MODULE NO.

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COMMUNITY COLLEGE OF GINGOOG CITY
GINGOOG, MISAMIS ORIENTAL
Email: [email protected]

BACHELOR OF SCIENCE IN ENTREPRENEURSHIP

SUBJECT: Marketing Management
2nd Semester of A.Y. 2022-2023

Module III: Delivering Value (Distribution)

Concept Note/ Discussion

Goods are produced for sale to the ultimate consumer. When a product has been developed and made
ready and its price also determined the next task is its distribution. Distribution refers to bringing the
product to the market and giving it to the final consumer.

Meaning and definition of Distribution

The term distribution includes all movements of the product. According to Mossman and Norton,
“Distribution is the operation which creates time, place and form utility through the movement of
goods and persons from one place to another”.
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Distribution covers seven Rs- the Right product, in Right quantity, in Right condition, at the right time
and Right place for the Right customer at the Right customer at the Right cost. Place (or distribution) is
an important tool of the marketing face a different kind of ‘D’ – death.

Elements of Distribution Mix

Distribution involves all activities necessary in getting a product to customer distribution includes the
following aspects or elements.
1. Channels of distribution Mix: Distribution channel includes agent, middlemen, wholesaler,
retailers etc. They gather information, develop communication, place orders, provide storage,
assume risks etc.
2. Warehousing: Every company has to store finished goods until they are sold. The storage
function helps to provide the products to consumers timely. This function is performed by
warehouses.
3. Transportation: Transportation is the physical means whereby goods are transferred from place of
production to the place of consumption.
4. Inventory: Inventory decision-making involves knowing when to order and how much to order.
These decisions affect costs. Hence a control is required over the inventory. Inventory control
requires the maintenance of inventory at an optimum level.

Components of Distribution System

Distribution system has two components or sub divisions (a) Physical distribution, and (2) Channel of
distribution.

Meaning of Physical Distribution

Physical distribution is a broad range of activities concerned with efficient movement of finished goods
from the end of the production line to the consumer. In the words of AMA “Physical distribution
includes the following activities (functions of physical distribution): (a) Transportation, (b) Storage and
warehousing, (c) Loading and unloading of goods, (d) Inventory control, (e) Material handling, (f)
Protective packaging, (g) Market forecasting, (h) Customer service.

Meaning of Channel of distribution or Marketing Channels

The word ‘Channel’ is derived from the French word ‘Canal means an artificial path-way used for
transport and irrigation. In the field of marketing. Channel of distribution means the path or network or
the pipeline through which the products are made available to the consumers, thus providing time and
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place utility.

In the words of Kotler, “Channel is a set of independent organizations involved in the process of
making a product or service available for use of consumption”.
Role and Importance of Marketing Channels (Functions of Channel of Distribution)
One of the chief roles of marketing channel is to convert a potential buyer into a profitable customer.
They do not just serve markets but hey also make markets. The channel of distribution or marketing
channel performs the following functions.
1. Information gathering: Channels gather information about potential and current customers, their
behavior, competitors and other forces which affect the business.
2. Consumer motivation: Channels develop and transmit communication motivate consumes in
buying the product.
3. Bargaining: Middlemen reach agreement on price and other terms with the consumer on behalf of
the producer. In this way transfer of ownership takes place.
4. Financing: It finances inventories at different levels of marketing.
5. Risk-bearing: Channel also shares risks connected with carrying out channel works. This reduces
the burden on the producers.
6. Services: it offers specialized product services including repairing service to the customers on
behalf of the producers. Their services include pre-sale and post-sale services.
7. Marketing research: It helps in marketing research
8. Demand forecasting: It also helps in demand forecasting

Length of Channel (Levels of Channel)

