Marketing Channels or Channels of Distribution or Trade Channel

Importance of Place decisions

• Once you decide about the product, it is equally important to plan how it will
reach the customers.
• Marketing efforts would fail if the product were not available to buyers at right
time, right location and right quantity. Along with coming out with the right
product, it is equally important that it reaches out to the consumers- making it is
accessible, bridging the gap between the location of manufacturing plant and
location of customers, so that goods pass to reach the hands of customers.
• Producers need to transfer/move their products from factories to consumers.
• What are the Linkages between Producer and Customers. P C
• Set of people/firms involved in the movement of products and transfer of
ownership of products from producer to customers. (As long as the product does
not change its form)
• Perform other functions also. In addition to physical flow, channel members
perform certain other functions that add utility to the product.
Making the product accessible, at the time suitable to customers, in the form and size
wanted by customers is important for successful distribution strategy.
How to make products reach to consumers

Product distribution is to create possession utility/accessibilities for consumers and

bridge the gap, so that consumers can buy
1. in the right quantities
2. at the right locations
3. at the right times
4. In the right assortment

Distribution is the flow of products from place of production to place of

consumers. A distribution channel is a chain of businesses or intermediaries
through which a good or service passes until it reaches the end consumer.

Distribution channel performs the function of physical flow and certain other
functions that add utility to a product.

• It is not simply a conduit to reach the customer. Channel is considered as a Value

Chain--The channel, as an entity adds value to the product because it gets the
products to reach the customers efficiently, and quickly and thus contributes to
brand equity. Coca-Cola’s easy availability to millions contributes to its brand
equity.
• Adds value to company as well as customers.
Customers’ point of view--Good distribution channel is that which enables
customers to buy the product/service with desired convenience at competitive
price. Consumers’ Desired convenience is different for different products-
convenience products to be available at arm’s length, for buying car-going few
kilometers is not considered inconvenient.
It is important to decide how much increase in convenience will be preferred by
customers and they will be willing to pay for it.

Marketing Mix— Place------It includes: 1) Channel of distribution

2) Supply Chain Management

3) Physical Distribution/Logistics

Supply-chain
Supply chain is a system of organizations, people, activities, information, and resources
involved in producing and delivering a product or service, from the very beginning stage
of sourcing the raw materials to the final delivery of the product or service to end-users.

Physical Distribution/Logistics: Emphasis is on physical movement of the product. It

is efficient and cost-effective storage and shipping of goods and related information. It
includes-warehouses-size, number, locations, Inventory, Transportation. It is part of
supply chain.

Marketing Channel/Channel of Distribution

Produced goods and services have to find a way to reach consumers. The role of the
distribution channel is to transfer goods and services to customers efficiently.
This is also known as Marketing Channel, Trade Channel, Channel of distribution
• Set of people/firms involved in the transfer of product from place of production to
place of customers. Chain of intermediaries through which a product or service
travels before reaching the final customer.
• These are known as intermediaries or middlemen (Mm) of the channel.
• These can be Carrying and Forwarding Agent (C&F Agents), Stockists,
Distributors, Wholesaler, Retailers, Agency, ecommerce platform to sell others’
products
• They may/may not take title/ownership (buying the products) but perform variety
of functions in helping the product move from P —>C.
• Channel of Distribution creates value through Time, Place, Possession Utility for
consumers.
The key role that distribution plays is: satisfying a firm’s customers and achieving a
profit for the firm. From a distribution perspective, customer satisfaction involves
maximizing time and place utility to customers.

Utility Created by marketing Channels

• Place Utility -Availability of a product in a location that is convenient to the
customers-buy only if accessible, convenience, reaches form producer’s place to
place of consumption.
• Time utility-Availability of a product when desired by a customer at a time when
you want to use, products are produced in advance, stored and released in the
distribution channel when demand arises. Made available at the time of
consumption- car, coke
• Form utility- providing product for grading, packaging to channel members to
convert it to the form in which to make it available to consumers-washing and
packaging fruits and vegetables, grading them according to their quality.
• Information utility-Availability of answers to questions and general communication
about product’s useful features and benefits. Retailers are close to consumers
and have first hand in information about customers feedback, problems.
Information from consumers to producers for product improvements and to make
consumers aware of products.

