Lesson Eight - Place or Distribution Decisions
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Jacy VykeLesson Eight - Place or Distribution Decisions
Uploaded by
Jacy Vyke1 CHAPTER EIGHT: PLACE/DISTRIBUTION
DECISION
Learning outcomes
Upon completing this topic, you should be able to:
• Describe how goods flow from the producer to the final consumer
• Analyze the functions of intermediary in the distribution of goods
• Explain the main channel management decisions carried out by a mar-
keter.
1.1 INTRODUCTION
You are aware that while a manufacturer of a product is located at one place,
its consumers are located at innumerable places spread all over the country or
the world. The manufacturer has to ensure the availability of his goods to the
consumers at convenient points for their purchase. He may do so directly or, as
stated earlier, through a chain of middlemen like distributors, wholesalers and
retailers. The path or route adopted by him for the purpose is known as channel
of distribution.
A marketing channel or distribution channel refers to the path followed in the
process of moving a product or service from the producer to the final consumer
or to business users.
1.2 Distribution Channels
Generally we do not buy goods directly from the producers. The produc-
ers/manufacturers usually use services of one or more middlemen to supply
their goods to the consumers. But sometimes, they do have direct contact with
the customers with no middlemen in between them. This is true more for indus-
trial goods where the customers are highly knowledgeable and their individual
purchases are large. The various channels used for distribution of consumer
goods can be described as follows:
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Figure 1: Channels of Distribution
0-Level is also called a direct marketing channel as no intermediary levels are
involved. The company sells directly to consumers’ e.g Safaricom, Celtel,
Bata Shoes, etc.
Zero Level channel of distribution Zero stage distribution channel exists
where there is direct sale of goods by the producer to the consumer. This direct
contact with the consumer can be made through door-to-door salesmen, own
retail outlets or even through direct mail. Also in case of perishable products
and certain technical household products, door-to-door sale is an easier way of
convincing consumer to make a purchase. e.g Safaricom, Celtel, Bata Shoes,
etc.
One Level channel of distribution In this case, there is one middleman i.e.,
the retailer. The manufacturers sell their goods to retailers who in turn sell it to
the consumers. This type of distribution channel is preferred by manufacturers
of consumer durables like refrigerator, air conditioner, washing machine, etc.
where individual purchase involves large amount. It is also used for distribution
through large scale retailers such as departmental stores
Two Level channel of distribution This is the most commonly used chan-
nel of distribution for the sale of consumer goods. In this case, there are two
middlemen used, namely, wholesaler and retailer. This is applicable to products
where markets are spread over a large area, value of individual purchase is small
and the frequency of purchase is high.
Three Level channel of distribution When the number of wholesalers used
is large and they are scattered throughout the country, the manufacturers often
use the services of mercantile agents who act as a link between the producer
and the wholesaler. They are also known as distributors.e.g Unilever, EABL,
Coca-Cola etc.
A channel level is a layer of intermediaries that performs some work in
bringing the product and its ownership closer to the final buyer.
Examples of Intermediaries
a) Merchant Middlemen - These include Retailers and Wholesalers
b) Agent Middlemen - These include Brokers, Company Representatives,
and sales agents.
c) Facilitators - These include Banks, Advertising agencies, Distributors,
Transport Companies, and Independent warehouses.
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Retailers These are merchants who sell goods and services directly to con-
sumers for personal or non business use. There are two types of retailers
a) Stores Retailers: Like Boutiques, Fast Foods, Discount Stores etc
b) Non Store Retailers: Like Direct Marketing and selling by producer,
Automatic vending, Buying services (Arranging special purchase arrangement
for individuals in companies or specific location.
Wholesalers These are merchants who sell goods and services to customers
who buy for resale or for business use.
Types of Wholesalers Wholesalers can be classified into four broad cate-
gories.
1. Brokers and Agents Those who do not take title of the goods and
perform only a few functions.
2. Manufacturers’ and Retailers’ branches and Offices These are large
branches and company offices set up to facilitate good inventory control
3. Merchant Wholesalers These are independently owned businesses that
take title of the goods. There are two types:
a) Full Service Wholesalers - These are wholesalers and Distributors for
Industrial products who sell primarily to retailers or manufacturers respectively.