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This indicates the number of intermediaries between the producer and consumers. The fewer the
intermediaries, the shorter the channel. This is also known as channel level. There are four channel
levels. They are as follows.
1. Zero level Channel: This is also called direct marketing channel. This channel consists of
manufacturer and consumer. There are no intermediaries at all. The manufactures sell directly to
consumer. There are no intermediaries at all. The manufactures sell directly to consumer. The
major ways of direct marketing are door to door, home parties, mail order, telemarketing,
company’s own showrooms etc.
2. One level Channel: This contains one selling intermediary such as retailer. This is used by
manufactures for marketing fashion merchandise. It requires to know the latest trends and fashions
of consumers. Hence, they employ retailers.
3. Two level channels: This contains three intermediaries. For example, in the meat packing
industries, wholesalers sell to jobbers, who sell to small retailers.

Channels of Distribution for Industrial Goods

A manufacturer of industrial goods may use any one of the following channels of distribution of his
product.

Factors Considered in Selecting Channels (Factors Influencing Choice of Distribution Channel)

All products whether consumer goods or industrial goods or services require a channel of distribution.
The marketer has to decide the most suitable channel. The selected channel must be efficient and
effective. While selecting the channel or outlet of distribution, marketer has to consider
a number of factors.

Nature of product: The channel of distribution can be selected only after considering the features of
product. If a commodity is perishable or fragile, the producer prefers direct marketing or employees
few middlemen. For perishable goods it requires speed movement. This needs shorter channel. For
durable and standardized goods, longer and diversified channel may be necessary.
Nature of market: The selection of channels depends on the requirements of market. For consumer
market, retailer is essential. In industrial market, we can eliminate retailer. If the market size is large, it
requires many channels. In a small market, direct selling is better.
Buying habit of consumers: The buying habit of consumers, their number, location, frequency of
purchase, quantity bought etc. Influence the selection of channel.
Company: While selecting the channel, the company’s financial strength, reputation etc. must be
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considered.
Middlemen: The middlemen who are to offer good facilities of storage must be considered. The
channel which generates maximum sales must be selected.
Cost of channel: Cost is another factor which influences the channel selection. The cost of each
channel maybe estimated on the basis of unit sale.
Competition: Competition also influences the decision on channel selection.
Marketing environment: When the economy is depressed, manufactures may go in for shorter
channels in order to cut costs. Under inflationary conditions direct selling is better. Its multipoint
system of sales tax is in operation, direct selling is preferable.

Intensity of Distribution (Distribution Policies)

Once the company decides the general channel after considering the above-mentioned factors, the firm
has to decide on the number of middlemen in each channel, i.e., intensity of distribution. There are
three different distribution policies. They are:

Intensive or mass distribution: This is the strategy of using as many outlets (service of middlemen)
as possible. In intensive distribution, all available outlets are used for distributing product. This
facilitates maximum sales for a product. This is generally used for convenience goods such as
cigarettes, sweets, soap, bubble gum etc.
Selective distribution: Under this policy, a marketer selects a limited number of wholesalers or retail
distributors. The manufacturer or marketer will select only the best distributors and concentrate efforts
on them.
Exclusive distribution: This is the practice of selecting only one dealer in one area called territory and
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giving it the exclusive right to distribute the company’s products.

Channel Co-operation
Channel co-operation is an essential part of the effective functioning of the channels. Channel co-
operation mean compatibility of marketing objectives of manufacturers and other intermediaries. It is a
situation in which the marketing objectives and strategies of the channel members and the
manufacturer are congruent.

Meaning of Channel Conflict

Chanel conflict is a clash of goals and methods among the members of a distribution channel. It is a
situation when two channel members relationship are not harmonious. Thus, channel conflict refers to a
situation when channel members are opposed to each other because of disagreements about the
common purpose or goals or ways of attaining them.

Type of Channel Conflict

There are three types of channel conflict. They are:
1. Vertical channel conflict: It is a conflict between channel members at different levels. For
example, conflict between manufacturer and wholesaler. This is more common than horizontal
conflict.
2. Horizontal channel conflict: it is a conflict between middlemen of different levels. For example,
conflict between wholesalers and retailers.
3. Cross Conflict. This conflict arises between middleman of different levels.
4. Channel Integration and System: Companies all over the world produce millions of pesos worth
of goods for consumers. These goods reach the end consumers through a variety of distribution
system. Companies can develop their own distribution channels or delegate the function to
different channel members through channel integration.