A company wants a distribution channel that not only meets customers’ needs
but also provides differential/competitive advantage. In some cases, channel can
be used for positioning strategy for the brand-Domino’s, Blinkit, Uber
Place decisions, just like other 3Ps can be used to differentiate a brand from competing
brand. It is to say that channel designing can be used to have competitive
advantage/differential advantage for the brand. It can be the only factor leading to
competitive advantage or it can be used in combination with any other of Ps to get
competitive advantage.

Channel decision must be well coordinated with other 3Ps.

Channel experience impacts end users, perceptions of brand image.

Problems with Using Channel Intermediaries

• Mmen add to the prices
• Manufacturers lose the control over the way it to be sold to the customers.
• Mmen are in independent business of their own who are interested in maximizing
their own profits.
• Mms are primarily buying agent for their customers and not the selling agent of
manufacturer.
• Problem of conflicts between manufacturers and Mm
Why should companies use middlemen-Answer is--
You can eliminate Mmen, but you cannot eliminate distribution functions. These
functions need to be performed.
• The Question is- WHO is to perform them-company or intermediaries.
• All Channel functions have 3 things in Common
• They use up scarce resources
• They can often be performed better through specialization
• They can be shifted among channel members

Manufacturers cannot easily command such resources even if they can, whether it
would be advantageous to distribute products themselves or there may be greater
return in their own business or may not have skills for distribution tasks, lack of
contacts. As these functions are shiftable--Who should do the function of distribution
depends upon the concept of Relative Efficiency & Effectiveness. These are assigned
on the basis of who can do which distribution functions well and, in a cost, effective
manner.
Two Main Types of Channels
On one end of the channel is Producer and on the other end is customer. The
options are to make the products available to customers directly by the producer
or producer can involve middlemen/intermediaries like wholesalers, retailers,
stockiest, carry and forwarding agent etc. to make the products available to
customers and do it indirectly.
Direct distribution Channel
• Direct selling or direct channel – Channel without middlemen. Goods are directly
sold by the company to ultimate consumer or buyer. Goods do not go through
intermediaries before reaching their final destination.
• This model gives manufacturers total control over the distribution channel.
• Since the manufacturer alone is responsible for delivering products, this channel
generally can reach limited number of customers.
• Examples of direct channel- Company’s salesperson calling upon consumer,
company’s own showroom, selling through company’s website, telemarketing,
text messaging, catalogue etc. For example, Tanishq has own retail shops to sell
their products to consumers. For certain service organizations consumers avail
the service directly. Banks, consultancy firms etc. are examples of direct channel
of distribution of service.

Indirect distribution Channel – this is a channel structure where the goods or

services are delivered and sold using middlemen. There are independent intermediaries
between producer and consumers.
 • Intermediaries could be wholesalers, retailers, distributors, or brokers, for
example.
• In this case, manufacturers do not have much control over distribution channels.
• The benefit is that this makes it possible to sell larger volumes by reaching to
large number of customers across different locations.

• Companies can sell same product through different channels to different

customers-direct channel for business customers and indirect channel for
individual customers, different size of buyers large and small e.g., travel
agents selling to corporate groups and to individuals differently,
Geographical locations nearby customers through own sales force and far
off through agents.

Multiple or Hybrid Distribution Channels

• Multiple/Hybrid Distb. Channels – It is the use of more than one distribution
channel to sell your product. Channels may be retail stores or online e-
commerce or shopping websites. It is basically an approach to reach the
customers, as per their choice of convenience. A company can have more than
one and different types of channels to distribute e.g., indirect channel- through
retailers, after sales service through local employees, direct channel to sell-
telephone and Delivery through mail.

Franchising is a contractual agreement between a franchisor and a franchisee that

allows the franchisee to operate a retail outlet using a name and format developed and
supported by the franchiser.

