MKTG 206

Module - 4

Managing the Distribution

channel
 Distribution Channels: Concept, Functions and Types

• 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 to Middlemen to Final Consumer Or Business Users.
•  Intermediaries make distribution and selling processes more efficient.
• Types of Distribution Channels :
• 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. 
• Business-to-Customer (B2C) distribution occurs between the producer and the final
user.
• 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
 Continued….
•  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 jewellery 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.
• 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.
 Continued…..

• 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
• Functions of Distribution Channels –
• 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). 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
 Distribution channel strategy
• A distribution strategy is a method of disseminating goods or services to end-users.
Implementing the most efficient distribution method for your business is key to
obtaining revenue and retaining customer loyalty. Some companies opt to use
multiple distribution methods to adhere to different consumer bases.
• A company can decide whether it wants to serve the product and service through
their own channels or partner with other companies to use their distribution
channels to do the same.
• Some companies can use their own exclusive stores for their own products or can
use available retail chains to sell their products. It can be combination of both.
Many companies these days also use online exclusive channels to sell their
products or services.
• Importance of Distribution Strategy - Distribution Strategy is precisely the strategy
deployed by a company to make sure the product/service can reach the maximum
potential customers at minimal or optimal distribution costs. A good distribution
strategy can maximize your revenue and profits but a bad and unplanned
distribution strategy can lead not only to losses but also helping the competitors get
the advantage through the opportunity in the market which you created.
• Types of Distribution Strategy
• Overall there are 3 major distribution strategies -
 Continued…..

• 1. Exclusive Distribution : Exclusive stores to sell products leads to more control.

Example, Luis Vuitton Stores
• 2. Intensive Distribution : Maximizing outlets to maximize sales. Example, Coca
Cola
• 3. Selective Distribution : Carefully choosing multiple channels and partners.
Example - Adidas, Nike
• The above 3 distribution strategies are the most used but a typical strategy may
differ for a particular product or a company. Many companies use online as well as
offline strategies together to optimize sales e.g. Apple iPhone
• In many situations one or more distribution channels can be used, for example
(there are many more forms apart from these)
• Conventional / traditional channel
• 1. Manufacturer -> end customer
• 2. Manufacture -> agent -> end customer
• 3. Manufacturer -> retailer -> end customer
• 4. Manufacturer -> wholesaler -> retailer -> end customer
• 5. Manufacturer -> reseller -> retailer -> end customer
• 6. Manufacturer -> franchisor -> franchisee -> end customer
 Features of effective channel design
• Factors affecting Distribution Strategy - Distribution Strategy depends upon
following parameters too:
• 1. Location of business
• 2. Location of target market
• 3. Reaching the target market
• 4. Warehousing
• 5. Transportation and logistics
• Channel design decisions are critical because they determine a product’s market
presence and buyer’s accessibility to the product. Channel decisions have
additional strategic significance because they entail long-term commitments. It is
usually easier to change prices or promotion than to change marketing channels.
• Dimensions of channel design – 1. Market dimensions, 2. Company dimensions, 3.
Environmental Dimensions, 4. Product dimensions, 5. Intermediary Dimensions, 6.
Behavioural dimensions.
•  1. Market dimensions: It focuses on customer( market) orientation. In developing
and adapting the marketing mix, then, marketing managers should take their basic
cues from the needs and wants to the target markets at which they are aiming. Four
basic sub categories of market variables are particularly important in influencing
channel structure. They are: 1. Market geography 2. Market size 3. Market density
4. Market Behaviour
 Continued….
• 2. Company dimensions: The most important company variables affecting channel
design are: 1. Size, 2. Financial capacity, 3. Managerial Expertise , 4. Objectives
and Strategies.
• 3. Environment dimension: Environmental variables may affect all aspects of
channel development and management. 1. Economic, 2. Socio-cultural, 3.
competitive, 4. technological, and 5. legal environmental forces can have a
significant impact on marketing channel design decisions.
• 4. Product Dimension: Product variables are another important category to consider
in evaluating alternative channel structures. Some of the most important product
variables are as follows: 1. Bulk and weight, 2. Perishability, 3. Unit value, 4.
Technical versus non- technical, 5. Newness.
• 5. Intermediary Dimensions: The key intermediary variables related to channel
structure are: 1. Availability, 2. Cost, 3. Services
• Defining channel objective: The channel objective vary with 1. Product
characteristics: 1. Perishable products requires more direct marketing. 2.Bulky
products, such as building materials, require channels that minimize the shipping
distance and amount of handling. 3. Non- standard products, such as custom-built
machinery and specialised business forms, are sold directly by company sales
representatives. 4. High- unit- value products such as generators and turbines are
often sold through a company sales force rather than intermediaries.
 Continued…..

• 2. Strengths and weaknesses of different types of intermediaries.

