Channels of Distribution

Channels of Distribution

Channel Flows

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.

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 Gulshan after his office hour on Thursday Make available at a retail outlet close to customers office in Gulshan 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. 5

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)

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

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
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 companys distribution strategy. It also includes alignment of companys 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 Kutubdiaso 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 manufacturers claim about product Marketing channel facilitate this searching
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 Supply Side Factors

Channels of Distribution

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

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Channel Flows

Channels of Distribution

Channel members produce service outputs Channel flows are activities/functions that produce service outputs When there is a distribution, need to know: What flows are being performed By which channel members At what levels
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Channels of Distribution
Channel Flowscontinued

When manufacturer sell their products to enduser 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
Physical possession Ownership

Costs
Storage and delivery costs Inventory carrying costs Personal selling, advertising, sales promotion, public relations costs

Promotion

Negotiation

Time and legal costs

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Channel Flow
Financing

Costs
Credit terms, terms and conditions of sale

Risking

Price guarantees, warranties, insurance, repair, and after-sales service costs Order-processing costs Collections, bad debt costs

Ordering
Payment

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Channels of Distribution
Marketing Flows in Channel
Physical Possession Physical Possession Physical 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 flows

Every channel member does not need to participate in every

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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