Difference Between Multi-Channel and Omni-Channel

• We all know that customers have multiple options today from where they can buy
products, but they lack time and attention.
 Source: Keydifferences.com

In a multi-channel environment, the user has access to a variety of channel options that
aren’t synchronized or connected. However, during an omni-channel experience, there
are not only multiple channels, but the channels are connected so you can move
between them seamlessly.

The omni-channel experience is selling and serving customers on all channels to create
an integrated and cohesive customer experience no matter how or where a customer
reaches out. The experience should be the same for customers re In Omni-channel
retailing, marketers facilitate the customers to make purchases, right from performing
research to identifying what they need, to finally selling the product and providing after
sale services by combining the use of various channels,
It emphasizes letting the customers combine their activities across marketing channels
to provide seamless customer experience.
It tends to connect all the channels seamlessly, i.e. it involves the integration of various
touchpoints to serve the customer in a better fashion regardless of the platform or
method they choose to use.

For example, Delhi Metro It offers seamless experience for charging the metro card,
planning the route, requesting for special services for handicapped, complaints can be
filed through app and reply can be checked at the station etc. Its smart card can be
charged from its website, mobile app, at the station or from Paytm or metro route
planning.

Amazon is the king of the omni-channel experience in the consumer retail space. Not
only does it have an app and website that automatically syncs users’ carts when users
are signed in, but it also offers a support experience that gives customers the option to
choose whatever method they’re most comfortable with.
Why It Works--omni-channel experience that Prime members receive gives them
access to the benefits of membership on any device or platform.
Oasis is a U.K. fashion retailer that's fusing its ecommerce site, mobile app, and brick-
and-mortar stores into a simple shopping experience. If you walk into one of its stores,
you'll find sales associates armed with iPads that are available to give you on-the-spot,
accurate, and up-to-date product information. The iPad also acts as a cash register,
making it easy for associates to ring you up from anywhere in the store. And the cherry
on top? If it appears that something is out of stock, the staff can instantly place an
online order for you to have the item shipped directly to your home.
Why It Work--The Oasis app supplements all of the in-store and online shopping
experiences to go the extra mile for customer service.

Pepperfry for purchasing furniture.

Pepperfry accomplishes this goal by pairing its online store with an immersive in-person
experience. Customers can shop for a product online, look for furniture they like, then
travel to a "Studio Pepperfry" to see what the products look like in person. When
customers find the furniture that's right for them, they can either buy the product in-store
or return home to buy it online. This reduces friction between customers and
salespeople as leads don't feel as pressured to make an in-store purchase.
Why It Works Intertwining the online experience with the in-person experience makes
it easy for customers to make choices about products.

Key Differences Between Omnichannel and Multichannel

1. In a multichannel approach, channels are not connected, are separate from one
another. Like selling through Amazon and through own store as two separate
channels. In the case of multichannel retailing, channels are separate and there
is no overlapping between the channels. On the contrary, in Omni-Channel
Retailing, different retail channels are integrated that offer a consistent brand
experience to the customer.
2. In omnichannel communication, information across the channel is seamlessly
coordinated and shared and the company follows each customer in his purchase
journey. As against, in a multichannel, the information across the channels is not
linked
3. With omnichannel marketing, there is a single view of the customer across all the
channels, whereas with multichannel marketing there are multiple views for
different digital channels for different types of customers.

How intermediaries add value

Intermediaries can carry out a range of tasks as mentioned below and add value.