• 3. Channel Design is also influenced by the competitor’s channels.
• 4. Channel design must adapt to the larger environment.
• Process of channel design - 1. Defining the customer needs 2. Defining the channel
objective 3. Channel alternatives 4. Evaluation of major alternatives 5. Ideal
channel structure.
 Channel Conflict: Concept
• A channel conflict may be defined as “A situation in which one channel member
perceives another channel member(s) to be engaged in behavior that prevents it
from achieving its goals”. Conflict is opposition, disagreement or discord among
the organizations. Conflict is not always undesirable. It is needed to have positive
effect as loopholes in the existing system can be plugged timely and performance
can be maximized. It can keep other channel members on their toes knowing that a
decline in performance might lead to a change in the channel arrangements.
• “Channel conflict arises when the behavior of a channel member is in opposition,
to its channel counterpart. It is opponent centered and direct, in which the goal or
object sought is controlled by the counterpart.” Coughlan, Anderson,
• Conflicts can also be classified as 1. Vertical conflict 2. Horizontal conflict 3. Inter
type conflict 4. Multi Channel conflict
• 1. Vertical conflicts - Vertical conflicts occur due to the differences in goals and
objectives, misunderstandings, and mainly due to the poor communication. Lack of
role clarity and over dependence on the manufacturers. For e.g. Today the large
retailers dominate the market and dictate the terms. Hence there are often conflicts
between these giant retailers and the manufacturers. Wholesalers expect
manufacturers to maintain the product quality and production schedules and expect
retailers to market the products effectively. In turn, retailers and manufacturers
expect wholesalers to provide coordination functional services. If they fail to
conform each others expectations, channel conflict results.
 Continued…..
• Some common reasons for vertical conflict are - a.) Dual distribution -
Manufacturers may bypass intermediaries and sell directly to consumers and thus
they compete with the intermediaries. b.) Over saturation, i.e. manufacturers permit
too many intermediaries in a designated area that can restrict, reduce sales
opportunities for individual dealer and ultimately shrink their profits. c.) Partial
treatment, i.e. manufacturers offer different services and margins to the different
channels members even at same level or favour some members. d.) New channels,
i.e. manufacturers develop and use innovative channels that create threat to
establish channel participants. e.) No or inadequate sales support and training to
intermediaries from the manufacturers. f.) Irregular communication, non co-
operation and rude behaviour with the channel members.
• 2. Horizontal conflicts are the conflicts between the channel members at the same
level, i.e. two or more retailers, two or more franchisees etc. These conflicts can
offer some positive benefits to the consumers. Competition or a price war between
two dealers or retailers can be in favour of the consumers.
• Reasons behind horizontal conflicts are a.) Price-off by one dealer / retailer can
attract more customers of other retailers. b.) Aggressive advertising and pricing by
one dealer can affect business of other dealers. c.) Extra service offered by one
dealer / retailer can attract customers of others. d.) Crossing the assigned territory
and selling in other dealers / retailers / franchises area. e.) Unethical practices or
malpractices of one dealer or retailer can affect other and spoil the brand image.
 Continued….
• 3. Inter Type conflict - Inter type conflict occurs when, the Intermediaries dealing
in a particular product starts trading outside their normal product range. For
example, now the supermarkets such as Reliance also sell vegetables and fruits and
thus compete with small retailers selling these products. Large retailers often offer
a large variety and thus they compete with small but specialized retailers. This
concept is called as “Scrambled Merchandising” where the retailers keep the
merchandise lines that are outside their normal product range.
• 4. Multi-channel Conflict - Multi-channel conflict occurs when the manufacturer
uses a dual distribution strategy, i.e. the manufacturer uses two or more channel
arrangements to reach to the same market. Manufacturers can sell directly through
their exclusive showroom or outlets. This act can affect the business of other
channels selling manufacturer’s brands.
• Conflict stages :
• Four Stages of conflict - 1. Latent conflict. 2. Perceived Conflict. 3. Felt Conflict.
4. Manifest Conflict. Each stage is progressively more severe than the earlier one.
• 1.  Latent Conflict: Some amount of discord exists but does not affect the working
or delivery of customer service objectives. Disagreement could be on roles,
expectations, perceptions, communication.
 Continued….
• 2. Perceived Conflict: - Discords become noticeable. Channel partners are aware of
the opposition. Channel members take the situation in their stride and go about their
normal business. No cause for worry but the opposition has to be recognized.
• 3. Felt Conflict: Reaching the stage of worry, concern and alarm. Also known as
‘affective’ conflict. Parties are trying to outsmart each other. Causes could be
economical or personal. Needs to be managed effectively and not allowed to
escalate.
• 4. Manifest Conflict: Reflects open antagonistic behaviour of channel partners.
Confrontation results. Initiatives taken are openly opposed affecting the performance
of the channel system. May require outside intervention to resolve.
• Conflict Management – Some of the common ways to resolve channel conflict :-
• Mediation, Arbitration and Diplomacy - To resolve a dispute, the manufacturer
can adopt the strategy of intervention where a third person intervenes to create
