DISTRIBUTION DECISIONS

Module - 4
 Unit-4: Distribution decisions

• Marketing channels, structure

• Types and criteria of selecting a channel, wholesaling, retailing, and
physical distribution.
• E – marketing distribution.
 CHANNELS OF DISTRIBUTION
• Definition:
“A set of interdependent organisations
involved in the process of making a product or
service available for use or consumption by the
consumer or business user”. By, Philip Kotler.
Role and Importance of Channels
 Effective and well-managed channels provide sound
competitive advantage to companies.
 The necessity for channels of distribution arises because the
product has to move to the customer from the factory, in right
quantity, at the right time, and at the right place.
 Marketing channels transform the bulk assortments(variety)
of products made by manufacturers into small assortments
wanted by consumers.
 In making products and services available to customers,
channel members add value by bridging the time, place and
possession gaps that separate goods and services from those
who would buy and use them.
 Functions of Channels
1) Provide market information
2) Promotion
3) Contacts
4) Breaking bulk
5) Supply in assortments
6) Physical distributions
7) Risk taking
8) Financing
9) Selling
10)Flows of distribution
1) Provide market information
2) Promotion
2) Promotion
2) Promotion
Distribute
Product
Leaflets
3) Contacts
4) Breaking Bulk
4) Breaking Bulk
5) Supply in Assortments
6) Physical Distribution
7) Risk Taking
8) Financing
9) Selling
10) Flows of Distribution
 Channel Levels
• Channel level:
A Channel level is a distinctive layer or tire
of marketing intermediary which functions as a channel
member, doing fully or partly the work of bringing
products and their ownership closer to the customer.
• Alternative Channel Levels
– Direct Marketing Channel
• Zero level channel
– Indirect Marketing Channels
• One level channel
• Two level channel
• Three level channel
Alternative Channel Levels
Direct Marketing Channel – door to door
Direct Marketing Channel - Showrooms
Indirect Marketing – One level Channel
Indirect Marketing – Two level Channel
Indirect Marketing – Three level Channel
Consumer and Business Marketing Channels
 Channel Members
Manufacturer Producer of products
 Channel Members
Manufacturer Producer of products

Intermediary that buys from one party

and sells to industrial buyers (non-
Wholesaler consumers) or Consumers
 Channel Members
Manufacturer Producer of products

Intermediary that buys from one party

and sells to industrial buyers (non-
Wholesaler consumers) or Consumers

Intermediary that sells to ultimate

Retailer consumers
 Channel Members
Manufacturer Producer of products

Intermediary that buys from one party

and sells to industrial buyers (non-
Wholesaler consumers) or Consumers

Intermediary that sells to ultimate

Retailer consumers

Person buying for personal or

Consumer household consumption
Factors Affecting Channel Choice
• Marketing considerations
– Type of market
– No. of potential customers
– Geographic concentration of the market
– Order size
• Product Consideration
– Unit value
– Perishability
– Technical nature
Factors Affecting Channel Choice
• Middlemen Considerations
– Services provided my middlemen
– Availability of desired middlemen
– Producer’s and middleman’s policies
• Company Considerations
– Desire for channel control
– Services provided by seller
– Ability of management
– Financial resources
Market Consideration:- Another important factor influencing the choice of
distribution channel is the nature of the target market. Some of the important features in
this respect are:-

If the market for the product is meant for industrial users, the channel of distribution
will not need any middlemen because they buy the product in large quantities. short one
and may as they buy in a large quantity. While in the case of the goods meant for
domestic consumers, middlemen may have to be involved.
 If the number of prospective customers is small or the market for the product is
geographically located in a limited area, direct selling is more suitable. While in case
of a large number of potential customers, use of middlemen becomes necessary.
 If the customers place order for the product in big lots, direct selling is preferred. But,
if the product is sold in small quantities, middlemen are used to distribute such
products.
Product Consideration:- The type and the nature of products manufactured is
one of the important elements in choosing the distribution channel. The major product
related factors are:-

