Distribution

Introduction
• Distribution is often termed as the other half of marketing indicating high weight
it receives in the marketing program of an organization.
• Producers often treat their distribution system as an assets. They make huge
investment to build effective distribution system.
• It plays very important role to create place and time utility with means of
communication.
• It is concerned with all the business activities revolving around the problem of
getting the product from the place of manufacturing to the final consumers.
• It deals with two aspects of product movement: marketing channels and
marketing logistics.
• 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 the
consumer or business user who needs it.
• This can be done directly by the producer or service provider, or using indirect
channels with distributors or intermediaries.
 Cont….
• Activities in the Distribution System:
• Physical Activities( marketing logistics):
• These are performed for the movement and storage of products. This part of distribution is
known as marketing logistics.
• It includes five major activities as transportation, warehousing, inventory management,
physical handling and order processing.
• Legal and Financial Activities( marketing channel):
• Promotional Activities( channel motivation):
• Objectives:
• Movement of product from place of production to place of consumption.
• Market Coverage(intensive distribution, selective distribution, exclusive distribution)
• It aims to protect the product by proper storage and handle.
• It aims to achieve the lowest total cost of distribution( delivery, channel and inventory cost)
• Channel Control
 Selection of Channel Design(Channel Structure)
• Channels of distribution is the system of relationships among the various persons and
institutions involved in the process of movement and ownership of products and
facilitating the exchange.
• There are basically two types of channels as direct channel and indirect channel.
• The channel selection is very important strategic decision in marketing. It requires a
consideration of three major factors( Customers, Objectives & Channel Constraints)
• Customers:
• The characteristics(demographic, psychographic, economic) of consumer is the major
factor of channel decision.
• In case of institutional or organizational buying they directly purchase from the
manufacturer or through agents.
• If the buyers are status and prestige oriented they prefer to buy from high class outlets
such as specialty stores and departmental stores.
• If buyers are price conscious they may prefer buying at discount stores.
 Cont…..
• If buyers are prepared to apply more time and efforts in buying the products may be
distributed through fewer outlets.
• If buyers seek convenience in buying marketers should be able to distribute extensively in
order to sell the products close to consumer’s location.
• Channel Objectives( Control, Cost and Coverage):
• Channel Constraints:
• Channel selection is influenced by several constraints associated with products,
intermediaries, competitors and organization.
• Product Factors:
• Perishable products(shorter channel) , durable products (longer channel), consumer
products( longer channel), industrial products( shorter channel)
• High unit price (direct marketing or shorter channel), low unit price (generally longer
channel is appropriate).
• If the product is technically complex shorter channel is suitable with the comparison to
 Cont….
• Intermediary Factors:
• Availability of distributors( they are not interested to sell in the introduction
stage of PLC).
• Marketers need to evaluate the capabilities, experience, expertise of distributors.
• The range of service provided by distributors
• The terms and conditions of distributors.
• Competitive Factors:
• In the competitive market the marketer has to select a channel structure that is
not only the cost effective but also more efficient than that of competitors.
• Competitor’s discount, commission and incentive policies.
• Organizational Factors:
• Organizational objectives, resources, others marketing mix, capabilities.
 Channel Dynamics
• Distribution channel should be changed according to environmental changes.
• Changing of channels according to time is called channel dynamics. As the marketing is
dynamic, so the distribution channel is dynamic.
• It does not remain in traditional structure. It also remains changing and developing
according to time and is applied accordingly.
• There are two types of dynamism in the channel system structural dynamism &
behavioral dynamism.
• Structural Dynamism:
• Vertically Integrated Channel System:
• Vertical integration is achieved through combining two or more channel hierarchies
under one management and control.
• Vertical integration has resulted into three forms of new channel structure:
• Corporate Vertical Marketing System:
• It is a total integration in which all channel levels are brought under a single ownership.
 Cont…..

• Organizations like Asian paints, Amul are not only involved in the
production of the products but they also own a considerable no of outlets.
• Contractual Vertical Marketing System:
• Different participants in the channel hierarchy enter into a contract in order
to coordinate their activities so as to achieve higher sales and market share.
• Firms like McDonalds, KFC use this type of vertical marketing systems for
the integration of their businesses.
• Administered Vertical Marketing System:
• It is established by the leadership role of a channel member. The leadership
role is generally established by the size and power of channel participants.
• Samsung gets better displays in retail outlets purely because of their size
and the reputation they carry with them.
 Cont…
• Horizontally Integrated Channel System:
• It is achieved through combining activities of channel participants working
at the same level of channel hierarchy.
• It is one where two or more unrelated businesses come together pull in
resources to exploit the emerging opportunities.
• Many private players especially banks have got into the act of tie-ups with
retail stores or even with fuel outlets in order to gain greater market.
• Multi Channel or Hybrid Marketing System:
• This is a new trend in distribution, under which an organization uses several
channel structures( zero , one, two and three level channels simultaneously)
to reach different market segments.
• It may fall under the problem if all channel structures try to sell the product
to same consumer group.
 Cont…..
• Behavioral Dynamism:
• It refers to the change in role and power relationships in the channel structures
resulting in cooperation and conflicts among the channel members.
• Channel dynamics are also concerned with the analysis of roles, power and
within the channel system.
• Channel Role:
• Each member involved in channel has his own roles. Such role may
be leadership providing role and also may be subordinate or follower's role.
• If any change takes place in existing roles of the members, help may increase or
conflicts appear.
• If any change does not come in the roles of channel members, only then
marketing channel system can work well.
• Only then all the channel members can perform their responsibilities. As a result,
all the activities of distribution channel become fruitful.
• The channel system operates efficiently only if all participants perform their role
without changing their respective position.
 Cont…..
• Channel Power:
• Channel power results out of the control exercised by the channel participants and the
leadership position of the participants in the channel system.
• The capacity that can change channel members involved in distribution is called power.
• Channel leader persuades and controls the channel members. Mostly, channel power
emerges from following sources:
• Reward Power: The capacity to give financial or non-financial reward to the channel
members involved in distribution is called reward power. Mostly, the producers use
such type of reward power.
• Coercion Power: The power to punish, frighten, threaten etc. to all the channel members
is called coercion power.
• Referent Power: Referent power comes out from intense desire of any channel member
to be involved in channel system.
• Expert Power : It is acquired from long experience and special knowledge. Every
channel member cannot use this power.
• Legitimate Power: The power which can influence/persuade and control channel
members is called legitimate power.
 Cont….