Meaning of channel integration

In a conventional marketing system, the channel members have no affiliation with one another. All the
members operate independently. The conventional channel system comprises an independent producer,
wholesaler (s), and retailers (s). Each is a separate business seeking to maximize its own profits. No
channel member has completed or substantial control over other members. To fulfill the potential of
effective distribution, it becomes necessary to consolidate channels. This is done through channel
integration involves streamlining the different channel activities and information flow in a manner that
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leads to mutual benefits to all the partners (members) concerned.

Channel Competition
In addition to the conflict between members at different levels in the channel, the channel members
may also compete with each other.

Meaning of channel competition

As already stated, channel members may compete with each other with a view to achieve greater sales
and profits. Channel competition refers to the efforts by the marketers within a channel of distribution
or by channels a whole to establish dominance over the others. For example, restaurants in a city
compete with each other for customers as well as for the best location and suppliers. The same
restaurant also competes as a group against home/office meals delivery service.

Value Network
Marketing channel is made up of a chain of people. This chain constitutes manufacturer distributor,
dealer, retailer and the consumer. Today it has become an absolute necessity to add value to a channel.
One of the many ways that we can add value to a channel is by building value networks of marketing
channels.
In business and commerce, value networks are an example of an economic ecosystem. Each member
relies on the others to foster growth and increase value.

Meaning of value Network

Value network is a system of partnerships and alliances that a firm creates to source augment and
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deliver the company’s offerings. It is a set of connection between organization and/or individuals
interacting with each other to benefit the entire group. A value network allows members to buy and sell
products as well as share information. These networks can be shown in the form of a diagram showing
nodes (members) and connectors (relationships).

Middlemen in Distribution (Types of Channels of Distribution)

In today’s economy, most producers do not sell their products directly to the final consumers. In many
cases they will leave the task of distribution in the hands of some specialized persons. These
specialized persons working between the producers and consumers and help in the distribution of
products are called middlemen. They act as intermediaries between the producer and consumer.

Types of Middlemen
All middlemen are classified into three (1) Merchant middlemen, (2) Agent middlemen, and
(3) facilitators.
Agent Middlemen: Agent Middlemen are those channel members who never take title to goods. They
usually do not take possession of goods. They merely assist manufacturers, merchant middleman, and
consumers in carrying out transaction of sale and purchase. They only bring buyers and sellers
together in order to facilitate exchange. Sole selling agents, selling agents, commission agent and
brokers are important agent middlemen.
Merchant Middlemen: Merchant Middlemen are those who take title to goods with a view to selling
them at profit. They help in the distribution of goods by acting as intermediaries between
manufacturers and consumers. Wholesalers and retailers are the important merchant middlemen.
Facilitators: Facilitators are those who assist in the performance of distribution but neither take title to
goods nor undertake purchases or sales, e.g., transportation companies, independent warehouse, banks,
advertising agencies etc.

Functions of Middlemen
The important functions of middlemen are as follows:
1. They help in the efficient distribution of good.
2. They help in the creation of place, time and possession utilities.
3. They provide valuable market information
4. They undertake transport, warehousing and storing of goods

Managing Wholesaling
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Wholesaler is the first intermediary in the channel of distribution. He is a trader who deals in large
quantity. He purchases the goods from manufactures in bulk quantity and sells it to retailers in small
quantity. Thus, he stands in between the manufacturer and the retailer. He generally deals in one or a
few classes of goods.

