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Channels of Distribution

Channels of Distribution

Channel Flows

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 Channels of Distribution
Marketing Channels of Distribution
• A marketing channel is a set of interdependent
organizations participate to let products or
services available to end-users in an effective
way.
• A channel of distribution is an organized
network of agencies and institutions which, in
combination, perform all activities required to
link producers with users to accomplish a
marketing task.
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 Channels of Distribution
Marketing Channels of Distribution.. Continued...
• Resellers in a distribution channel are called
intermediaries or middlemen.

• To understand possible ways to make

products available to potential users, marketer
needs to know ways most distribution channels
are organized.

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 Channels of Distribution
Purpose of Marketing Channels
• There are four elements in the marketing mix
– Product
– Place
– Price
– Promotion
• Distribution channels help in the ‘place’
aspect of the marketing mix
• Distribution provides place, time and
possession utility to the consumer
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 Channels of Distribution
Purpose of Marketing Channels continued………
• Consumer wants to buy a mobile set in the Metro
after his office hour on Thursday
– Make available at a retail outlet close to
customer’s office in the Metro – place
– Make available at evening on Thursday when the
customer wants it – time
– The customer can pay for the mobile set and take
it away – possession
• Distribution management ensures all these possible.
• Situation would be similar/dissimilar if a customer
wants to buy a refrigerator or medicines or even a
car. 6
 Channels of Distribution
Four Types of Channel for Consumer Goods
 Channel A: In this channel there are no
intermediaries. This channel is called direct
marketing. Manufacturers directly sell their
products to end customers (Dell, Arong)

 Channel B: In this channel goods move from

producers to retailers to consumers (P & G
to Wal-Mart)
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 Channels of Distribution
Four Types of Channel for Consumer Goods…..
 Channel C: Most common… In this channel
producer sells to wholesalers, who sell to retailer
who in turn sell to consumers (Scan Cement/
Akiz Tobacco).

 Channel D: Indirect channel…. Goods pass from

producers to agents (Distributors) then to
wholesalers to retailers to customers.
 Agents coordinate a large supply of goods of many
manufacturers. Some manufacturers outsource sales and
thus use agents to serve as independent sales force.
 Akiz Tobacco, Beverages
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Channels of Distribution

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 Channels of Distribution
Key members of marketing channel are
• Manufacturer
• Intermediaries
– Broker/Agent/Distributor
– Wholesaler
– Retailer
– Specialized
• End-users

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 Channels of Distribution
Manufacturer
• Means primary producer of product or originator
of service who has legal patent to produce
• Some manufacturers are branding their products
like Toyota, Sony, Coca-Cola
• Some manufacturers are producing private level
products, and retailers or wholesalers put their
own brand name, like different garments
factories in Bangladesh are manufacturing
dresses for different global companies (like
GAP, POLO)
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 Channels of Distribution
Intermediaries or middlemen

• Any channel members other than

manufacturers or end users who are involved in
supply networks of product distribution from
manufacturer to end-user

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 Channels of Distribution
Purpose of Intermediaries or middlemen
• Intermediaries help process of ‘exchange’ of
product or service.
• Exist because producers cannot reach all their
consumers
• Multiply reach and provide efficiency to
marketing process
• Facilitate smooth flow and create time, place and
possession utilities
• Have the core competence and reach
• Provide contact, experience, specialization and
scales of operation
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 Channels of Distribution
Agents/Brokers/Distributors

• Channel partners that match marketers with

wholesalers, retailers or with customers
– They are very important for international
marketing, for exports (Buying house)

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 Channels of Distribution
Wholesalers

• A wholesaler is someone who primarily sells to other

retailers
• Also may retail on own
• Typically, buys in bulk
• Deal with a number of company products of their
choice
• Sell to other wholesalers, retailers and institutions
• Operate on high volumes and low margins
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 Channels of Distribution
Retailer
• A retailer is someone who directly sells any small
amount to end-users
• The most visible face of distribution system
• The final contact with consumers
• Sell a large assortment and variety of goods
• Located closest to consumers
• Buy from company, distributors or wholesalers
• Highest margins in the network
• Provide personalized services to their
customers
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 Channels of Distribution
Specialized

– They perform some specific functions on channel

flows
– However, not typically involved in the core
business of the sold product or service
– Insurance, financing, and credit companies
(Financing flow), advertising companies
(promotion flow), Shipping companies
(possession flow), maintenance companies
(customer service)
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 Channels of Distribution
• Based on functionality of channels and consumer online
requirements to meet their specific demands, we can
differentiate different online channel structures as follows:
• Distribution channel
– Product or service selling through an indirect
marketing channel
– Under many intermediaries
– Last member is the Retailer
– Product or service selling through a direct
marketing channel
– Vendor to Customer

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 Channels of Distribution

• Communication channel
– Channel for promotional offer like commercials
and benefits

– Channel for information flow and interactivity for

relationship building and customer service

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 Channels of Distribution
• Online Channel

Online Channel Structure

Distribution Channel Communication Channel

Product/service selling Product/service selling Channel for promotional Channel for information flow
through indirect through direct marketing offers like commercials and interactivity for relationship
marketing channel channel and benefits building and customer service
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 Channels of Distribution
• In this context, there are four fundamental conditions :

• Evaluating the possibility and scope of

offering multichannel and coherent existence
of both an online channel and an offline
channel.

