DISTRIBUTION CHANNELS

DEFINITION:
• “Channel of distribution may be defined as the
movement of the goods and services from the stage
of production to the stage of consumption through
internal and external organized units performing a
variety of marketing activities.”
• Distribution channels are sets of inter dependent
organizations involved in the process of making a
product or service available for the use or
consumption.
• Some intermediaries such as wholesalers, retailers buy,
take title to and resell the merchandise, they are called
merchants.
• Others like brokers, manufacturer’s representatives,
sales agents do not take the title of the goods but they
sell goods on behalf of the seller. They are called
agents.
• Still others such as transportation companies,
independent warehouses, banks, and advertising
agencies assist in distribution process but neither takes
title of goods nor sells the goods. They are called
facilitators.
 TYPES OF DISTRIBUTION CHANNELS:
A) Non integrated:
1)Direct : 1) Zero level
3) Indirect : i) one –level ii) two-level iii) three- level

B) Integrated
1) vertical :
a) corporate b) contractual c) administered
2) horizontal
3) multichannel
• (A) DIRECT MARKETING CHANNEL:
• In this channel of distribution, there is direct
contact between manufacturer and consumer. It is
the shortest and the simplest channel. It can also be
called as zero level channel, because this channel
consists of manufacturers selling goods directly to
the final customer. The major examples are door to
door sales, home parties, mail orders, TV selling,
internet selling and manufacturer owned stores.
• For example,
• Eureka Forbes, Tupperware and Oriflame doing
door to door selling by appointing agents.
• Bharat Petroleum having manufacture owned
petrol pumps.
• Zero –level
( mfg)………………………………………..customer.

• (B) INDIRECT MARKETING CHANNELS:

1) ONE LEVEL CHANNEL:

• This channel contains one selling intermediary, such as retailers. For
perishable articles which need speed in distribution, this channel is suitable.
For example, departmental stores, chain stores, super markets, co operative
stores, etc. are the large retailers who act as an intermediary in one level
distribution channel.
Mfg…………………………….retailer………………………………………………..customer

• 2) TWO LEVEL CHANNEL:

This channel contains two intermediaries. In consumer market, there are
typically a wholesales and a retailer. Manufacturer sells goods to wholesales
in bulk. Then goods are assorted and allocated in smaller quantities by the
wholesaler and sold to the retailers. Retailers sell them in individual units to
final consumers. For example, all the FMCG products usually have this type of
distribution channel.
• Mfg………wholesaler…………………….retailer………………customer
• 3) THREE LEVEL CHANNEL:
This channel contains three intermediaries, namely
wholesaler, jobber and retailer. Here the gap
between the manufacturer and the consumer is
very large. In this channel, the manufacturer uses
the services of the agent middleman (sales agent)
for the dispersal of goods. For example, in the
meatpacking industry, wholesalers sell to jobbers,
who sell to small retailers and retailers ultimately
sell to consumers.
Mfg…….jobber……wholesaler……retailer………customer
 I. INTEGRATED DISTRIBUTION
CHANNEL:
• Integrated channels are networks in which channel
components participate in a coordinated manner.
Integrated channels may be vertical or horizontal.
• (A) VERTICAL MARKETING CHANNEL:
• Vertical marketing system comprises the
manufacturer, wholesalers and retailers acting as a
unified system. These channels are professionally
managed and centrally programmed networks, to
achieve operating economies and maximum
marketing impact. One channel member, the channels
captain, owns the others or franchises them or has so
much power that they all cooperate. It achieves
economics through size, bargaining power and
elimination of duplicated services. For example,
travel industry, which has alliances with chains of
hotels and airlines.
•
• There are three types of vertically integrated
marketing channels:
• 1) CORPORATE SYSTEM:
Under this channel components are owned and
operated by one organization i.e. a single firm owns
both production and distribution facilities. For
example, Bata owns production units as well as
retail shops are good examples of this system. This
system gives a firm maximum control over
marketing of its products.
• 2) CONTRACTUAL SYSTEM:
In this independent firms are employed on a
voluntary basis to develop a more efficient
distribution system. This system thus works through
franchises or retail cooperatives or voluntary
chains.
• 3) ADMINISTRATIVE SYSTEM:
This is the system where manufacturer controls the
marketing of a particular line of merchandise rather
then a complete store operation. This is possible to
do because of its financial strength, its
management talent or popularity of its product line.
• (B) HORIZONTAL MARKETING SYSTEM:
• In such a distribution system, two or more
unrelated companies put together resources or
programs to exploit an emerging marketing
opportunity. Each companies lacks the capital,
know how, production or marketing resources to
venture alone. Thus the companies might work with
each other on a temporary or permanent basis or
create a joint venture company. It is also called
symbolic marketing. For example, HUL entering a
strategic tie up with PepsiCo India for bottling and
distribution of Lipton’s ready to drink and other
beverages.
• (C) MULTI CHANNEL MARKETING SYSTEM:
• Multi channel marketing occurs when a single firm
uses two or more marketing channels to reach one
or more customer segments. For example, Disney
sells its DVDs through various channels like movie
rental stores, Disney stores, on line retailing, Disney
catalog, etc.
CLASSIFICATION OF DISTRIBUTION
CHANNELS ON BASIS OF INTENSITY
OF DISTRIBUTION:
• 1) INTENSIVE DISTRIBUTION:
• It is a form of distribution in which the
manufacturer distributes his products through as
many outlets as possible. This type of distribution is
used for the products that are characterized by low
involvement of the customer and where customer
looks for location convenience. For example, all the
convenience goods like chocolates, biscuits, soaps,
detergents, etc.
• 2) EXCLUSIVE DISTRIBUTION:
• It is a form of distribution in which there are a
limited number of intermediaries between the
producer and the customer. This type of
distribution is opted for by producers who want to
deliver the maximum service quality to the
customer. As there are limited numbers of outlets,
producer can control the quality levels at these
outlets. It also ensures that the distributors do sell
the competing products along with the producer’s
product. For example, Automobiles, apparels, etc.
• 3) SELECTIVE DISTRIBUTION:
This form of distribution falls somewhere between
the two extremes of exclusive and intensive
distribution. In this producer uses more than one
distribution channel. As the manufacturer uses
relatively fewer number of distribution channels, he
can maintain good relations with the channel
members and as a result, expect increased
marketing efforts from them. For example, Color
Plus, Arrow, Zodiac, Lee, VIP suitcases etc.
IMPORTANCE OR CHARACTERISTICS
OF MARKETING CHANNELS:
1) FACILITATING THE EXCHANGE PROCESS:
Since marketing is process of exchange between the
buyer and the seller, channel members are
considered as exchange facilitators, because channel
members make the goods and services available from
the place of production to the place of consumption.
2) STANDARDIZING THE TRANSACTIONS:
The distribution is standardized through out the
marketing channels so that consumers do not
negotiate with the seller on any aspect like price,
quantity, method of payment, location of the product
etc.
3) MATCHING BUYER AND SELLER:
Normally, most buyers do not know where they can
reach the potential buyers and similarly buyers do
not know where they can reach the potential seller.
Thus marketing channels perform the function of
matching the buyers and sellers.
4) PROVIDING CUSTOMER SERVICE:
Customers now look for that producer who can
offer better customer services like installation,
training, maintenance of the product, etc. A
manufacturer can provide these facilities with the
help of marketing channels.
• 5) ALLEVIATING DISCREPANCIES:
When marketing channels fail to deliver the goods
that match the customer expectation, discrepancies
occur. Discrepancies are of two types
a)Quantity: occurs when customers are unable to
purchase the exact quantity of the product they
want.
b)Assortment: occurs when customers are unable to
purchase the exact combination of goods and
services they want. Marketing channels
continuously try to alleviate discrepancies by
matching the goods and services with the
expectation of the customers.
• 6) Filling the gap between production and
consumption:
There are various types of gaps that occur between
the production and consumption function.
Marketing intermediaries fill the following gaps:
a)Time gap: Time difference between the
production and consumption of goods.
b)Space gap: Production takes place at one place
but goods are consumed at various other places.
c)Quantity gap: Manufacturers produce products in
much larger quantities, so they need to be broken
down into smaller quantities to match the need of
individual customers.
• D)Variety gap: Customers desire greater variety of
products then a manufacturer can produce.
7) Reducing the number of contact point:
Marketing channels as intermediaries reduce the
amount of time and expenditure of the manufacturer
by reducing the number of contact points between the
point of production and point of consumption.
8) Providing feedback to producer:
Middlemen help the manufacturers by informing them
of the customer requirements from time to time. They
gather different information important for making plan
for the future and facilitating exchange of goods and
services.
• 9) Helps in promotion:
They also help in promoting the product through
efficient product display and other techniques like
discount, promotional schemes etc. Various sales
promotion tools are used by the retailers for
increasing the sales.
Factors affecting distribution
channel
• Manufacturer factor:
• Middlemen factors:
• Product factors:
• Market factors :
• Environmental factors:
 Manufacturer factor
• Business volume of the company:
• Financial capabilities :
• Desire to control:
• Brand image:
 Middlemen factors
• Availability of middleman:
• Services provided by middlemen
• Sales volume potential:
• Financial status
• Legal factor
 Product factor
• Product price
• Product nature
• Product size
• Perishability
 Market factor
• Nature of market
• Geographical spread
• Number of consumers
• Competition.
 Environmental factor
• Marketer has to consider overall business
environment while deciding on marketing channel.
Domestic and global environmental forces have
direct or indirect impact on company’s activities and
operations.
• Main environmental forces that affect channel
decision include:
• a. Economic Condition of Country
• b. Phases of Trade Cycle
• c. Legal Provision:
• d. Availability of Facilities:
a. Economic Condition of Country:
Country’s economic condition affects firm’s operations. In
economically poor countries, short or direct channels are
used to sell product at low price. In developing and
developed countries, normally, indirect channels are used to
distribute products.
b. Phases of Trade Cycle:
Phases of trade cycle, like recession, recovery, prosperity,
etc., indicate the country’s economic condition. Normally,
in prosperity stage, long and indirect channels are used due
to need for mass distribution and willingness of people to
pay high price for the product. Direct and short channels are
more suitable when the economy is passing through
recession phase as direct and short channels keep the selling
price low.
• c. Legal Provision:
Government policies and legal provisions have direct or
indirect implication on firm’s distribution activities. Manager
must identify relevant provisions affecting distribution
activities and, accordingly, an appropriate channel(s) should
be selected. Taxes, charges, administrative procedures,
restrictions, and other issues are worth noted in this regard.
• d. Availability of Facilities:
Availability, costs, and quality necessary facilities play
decisive role in channel selection. Facilities like
transportation, communication, warehousing, banking,
insurance, supporting government agencies at national and
international level, degree of harmony among states of the
country, and relations among nations at large affect firm’s
channel decisions