The Importance of Distribution: Most producers use intermediaries to bring their products to market.

They try to develop a distribution channel (marketing channel) to do this. A distribution channel is a set of interdependent organizations that help make a product available for use or consumption by the consumer or business user. Channel intermediaries are firms or individuals such as wholesalers, agents, brokers, or retailers who help move a product from the producer to the consumer or business user. A companys channel decisions directly affect every other marketing decision. Place decisions, for example, affect pricing. Marketers that distribute products through mass merchandisers such as Wal-Mart will have different pricing objectives and strategies than will those that sell to specialty stores. Distribution decisions can sometimes give a product a distinct position in the market. The choice of retailers and other intermediaries is strongly tied to the product itself. Manufacturers select mass merchandisers to sell mid-price-range products while they distribute top-of-the-line products through high-end department and specialty stores. The firms sales force and communications decisions depend on how much persuasion, training, motivation, and support its channel partners need. Whether a company develops or acquires certain new products may depend on how well those products fit the capabilities of its channel members. Some companies pay too little attention to their distribution channels. Others, such as FedEx, Dell Computer, and Charles Schwab have used imaginative distribution systems to gain a competitive advantage. Functions of Distribution Channels Distribution channels perform a number of functions that make possible the flow of goods from the producer to the customer. These functions must be handled by someone in the channel. Though the type of organization that performs the different functions can vary from channel to channel, the functions themselves cannot be eliminated. Channels

provide time, place, and ownership utility. They make products available when, where, and in the sizes and quantities that customers want. Distribution channels provide a number of logistics or physical distribution functions that increase the efficiency of the flow of goods from producer to customer. Distribution channels create efficiencies by reducing the number of transactions necessary for goods to flow from many different manufacturers to large numbers of customers. This occurs in two ways. The first is called breaking bulk. Wholesalers and retailers purchase large quantities of goods from manufacturers but sell only one or a few at a time to many different customers. Second, channel intermediaries reduce the number of transactions by creating assortmentsproviding a variety of products in one locationso that customers can conveniently buy many different items from one seller at one time. Channels are efficient. The transportation and storage of goods is another type of physical distribution function. Retailers and other channel members move the goods from the production site to other locations where they are held until they are wanted by customers. Channel intermediaries also perform a number of facilitating functions, functions that make the purchase process easier for customers and manufacturers. Intermediaries often provide customer services such as offering credit to buyers and accepting customer returns. Customer services are oftentimes more important in B2B markets in which customers purchase larger quantities of higher-priced products. DISTRIBUTING CHANNE STARTEGY Companies that manufacture products have to ensure they eventually reach their final customers. These customers may be difficult to identify, hard to reach, or there may be so many with small transactions that the manufacturing company can't handle them. On the other hand, the products may be complicated, require extensive support, or require special, informed promotion. Depending on these factors, a company may decide to use different distribution channels to funnel the products to their markets and serve their customers efficiently.

Sponsored Link Get New Customers Onlinewww.Google.com/AdWords Advertise On Google. Get 2000 INR Advertising Credit When You Sign-Up Distribution Companies either market directly to their final customers or use intermediaries to handle specific marketing tasks. Car manufacturers don't sell directly to consumers but instead use dealers as their retail outlets. Candy bar makers sell to wholesalers who in turn sell to retail stores. Foreign companies deal with customs, shipping and currencies, and hire agents to bring their products into the country and sell to wholesalers. The number of intermediaries depends on the market and the products. Market Influence The goal of the manufacturer is to deliver maximum value to customers. Often the market structure makes it difficult for the manufacturer to service consumers directly. Instead, specialized intermediaries take over specific tasks. If there are few, large customers concentrated in one area, it makes sense for the manufacturer to serve them directly. If thousands of customers are spread around the country and order small quantities, the manufacturer may be better off Product Influence A manufacturer that produces small quantities of high-value products can easily find the few customers required. A mass-market producer of millions of low-cost items requires a major effort to service customers and usually uses intermediaries. Products that require special expertise or quick delivery force manufacturers to sell directly or limit the number of intermediaries, while manufacturers can effectively sell standardized products and those with a long shelf life through wholesale channels. Manufacturers have to balance costs and customer convenience with

ensuring the product marketing is accurate and customer support is adequate. Manufacturer Influence The manufacturer controls the distribution strategy but the decision on the most effective way to service customers is often determined by the company's size, resources or capabilities. A small producer doesn't have the resources to set up a huge distribution network and relies on wholesalers instead. Companies focused on product design and manufacturing often don't have marketing expertise and leave that to retailers. If the manufacturer feels the existing distribution channels serve his purpose, there is no reason to set up a parallel organization. Potential Strategies Distribution strategy characteristics include the structure of the channel and the nature of the partners. Companies can gain a competitive advantage by creating shorter, low-cost channels or by selecting partners who fulfill their role more effectively than those used by competitors. On the other hand, manufacturers can concentrate on reducing production costs and feeding low-cost products into an existing channel network. The optimal distribution channel strategy uses only intermediaries that add value for the final customer, either by reducing costs or by delivering additional convenience, service or functions. MANAGING CHANNELS Key decisions in channel management There are a number of key decision areas pertaining to the appointment of intermediaries. These include: price policy, terms and conditions of sale, territorial rights and the definition of responsibilities. In addition, a choice has to be made between extensive and intensive coverage of the market.