Products of low unit value and of common use are generally sold through
middlemen. Whereas, expensive consumer goods and industrial products are
sold directly by the producer himself.
 Perishable products; products subjected to frequent changes in fashion or
style as well as heavy and bulky products follow relatively shorter routes and
are generally distributed directly to minimize costs.
 Industrial products requiring demonstration, installation and after sale service
are often sold directly to the consumers. While the consumer products of
technical nature are generally sold through retailers.
 An entrepreneur producing a wide range of products may find it economical
to set up his own retail outlets and sell directly to the consumers. On the
other hand, firms producing a narrow range of products may their products
distribute through wholesalers and retailers.
 A new product needs greater promotional efforts in the initial stages and
hence few middlemen may be required.
Other Considerations:- There are several other factors that an entrepreneur must
take into account while choosing a distribution channel. Some of these are as follows:-

A new business firm may need to involve one or more middlemen in order to promote its
product, while a well established firm with a good market standing may sell its product
directly to the consumers.
 A small firm which cannot invest in setting up its own distribution network has to
depend on middlemen for selling its product. On the other hand, a large firm can
establish its own retail outlets.
 The distribution costs of each channel is also an important factor because it affects the
price of the final product. Generally, a less expensive channel is preferred. But
sometimes, a channel which is more convenient to the customers is preferred even if it
is more expensive.
 If the demand for the product is high, more number of channels may be used to
profitably distribute the product to maximum number of customers. But, if the demand
is low only a few channels would be sufficient.
 The nature and the type of the middlemen required by the firm and its availability also
affects the choice of the distribution channel. A company prefers a middlemen who can
maximize the volume of sales of their product and also offers other services like
storage, promotion as well as after sale services. When the desired type of middlemen
are not available, the manufacturer will have to establish his own distribution network.
Selection of Channel / Design process
• 1. Determining channel objectives
• 2. Identifying functions
• 3. Matching channel design to product attributes
• 4. Evaluating legal aspects & the distribution
environment
• 5. Assessing competitor's channel design
• 6. Assessing company resources and matching
channel design to it
• 7. Final selection of the best design
 Channel Management Decisions
Philip Kotler Book

 Selecting Channel Members

 Managing and Motivating Channel Members
 Evaluating Channel Members
Channel Management Decisions

Selecting
Selecting

FEEDBACK
Motivating
Motivating

Evaluating
Evaluating
Channel
Channel Design
Design Decisions
Decisions
Analyzing
Analyzing Consumer
Consumer Service
Service Needs
Needs

Setting
Setting Channel
Channel Objectives
Objectives &
& Constraints
Constraints

Identifying
Identifying Major
Major Alternatives
Alternatives

Intensive
Intensive Selective
Selective Exclusive
Exclusive
Distribution
Distribution Distribution
Distribution Distribution
Distribution

Evaluating
Evaluating the
the Major
Major Alternatives
Alternatives
 Number of Market Intermeddlers/
Market Coverage
Number of Outlets per Area:

One Some Many

Exclusive Selective Intensive

Distribution Distribution
Distribution
 Channel Conflict
• Disagreement among marketing channel members on
goals and roles – who should do what and for what
rewards – leads to channel conflict.
• Horizontal Conflict – Conflict occurs among firms at the same
level of the channel. Example – Tata dealers of same territory, Fertilizers
• Vertical Conflict – Conflict between different levels of the same
channel, is even more common. Examples – retailers may not cooperate
with a company because of polices, franchisees of Hyundai Motors will
complain if Hyundai opens company’s own showrooms.
• Some conflict in the channel takes the form of
healthy competition, such competition can be good
for the channel.
 Channel Power
• Channel power is the ability of a company
to alter channel members’ behavior so that
they take actions they would not have
taken otherwise.
 Coercive Power
 Reward Power
 Legitimate Power
 Expert Power
 Referent Power
 Marketing Logistics and Supply
Chain Management
• To some managers, marketing logistics means only trucks and warehouses.
Bust modern logistics is much more than this.
• Marketing Logistics also called Physical Distribution –
• Involves Planning, Implementing and Controlling the physical
flow of goods, services, and related information from point of
origin to point of consumption to meet customer requirements at
a point.
• In short, it involves getting the right product to the right customer in the right
place at the right time.
• Supply Chain Management: Managing upstream and
downstream value-added flows of materials, final goods, and
related information among suppliers, the company, resellers, and
final consumers.
Nature and Importance of Marketing
Logistics
 Involves getting the right product to the right customers
in the right place at the right time.
 Companies today place greater emphasis on logistics
because:
 Effective logistics is becoming a key to winning and keeping
customers.
 Logistics is a major cost element for most companies.
 The explosion in product variety has created a need for
improved logistics management.
 Information technology has created opportunities for major
gains in distribution efficiency.
 Major Logistics Functions
Costs
Costs Information
Minimize InformationManagement
Management
MinimizeCosts
Costsof
of Order Processing
Order Processing
Attaining Logistics
Attaining Logistics Submitted
Objectives Submitted
Objectives Processed
Processed
Shipped
Shipped
Logistics
Functions
Transportation Warehousing
Water, Truck, Warehousing
Storage
Storage
Rail, Pipeline & Air Distribution
Distributioncenters
centers

Inventory
Inventorymanagement
management
When
When toorder
to order
How
Howmuch
muchto toorder
order
Just-in-time
Just-in-time
Transportation
Transportation Modes
Modes
Rail
Rail
Nation’s
Nation’slargest
largestcarrier,
carrier,cost-effective
cost-effective
for
forshipping
shippingbulk
bulkproducts,
products,piggyback
piggyback
Truck
Truck/ /Road
Road
Flexible
Flexiblein
inrouting
routing&&time
timeschedules,
schedules,efficient
efficient
for
forshort-hauls
short-haulsof
ofhigh
highvalue
valuegoods
goods
Water
Water
Low
Lowcost
costfor
forshipping
shippingbulky,
bulky,low-value
low-value
goods,
goods,slowest
slowestform
form
Pipeline
Pipeline
Ship
Shippetroleum,
petroleum,natural
naturalgas,
gas,and
andchemicals
chemicals
from
fromsources
sourcesto
tomarkets
markets
Air
Air
High
Highcost,
cost,ideal
idealwhen
whenspeed
speedis
isneeded
neededor
orto
to
ship
shiphigh-value,
high-value,low-bulk
low-bulkitems
items
Choosing Transportation Modes

Checklist for
Choosing
Transportation
Modes
1. Speed.
2. Dependability.
3. Capability.
4. Availability.
5. Cost.
 Network Marketing
• This is a form of direct marketing, also known as
multilevel marketing. It involves one-to-one selling,
door-to-door or at home sales parties.
• In India, companies like Amway, Avon, Electrolux,
Eureka Forbes &Tupperware.
• A sales person visits the home of a host who has invited
friends, relatives and neighbors. The sales person
demonstrates the product to the group and takes orders.
• The multilevel network marketing system was pioneered
by Amway.
• It consists of recruiting independent business people,
mostly housewives, who act as distributors.
 Retailing
• All activities involved in selling goods or
services directly to final consumers for their
personal, nonbusiness use.
• Retailer: A business whose sales come
primarily from retailing.
• Retailing is not limited to activities that take
place in a retail store. Many institutions –
Manufacturers, Wholesalers and Retailers do
retailing.
Types of Retailers
Specialty Stores
Departmental Stores
Departmental Stores
Super Market
Super Market
Super Market
Convenience Stores
Convenience Stores
Convenience Stores
Super Stores
Super Stores
Major Store Retailer Types
Major Store Retailer Types
Major Store Retailer Types
 Wholesaling
• Wholesaling includes all activates involved
in selling goods and services to those
buying for resale or business use.
• Wholesalers buy mostly from producers
and sell mostly to retailers, industrial
consumers, and other wholesalers.
Types of Wholesalers