Functions of Wholesalers
1. Assembling of varieties of goods from different manufacturers.
2. Storing of goods in proper warehouses till they are sold to the retailers.
3. Distribution of goods to retailers
4. Transporting of goods first from the place of producers to his warehouse and from there to the retail
stores.
5. Financing the retail trade by selling the goods to retailers on credit basis

Services Rendered by Wholesalers

Wholesaler renders valuable services to manufacturers, retailers and to society.
Service to manufacturers: The services rendered by wholesalers to manufacturers are as follows:
1. The wholesaler helps the manufacturer to get the benefit of economies of large scale production by
purchasing goods in large quantities.
2. As the wholesalers collect small orders from a number of retailers, the manufacturer is relieved
from the trouble and expense of collecting a large number of small orders.
3. He makes cash purchases from the manufacturers. This enables the manufacturers to carry on his
business with less amount of capital.
4. The wholesaler buys in large quantities and keeps the goods in his warehouses. This relieves the
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manufacturer of the risks of storage, obsolescence and other losses.

Service to Retailers
The service rendered by wholesaler to retailers is as follows:
1. Wholesaler helps retailers obtain goods more quickly and more conveniently from the wholesalers
than from manufacturers.
2. Whenever new goods are introduced in the market, the wholesaler will inform the matter to
retailers.
3. He gives Valuable advices to the retailers on business matters.

Service to the Society

Wholesaler renders some services to the society also. They are as follows:
1. The wholesaler passes on to the retailers and consuming public the benefit of specialization of
marketing activities.
2. Wholesalers introduce fashion and new style in the market. He raises the standard of living of the
people.
3. Wholesalers undertake market research also. This is also beneficial to the society.

Managing Retailing
The word ‘Retail’ is derived from the French word with the prefix re and the verb tailor meaning to cut
again. Dictionaries define retailing as “the sale of goods in small quantities to ultimate consumers”. A
whole seller buys goods in large quantity and cuts the bulk into small lots and sells the lots to retailers.
The retailer cuts them again into small quantities and sells them to ultimate consumers. Thus, the
retailer works in between wholesaler and consumer. Mandell, etc. have observed that “If we think of
production and consumption as the two poles of the distribution process, wholesaling would be nearer
to the production pole and retiling would be nearer to the consumption pole”.

According to Ostrow and Smith (1985) “Retail store is a business whim regularly offers goods for sale
to ultimate customer. A retail store buys, stores, promotes and sells the merchandise”. Functions of
Retailers
1. Collection and assembling of variety of goods from different wholesalers.
2. Undertaking transport for carrying the goods purchased
3. Selling of products in small quantities for the convenience of consumers
4. Sorting and grading of goods
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5. Giving credit facilities to regular customers
6. Cultivating personal relationship with the customers

Types of Retailing
The retailers are of different types. The retail trading organization can be broadly classified into two
(1) Itinerant retailers and (2) Fixed shop retailers.

Itinerant Retailers
Itinerant retailers are those retailers who have no fixed place of business. They move from place to
place and meet the customers at their doors and sell the goods. They mainly deal in fruits, vegetables,
fish, clothing, glassware etc. They include hawkers, peddlers, market traders, cheap jacks, street
vendors etc.
Fixed Shop Retailers
A majority of retail shops are fixed retail shops. As the name indicates, they have fixed business
premises. Fixed shop may be divided into (1) small shops and (2) large shops.

Small shops: These shops are organized on small scale. The business is conducted from properly
established shops. But the turnover and capital are limited. These include independent unit stores, street
stall holders, second hand goods sellers, vending machines, discount houses, syndicate stores etc.

Large Scale Retailing

In these days’ goods are produced in large scale to meet the demands of growing population. Mass
production of goods necessitated establishment of large-scale retail trading houses. Some of the
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important types of large-scale retail establishments are department stores, multiple shops, mail order
business, and consumer co-operative stores. A description of these large-scale retail shops is given
here.
Super Bazars
These are large retail stores organized by co-operative societies which sell a variety of products under a
single roof. The goods sold in super-bazars include consumer goods which are provided at wholesale
rates from manufacturers or wholesalers.