• Fulfilling target customer expectations for

product and service output by designing the
appropriate online channel with mandatory
and supplementary properties.
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 Channels of Distribution
• Creating a cost effective and efficient
distribution and communication channel for
customers and maximizing the profit margin
by generating a sustainable competitive
advantage.

• Evaluating the existing multi-channel

structure and its design and relation to a new
channel.

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 Channels of Distribution
Distribution System Depends:
Product type
• This provides an understanding on fit of
distribution system with the type of product.
• It also explores the estimation of the
consumer demand in the market.
• Car, medicine, and beverage distributions are
not same.

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 Channels of Distribution
Distribution System Depends……..continued
Company strategy
• This explores purpose of company strategy and its
link to company’s distribution strategy.
• It also includes alignment of company’s forecasting,
distribution hierarchy and design alternatives with
the company recognition and its training needs to
the middlemen.
• Distributor of Chittagong of Akiz is not interested in
distributing beverages and tobacco in Kutubdia…so
Akiz directly sells to retailers here.
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 Channels of Distribution
Distribution System Depends……..continued

Competition
• This includes coverage of areas in product pricing
and competitive needs.
• Chinese companies sell low quality products in poor
countries through low graded retailers than in USA,
because in USA competition is rigorous
• It also explores benchmarking of competitive
distribution actions for precise measuring,
monitoring and analysis.
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 Channels of Distribution
We focus on two forces of channel development
 Demand Side Factors
 End users are uncertain where to find products or
services they want
 If intermediaries would not exist, sellers without
known brand name could not generate many
sales
 End users would not know whether to believe
manufacturer’s claim about product
 Marketing channel facilitate this searching

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 Channels of Distribution
 Supply Side Factors
Purchase involves negotiation, ordering,
contracting, pricing, and payment of goods and
services
Buyer and seller must agree on amount, mode,
and timing of product delivery and payment
These costs of distribution, which is a prime
concern of manufacturer, can be minimized if
transaction is routinized or standardized
Channel inventory management is also very
important for managing costs

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 Channels of Distribution
Intermediaries and Number of Contacts
 Without channel intermediaries, every producer
would have to interact with every potential buyer for
all possible market exchange
 Intermediaries reduce complexity of this exchange
system and facilitate transactions
 However, number of necessary contacts increases
dramatically as more wholesalers are added
 Distribution cost and channel effectiveness depend
on number of contacts, type of contacts, and their
skill
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CONTACT COSTS TO REACH THE MARKET WITH AND WITHOUT INTERMEDIARIES

Manufacturers
Selling
Directly

40 Contact Lines

Retailers

Manufacturers Selling Through One Wholesaler

Wholesaler

Retailers 14 Contact Lines

Manufacturers Selling Through Two Wholesalers

Wholesalers

28 Contact Lines

Retailers 29
 Channels of Distribution
Channel Flows

• Channel members produce service outputs

• Channel flows are activities/functions that

produce service outputs
– When there is a distribution, need to know:
• How flows are being performed
• By which channel members
• At what levels

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 Channels of Distribution
Channel Flows…continued…

 When manufacturer sell their products to end-

user through a channel consisting different
intermediaries, there are 8 generic
functions or flows may happen

 Some flows move forward, some backward,

and some move in either direction.

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 Channels of Distribution
Eight Generic Channel Flows

1. Physical possession
2. Ownership
3. Promotion
4. Negotiation
5. Financing
6. Risking
7. Ordering
8. Payment
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Channel Flow Costs
Physical
Storage and delivery costs
possession

Ownership Inventory carrying costs

Personal selling,
advertising, sales
Promotion
promotion, public relations
costs

Negotiation Time and legal costs

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Channel Flow Costs
Credit terms, terms and
Financing
conditions of sale
Price guarantees,
warranties, insurance,
Risking
repair, and after-sales
service costs
Ordering Order-processing costs
Collections, bad debt
Payment
costs 34
 Channels of Distribution
Marketing Flows in Channel

Physical Physical Physical

Possession Possession Possession

Ownership Ownership Ownership

Producers Wholesalers Retailers Consumers

Promotion Promotion Promotion

Negotiation Negotiation Negotiation

Financing Financing Financing

Risking Risking Risking

Ordering Ordering Ordering

Payment Payment Payment

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 Channels of Distribution
Marketing Flows (Functions) through Channel

 Flows may be managed in different ways depending on type

of business and company strategy

 Every channel member does not need to participate in every

flows

 Performance of certain flows depend on other flows’

performance

 A manufacturer may take responsibility for all channel flows

or shift some or all of them to various intermediaries
consisting the channel.

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 Channels of Distribution
Marketing Flows (Functions) through Channel

 One can eliminate or substitute members in channel, but flows performed

by these members cannot be eliminated.

 When any channel member is removed from network, their flows are
shifted either forward or backward in channel.

 Any channel member can be eliminated if found that flows handled by

that member can be managed by other channel member more efficiently
or cheaply

 Evaluating performance of flows managed by different

channel members is a prime responsibility of channel
manager to redesign channel

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