take title to, and resell the products.
– Agents such as brokers, manufacturers’ representatives, and sales
agents chase customers and may bargain on the producer’s behalf but
do not take title to the merchandise.
– Facilitators (transportation companies, independent warehouses,
banks, and advertising agencies), help in the distribution process but
neither take title to goods nor negotiate purchases or sales.

4. Evaluating the Major Alternatives
• The Company must assess each alternative against suitable economic,
control, and adaptive criteria. The firm should verify whether its own sales
force or a sales agency will create more sales and it estimates the costs of
selling different quantities through each channel

Multi Level Marketing/
Network Marketing

• Multi-level marketing (MLM), also called pyramid selling, network
marketing, and referral marketing,
• “Multi-level marketing is a strategy that some direct sales
companies use to encourage their existing distributors to recruit
new distributors by paying the existing distributors a percentage of
their recruits' sales; the recruits are known as a distributor's
downline.”

• MLM is one type of direct selling.
• “It is a marketing strategy where profit is derived by a participating
salesperson from a sales force which is compensated not solely by
the direct sales (although insignificant) generated by the
salesperson, but principally (although statistically improbable) from
the sales of other salespeople that the participating salesperson has
managed to recruit, and of further recruits that these earlier
recruits can additionally recruit, etc.”
• MLM salespeople not only sell the company's products but also
encourage others to join the company as a distributor.

Distribution Channel/Marketing Channels by Amitabh Mishra

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Distribution Channel/Marketing Channels by Amitabh Mishra