Modern Types of Retail Stores

Today, we see a retail revolution. Now several types of retail stores are emerging. The change in retail
industry is due to various factors such as liberalization, changes in regulation, globalization and
consumer preferences. The modern types of retail stores developed to cater to different target markets
are known as retail formats. The major types of retail stores may be briefly discussed as follows:
1. General Merchandise Retail Stores
They carry a wide variety of products. These stores include the following:
a. Super markets
b. Hypermarket
c. Discount Stores
2. Specialty Stores
These carry a limited variety of products. In other words, these stores specialize in certain products.
The following are the different types of specialty stores.
a. Specialty retail stores
b. Off-price retailers
c. Category killers
3. Shopping Malls
A mall means a large building complex with a conglomeration of shops of various sizes and types with
fun. Shopping malls deal with several bases and product categories. They provide large variety of
goods and services. They inspire fashion-based shopping centers.
4. Destination store
This is retail outlet with a trading area much larger than that of a competitor with a less unique appeal
to customers. It offers a better merchandise assortment in its product categories promotes products
more extensively and creates a stronger image.
a. Retail chain
A retail chain operates multiple retail outlets under common ownership in different cities and
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towns.
b. Mom and Pop Stores
These are owned and managed by individuals and their families. They typically carry fewer
goods. They cater to the local community. Goods are priced higher.
c. E-tailors
E-tailors (Electronic retailors) are those retailers who sell through internet.

Direct Selling
Direct selling refers to sale of products to ultimate consumers through face-to-face sales
presentations at home or in the work place. It is traditionally called door-to-door selling. It is the
oldest method of non-store retailing. The two most well-known users of this technique are Tupperware
and Avon Cosmetics.

Direct Marketing
McGraw Hill did a research amongst retailers to find out “why people lose customer”. The findings
were: (i) 4% customers were lost because some customers died and others moved away to other places.
(ii) 5% were lost because of other company friendships. (iii) 9% were lost to competition (iv) 15%
were lost because of dissatisfaction with product and service (v) 67% were lost because of indifference,
no contact, taking the customer for granted etc.
The foundation of direct marketing is based on understanding this insight into why people lose
customers. Because direct marketing is a way of marketing. It is oriented towards finding, getting,
keeping and developing customers one-to-one.
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Meaning of Direct Marketing

In direct marketing, companies communicate directly with their target customers to generate response
and/or a transaction. Direct marketing brings the market directly into the home or office of an
individual buyer instead of the buyer having to go to the market. This is why it is sometimes called
armchair shopping.

In the words of Dick Shaver, “Direct marketing is like opening a store in print and managing it”. In
short, direct marketing is the use of direct channels to reach and deliver goods and services to
customers without intermediaries.

Features of Direct Marketing

Following are the features of direct marketing:
1. It goes directly to an identified person or a household
2. It is interactive
3. It makes use of customer database
4. The response can be accurately measured
5. It creates direct relationship between marketers and customers

Difference between Direct Marketing and Advertising

Direct marketing Advertising

1. It promotes selling to individuals 1. It promotes mass selling
2. It can build personal relation with each 2. It cannot build personal relations
consumer
3. Marketer controls the product until delivery 3. Marketers may lose control over the product
as it enters the distribution channel.
4. It is used to get immediate response 4. It is used to build image, awareness, recall,
loyalty etc.