Price policy: List prices, wholesale/retail margins and a schedule of discounts have to be developed. These have to reflect the interests of the intermediary, as well as those of the producer/supplier if lasting alliances are to be formed with channel members. Terms and conditions of sale: In addition to price schedules the producer/supplier must explicitly state payment terms, guarantees and any restrictions on where and how products are to be sold. If the product enjoys a sizeable demand then the producer/supplier may evaluate intermediaries on the basis of performance criteria such as the achievement of sales quota targets, inventory levels, customer delivery times, etc. Intermediaries whose performance is below target may have their right to handle the product withdrawn. Territorial rights: In the case of certain products, distributors will be given exclusive rights to market a product within a specified territory. This happens, for example, with agricultural equipment. In deciding upon the boundaries of territories the manufacturer or supplier has to strike a balance between defining territories which are sufficiently large to provide good sales potential for distributors but small enough to allow distributors to adequately service the customers within the territory. Definition of responsibilities: The respective duties and responsibilities of supplier and distributor have to be clearly defined. For instance, if a customer experiences a problem with a product and requires technical advice or a repair needs to be effected, then it should be immediately clear to both the supplier and the distributor as to which party is responsible for responding to the customer. In the same way, the agreement between the producer/supplier and the distributor should clearly specify which party is responsible for the cost of product training when new employees join the distributor or new products are introduced. The intensity of distribution i.e. the total proportion of the market covered, will depend upon decisions made in the context of the overall marketing strategy. In simple terms there are two alternatives: skimming the market and market penetration. These strategies were described in

the previous chapter. It will be remembered that a skimming strategy involves being highly selective in choosing target customers. Normally, these will be relatively affluent consumers willing and able to pay premium prices for better quality, sometimes highly differentiated, products. It will also be recalled that a penetration strategy is one where the decision has been made to mass market and the object is to make the product available to as many people as possible. The decision as to which of these is adopted as with immediate implications for distribution strategy. Three principal strategies these being; intensive, selective and exclusive distribution. Extensive distribution: Those responsible for the marketing of commodities, and other low unit value products, are, typically, seek distribution, i.e. saturation coverage of the market. This is possible where the product is fairly well standardised and requires no particular expertise in its retailing. Mass marketing of this type will almost invariably involve a number of intermediaries because the costs of achieving extensive distribution are enormous. In developing countries, the decision to sell commodities nationwide has, in the past, been more often politically inspired than the result of commercial judgements. Many marketing boards, for example, have discovered just how great a financial burden pan territorial distribution can be and have found their role in basic food security incompatible with the objective of breaking even in their finances. In fact, except in social marketing of this nature, it is rare to find organisations which try for 100% distribution coverage. It is simply too expensive in most cases. Where commercial organisations do opt for extensive distribution, channels are usually long and involve several levels of wholesaling as well as other middlemen. Selective distribution: Suppliers who appoint a limited number of retailers, or other middlemen, are chosen to handle a product line, have a policy of selective distribution. Limiting the number of intermediaries can help contain the supplier's own marketing costs and at the same time enables the grower/producer to develop closer working relations with intermediaries. The distribution channel is usually relatively short with

few or no intermediaries between the producer and the organisation which retails the product to the end user. Selective distribution is common among new businesses with very limited resources. Their strategy is usually one of concentrating on gaining distribution in the larger cities and towns where the market potential can be exploited at an affordable level of marketing costs. As the company builds up its resource base, it is likely to steadily extend the range of its distribution up to the point where further increases in distribution intensity can no longer be economically justified. Exclusive distribution: Exclusive distribution is an extreme form of selective distribution. That is, the producer grants exclusive right to a wholesaler or retailer to sell in a geographic region. This is not uncommon in the sale of more expensive and complex agricultural equipment like tractors. Caterpillar Tractor Company, for example, appoints a single dealer to distribute its products within a given geographical area. Some market coverage may be lost through a policy of exclusive distribution, but this can be offset by the development and maintenance of the image of quality and prestige for the product and by the reduced marketing costs associated with a small number of accounts. In exclusive distribution producers and middlemen work closely in decisions concerning promotion, inventory to be carried by stockists and prices. The details of an exclusivity agreement can have important ramifications for both producer and distributor. Some involve tied-agreements where an enterprise wishing to become the exclusive dealer for a given product must also carry others within that agribusiness's product line. For instance, a chemicals manufacturer could have a fast selling herbicide and will tie the exclusive distribution for such a product to a slower moving specialist product like a nematacide.

Agribusinesses which are considering becoming involved in exclusivity agreements need to be aware of their legality. In some markets, exclusivity agreements are either prohibited altogether or are restricted in some way because they are judged, by regulatory authorities, to lessen competition in the marketplace.

CHANNEL CONFLICT It is a conflict between the channel members due to the perceived unfairness. There are 2 types of channel conflicts: - Vertical: It is the conflict between producer and intermediary or intermediary at one level and intermediary at the other level. The primary reason why vertical channel conflict occurs is when the trade partners in the distribution channels are agonized because the company directly sells its products to the consumer. These days it is primarily happening due to the advent of internet. With the help of e-commerce, the companies directly sell their products via internet and hence the sales volume of other distribution channels is reduced. -Horizontal: It is the conflict between channel members at the same level. Example: between retailer-x and retailer-y or wholesaler-x and wholesaler-y. It happens due to the perceived unfair practice adopted by the one channel member which in turn affects the profitability/sales of other channel member