They provide full range of retail services
b) Limited Service Wholesalers - These provide only a few services to their
suppliers and customers e.g. Truck Wholesalers, Cash and Carry wholesalers,
and Mail Order wholesalers.
4. Miscellaneous Wholesalers These are found in the specialized sectors
of the economy like Agricultural assemblers, Petroleum Bulk plant and terminals
1.3 FUNCTIONS OF MARKETING CHANNELS
The members of a marketing channel perform many key functions including:
1. Information – They gather and distribute marketing research and intelli-
gence information about actors and forces in the marketing environment needed
for planning and decision making.
2. Promotion – They develop and spread persuasive communication about
an offer i.e. by hanging posters on their vehicles, business premises of price cuts,
volume discounts, branding view with the product etc.
3. Contact establishment – They find and communicate face to face with
the prospective buyer.
4. Physical distribution – They transport and store goods on behalf of
manufacturers.
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5. Financing – They acquire and use funds to cover the costs of channel
work.
6. Risk taking – They cover risks associated with distribution e.g pilferage of
goods in storage, theft of goods on transit, lose of goods resulting from accidents
on transit etc.
7. Negotiation – They discuss price reductions on behalf of the manufacturer
with final buyers to make a sale.
1.4 FACTORS AFFECTING CHOICE OF DISTRIBU-
TION CHANNEL
Choice of an appropriate distribution channel is very important as the pricing as
well as promotion strategy are dependent upon the distribution channel selected.
Not only that, the route which the product follows in its journey from the
manufacturer to the consumer also involves certain costs. This in turn, affects
not only the price of the product but also the profits. Choice of inappropriate
channels of distribution may result in lesser profits for the manufacturer and
higher price from the consumer. Hence, the manufacturer has to be careful
while finalizing the channel of distribution to be used. He should pay attention
to the following factors while making his choice
(a) Nature of Market There are many aspects of market which determine
the choice of channel of distribution. Say for example, where the number of
buyers is limited, they are concentrated at few locations and their individual
purchases are large as is the case with industrial buyers, direct sale may be
the most preferred choice. But in case where number of buyers is large with
small individual purchase and they are scattered, then need may arise for use
of middlemen.
(b) Nature of Product: Nature of the product considerably affects the
choice of channel of distribution. In case the product is of technical nature
involving a good amount of pre-sale and after sale services, the sale is generally
done through retailers without involving the wholesalers. But in most of the
consumer goods having small value, bought frequently in small quantities, a long
channel involving agents, wholesalers and retailers is used as the goods need to
be stored at convenient locations. Items like toiletries, groceries, etc. fall in this
category. As against this in case of items like industrial machinery, having large
value and involving specialized technical service and long negotiation period,
direct sale is preferred.
(c) Nature of the Company: A firm having enough financial resources can
afford to its own a distribution force and retail outlet, both. But most business
firms prefer not to create their own distribution channel and concentrate on
manufacturing. The firms who wish to control the distribution network prefer
a shorter channel. (d) Middlemen Consideration: If right kind of middlemen
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having the necessary experience, contacts, financial strength and integrity are
available, their use is preferred as they can ensure success of newly introduced
products. Cost factors also have to be kept in view as all middlemen add their
own margin of profit to the price of the products. But from experience, it is
learnt that where the volume of sales are adequate, the use of middlemen is
often found economical and less cumbersome as against direct sale.
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Assignments
1. Describe the type of channel of distribution will be suitable in each of the
following cases? Name it and draw a labelled diagram the depicting the
channel.
(a) For a perishable product
(b) Where large number of wholesalers are involved and are scattered
throughout the country
(c) For durable products like washing machines.
2. Explain the following current development in distribution; home deliveries,
electronic data interchange, mail order shops
References and Additional Reading Materials
1. Amber, Tim (2000).Marketing Metrics.Business strategy Review 11(2):
59-66.
2. Hunter, G K., William D P (2007). Making Sales Technology Effective.
Journal of Marketing 71(1):37-58
3. Kibera, F. N., Chege B. W. (1988) Fundamentals of marketing. Nairobi:
Kenya Literature Bureau
4. Kotler, P and Gary, Armstrong. (2001). Principles of Marketing, 9th ed.
New Delhi: Prentice Hall