• Channel Conflicts:
• Good relation and mutual coordination is needed among channel members in
order to achieve the goal of distribution channel. As many members are
involved in distribution channel, there appears conflicting environment.
• All the channel members may not have same wants, interest, beliefs, objectives
and attitudes but may be different from person to person. As a result, conflict
arises in distribution channel.
• Absence of harmony among channel members in their objective and functions
causes conflict in distribution channel. Ideological difference, poor information,
perceptual differences, unclear role, goal incompatibility etc. cause conflict.
• Channel conflict is related to human behavior. In this way, conflict may arise
between two sides or more in different situations.
• Channel conflict can be resolved through talks, change in objective,
improvement in communication and restructure of channel.
• So, conflict should be minimized as soon as possible not letting it spread from
certain limit.
 Cont….
• Resolution of Channel Conflict:
• Problem Solving:
• It involves mutual consultations among channel members. Sitting together with the objective of
solving the conflict.
• Persuasion
• Channel conflict can be solved by clearly interpreting subject matter or persuading the channel
members.
• Under this, channel leader persuades and calls all channel members to work for the interest of
group members. In this method, the channel leader uses his power to persuade or convince the
members and solve the conflict.
• Bargaining:
• In this bargaining method, all the channel members sit together, discuss the responsible causes for
the conflict and agree on a new contract. Neutral member plays an important role in facilitating
new agreement.
• Diplomacy :
• Because of mannered conduct, equal behavior, evidential logics of the management, channel
members feel satisfied by which the conflict can be slowly tapered down.
• Improvement in Communication:
• Goal Modification:
 Logistics Management Decision

• Logistics deals with all activities that facilitate product flow from the point of raw
material acquisition to the point of final consumption as well as the information flow
that set the production in motion for the purpose of providing adequate levels of
customer service at a reasonable cost.
• Marketing logistics involves planning, implementing and controlling physical flow of
materials and final (finished) goods from the point of origin to the point of use of meet
customer requirements at a profit.
• The scope of logistics is twofold – First, it is the movement of raw materials to the
plant which is called physical supply (or materials management) and second, it is the
flow of finished products from the plant to the customers, called physical distribution.
• The actual work of logistics is supportive in nature. It involves the integration of
transportation, inventory, warehousing, materials handling, packaging and
information technology.
• Marketing logistics involves getting the right product to the right customer in the
right place at the right time
 Cont…
• Objectives of Marketing Logistics:
• To Reduce Costs:
• Costs can be reduced by intelligently by managing the physical distribution
system and determining the optimum number and location of warehouses,
improving materials handling, increasing stock turnover, using sealed
containers to ship products, correcting inefficient procedures in order
processing, etc.
• To Provide Better Customer Service:
• To Increase Sales:
• To Establish Competitive Advantage:
• A firm can acquire advantage over rivals by performing customer services more
efficiently-such as arranging for rapid and reliable delivery, avoiding errors in
order processing, and delivering undamaged goods.
• To Develop Effective Communication System:
• Logistics management permits salesman to transmit orders on a daily basis and
 Components or Functions of Logistics
• Transportation:
• It helps in the movement of materials for the purpose of production and movement of goods
to the customers.
• Cost and speed are the major components of transportation decision.
• Company can use land, water and air transportation.
• Warehousing:
• It involves making of proper arrangements for retaining the goods till they are needed by the
consumers.
• Storage enables goods to be made available to buyers wherever and whenever they are in
demand by holding goods in different warehouses situated in different parts of the country.
• It creates time utility by holding goods from the time they are produced until they are
demanded by the consumers.
• Materials Handling:
• Materials handling is undertaken at every stage of logistics activity namely, during
production, storage, transport and packaging processes.
• It represents product handling from the plant to the warehouse, product movement within
the warehouse and from the warehouse to the place of loading in the transport vehicle and
ultimately to the resellers and consumers.
 Cont…….
• Inventory Management:
• Order Processing:
• It comprises the processes that are needed to execute customers’ orders quickly,
accurately and efficiently. It includes receiving, filling and assembling orders for
execution.
• When customers place an order, they set in motion a flow of products and information
that is known as the order cycle. Various areas of order cycle are – the seller receives an
order, assembles the goods, and dispatches them off to the buyer.
• The method used by the marketing department for processing customer’s orders
affects its service to them. Because of delays, buyers tend to shift their orders to
suppliers who provide quick deliveries of goods.
• Customer Service:
• Customer service is the process of ensuring customer satisfaction with the product and
services
• Customer service takes place while performing a transaction for the customer, such as
making a sale or returning the item.
• It can take the form of an in person interaction, a phone call, self service system or by