Forms of Direct Marketing

The major forms of direct marketing are catalogue marketing, direct response marketing, home
shopping, kiosk marketing, telemarketing, and online marketing.
1. Catalogue marketing: In catalogue marketing an organization provides a catalogue from which

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customers marketing, home shopping, kiosk marketing, telemarketing and online marketing.
2. Direct-response marketing: This occurs when a retailer advertises a product and makes it
available through mail or telephone orders. Generally, a buyer uses a credit card, but other forms of
payment are also acceptable. Examples of direct response marketing include a television
commercial offering a recording artist’s musical collection available through a toll -free number, a
newspaper or magazine advertisement for series of children’s book available by filling out the form
in the advertisement or calling a toll-free number, etc.
3. Kiosk Marketing: Kiosk marketing simply refers to marketing through kiosks. Kiosks are
information and ordering machines placed in stores, airports and other locations. In short, these are
customer-order-placing machines. These machines provide information about products and
customers can order any product or item him or she likes through it. These machines provide
customers with a quick way to determine the size, color, style of products to fit their personal
preferences.
4. Telemarketing: Telemarketing is a type of non-store retailing. Telemarketing uses
telecommunications to reach prospective customers. Telemarketing is actually a form of personal
selling.

Advantages (or Importance) of Direct Marketing

Direct marketing is considered to be the most useful weapon to retain customers and add new ones.

Several companies cut their advertising budget and increase the direct marketing budget.
This is so because it offers a number of advantages.
A. Advantages/Benefits to Customers
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a. Convenience
b. Saving in time
c. Choice
d. Product information

B. Advantages/Benefits to Sellers
a. Reduction in operating costs
b. Consumer information
c. Customer relationship
d. Privacy
e. Evaluation of media and messages

Online Marketing
Internet is perhaps the greatest technological revolution of the last few decades. It has touched almost
all walks of human life. Internet has become the information disseminator, problem over, a great
entertainer, a tourist guide, a religious guru and a counselor. With the advent of internet, the life of
people has changed. It is now more exciting and enterprising. It has brought revolutionary changes in
the marketing field. A new form of marketing has emerged. This is online marketing.

Meaning of Online Marketing

Online marketing is the most important form of e-marketing, On-line marketing simply means
marketing through Internet. It is the use of the Internet and related digital technologies to achieve
marketing objectives and support the modern marketing concept. These technologies include the
Internet media and other digital media such as wireless mobile media, cable and satellite. It is also
known as internet marketing or web marketing.

Advantages of Online Marketing

Online marketing combines communication function and distribution function. As compared to
conventional marketing, online marketing has certain advantages. They are outlined as below:
1. More information is provided to customers. Therefore, they have more choices.
2. It has large customer base because marketing can be done on a global basis
3. Customer can compare prices
4. Distribution channels are shorter
5. There is a direct interaction between the market and the customers.
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6. Costs of operation are lower

Logistics
Physical distribution an important component of distribution system. Physical distribution has been
now expanded into logistics management. Logistics management is a branch of military science.

Meaning of Logistics
Logistics is the process of getting products and services where they are required and whenever they are
desired. Council of Logistic Management (CLM) defines logistics “as process of planning,
implementing and controlling the efficient, cost effective flow and storage of raw material, in-process
inventory, finished goods and related information from point of origin to point of consumption for the
purpose of conforming customer requirements”.

Elements of Functions of Logistics

The various elements or functions of logistics may be briefly discussed as below.
1. Order processing
2. Warehousing
3. Inventory control
4. Transportation
5. Distribution Channel

Logistics Activities
Activities included under logistics are as follows:
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 Demand forecasting
 Procurement
 Plant and warehouse selection
 Customer service
 Order processing
 Traffic and transportation
 inventory control
 Warehousing and storage
 Packaging
 Material handling

Resources and Additional Resources

 Philip Kotler (1987) Marketing: An Introduction. Prentice-Hall; International Editions.

 Ramaswamy, V.S., 2002, Marketing Management, Macmilan India, New Delhi.
 Kotler P, Armstrong G,2008, Principles of Marketing, 9th Edition, Prentice Hall, New Delhi
 Gandhi J.C, 1985, Marketing –A Managerial Introduction, Tata McGraw-Hill , New Delhi
 www.unilorin.edu.ng/.../product%20classification%20strategy.pdf
 http://www.mbanotesworld.in/2008/04/classification-of-product.html

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INSTRUCTOR: DR. JASON B. MONTECAÑAS, CSBC, CDPO