harmony. The other option is arbitration, where an arbitrator listens to the argument
of the parties involved in a conflict and declares a decision. Or, the parties can resort
to diplomacy where the representatives of both the parties converse and find a
solution.
• Co-optation - The manufacturer should hire an expert who has already gained
experience in managing the channel conflicts in other organizations, as a member of
the grievance redressal committee or board of directors, for addressing such
conflicts.
 Continued……
• Dealer Councils and Trade Associations - To handle the horizontal or vertical
conflicts, the manufacturer forms a dealer council where the dealers can
unanimously put up their problems and grievances in front of the channel leader.
To bring in unity among the channel partners or intermediaries, they can be added
as members in trade association which safeguards their interest.
• Superior Goals - Establishing a supreme goal of the organization and aligning it
with the individual goals or objectives of the channel partners, may reduce the
channel conflicts.
• Regular Communication - The channel leader should take regular feedback from
the channel partners through formal and informal meetings to know about market
trends and dynamics. Also, the channel partner’s issues and conflicts can be
addressed through frequent interactions.
• Legal Procedure - When the conflict is critical and uncontrollable by the channel
leader, the aggrieved party can seek legal action, by filing a lawsuit against the
accused party.
• Fair Pricing - Most of the channel conflicts are a result of the price war, and
therefore, these can be resolved by ensuring that products are equally priced in all
the territories and a fair margin is provided to the channel partners.
 Robotic Distribution System
• One of the trends that is steadily advancing but less talked about is the application of
robotics and artificial intelligence to logistics and transport. 
• Robotic Distribution system means the use of automated systems, robots and
specialized software to transport materials, perform various tasks and
streamline/automate warehouse processes. Robotics applied to industrial distribution
means using robots and machinery with smart systems to automate tasks like
organization, transfers, delivery, and product retrieval in a warehouse.
• The difference between traditional machinery and industrial robots is that the latter
are associated with artificial intelligence systems that allow them to handle more
complex variables and react quickly and independently by means of algorithms.
• The shift of artificial intelligence applied to logistics and distribution is necessary;
thus, it is important for the industry and its players to work on three fronts:
• Promoting knowledge about artificial intelligence robotics.
• Working on new standards to face costs and changes.
• Promoting the acquisition of new technologies amongst logistics companies to
accelerate adaptation to the future.
• Types of robots and artificial intelligence in logistics
• Automated arms and machinery - These are the robots that are the easiest to spot:
arms that can pick up products, close and seal boxes, and move packages from one
shelf to another. This type of machinery has been the most used until now and it is
not difficult to find it in many companies, specially automobile industry.
 Continued…
• What makes these robots different from conventional machinery is that they can
tackle more complex tasks, apply analytics at the same time, and assist
workers doing repetitive jobs like managing orders etc.
• Drones - Drones are, without a doubt, the warehouse management robots that come
to mind if we speak of the future and artificial intelligence. A drone is a robot that
can fly and carry a limited amount of weight, transport units, and reach difficult-to-
access areas (this includes geographic areas, like isolated villages, and deep shelves
or places that are higher in a warehouse). There are different types of drones that
can be more or less powerful depending on their antennas and battery for
autonomous functioning.
• RFID systems - Reading products with RFID tags is more complete than using a
conventional barcode as RFID tags have more information. A drone with a RFID
system can identify products in a warehouse and provide better control over
locating and transferring units and inventory. A drone with a RFID system can read
thousands of labels in very little time when compared with a person doing the task
manually. In addition, this information is immediately sent to the desired device,
allowing for full control and connectivity between the robot and the manager.
• Robotic vehicles - Robotic vehicles are small, autonomous cars capable of
moving about without a driver or remote control. They include systems to read QR
codes and RFID signals so that they can follow paths in a warehouse while
avoiding obstacles and identifying units and pallets.
 Continued…

• Machine learning technology allows robotic vehicles to be independent and

reliable, and they are usually a complement to the work of warehouse employees.
That’s why they are known as cobots, or collaborative robots, as the employee tells
them the transport or classification tasks that they must undertake automatically.
• Advantages of robotics applied to distribution
• A reduction of logistics costs by between 20% and 40%, and an increase in
productivity by between 25% and 70%, according to a study by Roland Berger that
analyzes the impact of robotics on logistics until 2025.
• Automatic, fast identification of any item or pallet in a warehouse.
• Personalization of each robot’s configuration for different tasks and levels of
complexity.
• Sound and light signals that complement the automatic warehouse work.
• Remote connections with devices from which you can view and monitor the robot’s
work.
• More agile preparation of shipments and better precision in deliveries.