Functions of Middlemen
• Reducing the number of contacts-- Providing contact Efficiency- By reducing
the number of contacts needed for reaching consumers. Reducing duplication of
activities in contacting customers. Thus, provide for savings on costs- cost
efficiency
• Break the bulk and offer in small quantity. Consumers need smaller quantities
whereas producer makes in bulk. Mm break the bulk and make it suitable in
quantities in which consumers buy.
• Storing and transportation of products to provide Time and place utility to
customers.
• Share the financial burden-manufacturer does not need to incur high expenditure
in setting up direct channel to sell their goods. Advance payments and orders
received by manufacturers.
• Take care of flows in distribution-Physical, title, payment, information, risk,
promotion.
• Merchandising –display of products, shelves arrangements etc. it is activities
leading to the final stage of putting the products in customer’s basket.
• Promoting products-participating in persuasive communications like Point of
purchase materials, Word of mouth, joint advertising with producer, carrying out
company’s sales promotions like giving free gifts and collecting coupons
• Provide salesmanship-personal selling efforts of wholesalers in selling the
products to retailers and retailers’ efforts in selling the products to the customers -
introduce, establish new products, communicate, recommends, provide pre and
after sales service. Smen of producers, wholesalers, retailers push the product
forward in the channel chain.
• Assortment Transform the assortment of goods of producers into assortments as
desired and convenient to the customer. Product assortment available at grocery
shop or at stationary shop but each manufacturer produces only few products.
 • Information provision Providing market information (customer feedback and
competitors’ information) to manufacturers as they are in direct & continuous
touch with customers and competitors.
• Non-feasibility-Selling directly may not be feasible for some products e.g Gum,
matchbox, one car accessory etc.
• Risk sharing- buying of the product by intermediaries shits the risk in
storage/transportation passed on to middlemen, payment in advance-less
financial risk
• Specialization, contacts, experience, local knowledge of middlemen-helps in
performing distribution functions in more efficient and effective manner.

Channel Flows: Types

Product flow- the movement of the physical product from the manufacturer through all
the parties who take physical possession of the product until it reaches the ultimate
consumer. It is forward flow,
Payment flow from customer to the producer. It is backward flow.
Promotion flow- the flow of persuasive communication in the form of advertising,
personal selling, sales promotion, flow of promotion material like free gifts with the
product, receiving coupons etc. It is forward flow.
Market information flow-of information about customers’ feedback, information about
competing products back to producer.
Title flow- ownership flow of products from producer to consumer

Length of Channel-number of Channel Levels

 •
It indicates the middlemen levels in the channel. It does not include manufacturer
or customer. It can be 0 or 1 or 2 or 3 levels as shown below
It shows whether the channel is long or short.
The advantage of using more levels is that it’s possible to reach a larger number
of widely scattered consumers.
Usually, short channels are used for consumer durable products, luxury
consumer products, B2B markets and longer channels are used for Consumer
FMCG products.

Length of Channel-Number of Channel Levels

0 level 1 level 2 levels 3 levels

Channel Structure for Consumer Products -levels of Mmen

Why do some companies choose to use different kinds of channels?
It depends upon company’s objectives, resources, abilities, Business strategy of
the firm, product characteristics and customer characteristics (Discussed below),
type of market-consumer market vs B2B market

Factors Affecting Choice of Channels and length of channel—these are:

Customers’ or Market Factors/considerations
Product factors/considerations
Company factors/considerations
Middlemen factors/considerations
Competitors factors/considerations
Environmental factors/considerations
• Factors Affecting the Selection of Distribution Channel
o 1) Factors Related to Product Characteristics
▪ i) Industrial/Consumer Product
▪ ii) Perishability
▪ iii) Unit Value
▪ iv) Purchase Frequency
▪ v) Newness and Market Acceptance
▪ vi) Product Breadth
o 2) Factors Related to Company Characteristics
▪ i) Financial Strength
▪ ii) Marketing Policies
▪ iii) Size of the Company
▪ iv) Past Channel Experience
▪ v) Product Mix
o 3) Factors Related to Market or Consumer Characteristics
▪ i) Consumer Buying Habits
▪ ii) Location of the Market
▪ iii) Number of Customers
▪ iv) Size of Orders
o 4) Factors Related to Middlemen Consideration
▪ i) Sales Volume Potential
▪ ii) Availability of Middlemen
▪ iii) Services Provided by Middlemen
▪ iv) Cost of Channel
o 5) Factors Related to Environmental Characteristics
▪ i) Economic Conditions
▪ ii) Legal Restrictions
▪ iii) Competitor’s Channel
▪ iv) Fiscal Structure

