Channels of distribution

Marketing channels and distribution
A distribution channel consists of the set of people and firms
involved in the transfer of title to a product as the product moves
from the producer to the ultimate consumer.
They are the set of pathwaysa product or service
follow after production.
There may be several intermediaries or middlemen who
operate to facilitate the flow of the physical product or its
ownership from the producer to the consumer.

Importance of channels
 Decisions about the marketing channels are among the most
critical management decisions.
 They just not serve markets, they make market.
 Channels chosen affects all other marketing
decisions.
 Firm’s sale depends upon training and motivation of
dealers.

Analyzing Customer Needs
Lot size
Waiting and delivery time
Spatial convenience
Product variety
Service backup
Establishing Channel Objective
Based on – Product characteristics
perishable products and
Non-perishable products
- Company ‘s size and financial situations
- Competitors

Identify The Major Channel Alternatives
Four basic types of marketing intermediaries:
Agents
Wholesalers
Distributors
Retailers
Number of intermediaries:
Companies have to decide on the number of intermediaries to use. Three
strategies available:
Exclusive distribution – for specialty products e.g Roll Royce car
Selective distribution – outlets are chosen selectively
Intensive distribution – use of all the available outlets

Evaluate The Major Channel Alternatives
a) ECONOMIC CRITERIA
Company need to estimate the costs of selling different volumes through
each channel and the next step is comparing sales, profitability and costs.
a) CONTROL CRITERIA
Using intermediaries usually means giving them some control over the
marketing of the product, and some intermediaries take more control than
others.
a) ADAPTIVE CRITERIA.
Channels often involve long term commitments, yet the company wants to
keep the channel flexible so that it can adapt to environmental changes.

•1) Manufacturer-consumer (Direct selling):
• Shortest and simplest channel
• No middleman betweentheproducer and consumer
• Producers sell directly tocustomers through door-to-door salesmen ,direct mail ,
ownretail stores, e.g..BATA IndiaLtd.
• Used generally for selling shoes ,clothes ,books, etc.
• Veryfast and economical
• Expertservices of middlemen are not available
• Large investmentis required
2) Manufacturer-retailer-consumer:
• This channel is popular whenretailers are big and buy in large quantities ,e.g.
departmentalstores ,super markets.
• Generally used for distribution of consumer durables and products of high value
like automobiles, home appliances, etc.
• Relieves manufacturer of theburden of selling and provides
control over distribution.

•3) Manufacturer-wholesaler-retailer-consumer:
• Traditional or normal channel
• Suitable where producers havelimitedfinance and narrow product line
• Channel used in case of consumer durables which are not subject tofrequent
changes in fashion.
4) Manufacturer-agent-retailer-consumer:
• Used whenretailers are fewor geographically concentrated
• Commonly used tosell agricultural products, machinery and equipment,etc.
5) Manufacturer-agent-wholesaler-retailer-consumer:
• Longest channel
• Producer hands over entire outputtotheagent who sales them towholesalers
• In case of cloth this channel is widelyused
• Results in wider distribution of products

Types of intermediaries
1. Merchant middlemen
Wholesalers
Retailers
2. Agents
Brokers
Commission agents
Selling agents
Factors
Clearing agents
auctioneer

wholesalers
The wholesalers own the products they sell. Wholesalers purchase product in
bulk and store it until they can resell it. Wholesalers generally sell the products
they have purchased to other intermediaries, usually retailers, for a profit.
Functions of wholesalers:
1) Assembling and buying.
2) Warehousing.
3) Transporting.
4) Financing.
5) Risk bearing.
6) Grading, packing and packaging.
7) Dispersing and selling.
8) Providing market information.

Services of wholesalers
1.Service to manufacturers-
Economies of scale.
Saving in time and trouble.
Better use of capital.
Price stabilization.
2. Services to retailers-
Saving in cost and time.
Economy in transport an packing.
Better use of limited factors.
Expert knowledge.

RETAILERS
Retailing includes all activitiesdirectly related to the sale of goods and
services to the ultimate consumer for personal or non-personal use.
FUNCTIONS
1. Buying and assembling.
2. Warehousing.
3. Selling.
4. Grading and packing.
5. Financing.
6. Advertising.

Services of retailer
TO MANUFACTURER AND WHOLESALER
1. Offer opportunity.
2. A big relief.
3. Provision of information.
4. Reduce the risk of loss.
TO THE CONSUMER
1. Largest choice.
2. Relief from storage.
3. Extra service.
4. Supply of information.

Agent middlemen
 Agent middlemenare those channel components who
help in the transfer of goods from the hands of ultimate
users without acquiring the ownership of these goods.
They operate for acommission.

Types of Agents:
I. Broker : a broker is a agent involved to buying and selling on behalf of
principals for a commission , he does not hold any stock
II. Factor: he is an agent whose function is to receive goods fromhis principal for
sale in commission . He can sell goods in his ownname
III. Commission agent: he acts on behalf of foreign importers hisfunctions is to
buy goods on behalf of clientabroad.
IV. Underwriter:theyenterintoagreementwithpromotersofnewlystartedcompany
whichhave notbeentakenupbythepublic.
V. Auctioneers:itisanagentwhosellsgoodsbyauction.

Factors Considering The Choice Of Channel Of
Distribution
FACTORS
Product
factors
Market
factors
Company
factors
Middlemen
factors

Product factors
 Product nature.
 Technical nature: simple or complex.
 The length of product line.
 The market position: market position of manufacturer.
Middlemenfactors
(a) Availability
(b) Attitudes
(c) Services
(d) Sales Potential

Market factors
(a) Consumer or Industrial Market
(b) Number & Location of Buyers
(c) Size & Frequency of Order
(d) Buying Habits
Company factors
(a) Market Standing
(b) Financial Resources
(c) Management
(d) Volume of Production

Channels of distribution

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