Customer profiles

Consumer or Industrial
Customer

Market Size of market

Factors
That Affect
Channel
Choices Geographic location
 Product Comple ity/technical

Product Unit Price, Installation

Product Standardization, new product

Product Perishability, bulky

Factors
That Affect
Channel Desired brand image
Choices

Producer esources

Number of Product Lines

Producer
Factors
That Affect
Channel Desire for Channel Control
Choices

Customers’ or Market Factors/considerations:

Type of market-consumer market or business market.
Number of customers to be reached
Geographic concentration or spread of customers
Order size -big or small
number of customers, geographical location, order size, frequency of purchase
etc. If there are: large number of customers, geographically scattered, buying
frequently, in small order size--- long channel with a greater number of levels and
middlemen.
For products—if lesser no. of customers, not widely scattered, bulk orders, services
required, technicality of products—short channels are preferred with a smaller number
of channel levels.
Product factors/considerations
Unit value
Perishability
Technical nature

High priced (jewelry), perishable (Milk, Fruits), bulky (shipping and handling) of large
home appliances technical nature of the product-explanation, demonstrations (laptop,
software), requiring installation and maintenance services, new product category
requiring educating the customers about new product, desired premium brand image
----short channel with lesser number of levels.
Low priced products, standardized products, products not requiring after sale services--
long channel is used e.g., FMCG products

Company factors/considerations
Desire for channel control
Services to be provided by seller
Ability of management

Desire/need to control the channel, level of customer services to be provided by seller,

financial resources, marketing skills and managerial capabilities for handling distribution
functions, number of products to be sold, other marketing mix objectives influence the
channel type and structure.

Middlemen factors/considerations
Services provided by middlemen

Availability of desired middlemen

Producer’s and middlemen’s policies

Financial strength of middlemen

Their abilities, financial resources, kind of services provided-Limited services

middlemen or full services middlemen providing whole range of desired functions like
grading, packaging, labelling of fruits along with other functions like displaying, providing
information, maintain inventory, taking back damaged goods, cooperative for promotion
activities of company, experiences, reputation, whether selling competing products,
retailer’s location, type, and numbers of contacts/customers, able to have some control
over them for various functions for smooth flow, policies of producer and policies of
middlemen should gel well otherwise it may give rise to conflicts. Maruti has extensive
list of eligibility criteria for their dealers and control over them. At times desired channels
may not be available in the form you want them. E.g., Available channels are handling
rival firm’ products and you want the channel which is not selling competing products

Competitors’-- factors/considerations to place the product in the same channel and

in direct competition or be away from competitors’ products and sell the product through
other channel-- --follow the leader or be innovative in distribution channel to have an
edge over the competitors.

Environmental factors/considerations --government policy-for example, online selling

of medicines, technical-use of software-Lenskart channel, general economic conditions
also influence channel decisions.

To sum up--If you want reach large number of customers with wide reach-it is difficult to
have such massive reach directly, so roping in intermediaries in the channel becomes
indispensable. As against this, if nature of product and customers is such that it can be
handled by the company and mgt is able to take care of other aspects which are
handled by middlemen like promotional activities and has financial strength to do it own
their own, expertise and ability may decide how much and what companies can do
directly.
Complex, expensive, custom-made, perishable products move through shorter channels
involving few or no intermediaries
Standardized products with low unit value usually pass through relatively long distribution
channels
Start-up companies often use direct channels to reach smaller number of customers
because they can’t persuade intermediaries to carry their products

Types of distribution Channels

Direct distribution channel
• Products are sold directly to ultimate buyer/consumer- no Mmen
• Most common in B2B markets
• Manufacturers have total control over the distribution channel
• Products can be sold to limited number of customers. Since the manufacturer
alone is responsible for delivering products to consumers, this channel generally
makes it impossible to reach large number of customers.
• Often found in the marketing of customized products, relatively expensive
products that may require services like demonstrations, educating etc. e.g.,
Eureka Forbes adopted direct channel of having its salespeople, who were
meeting consumers to educate them about contaminated water and demonstrate
the purity in water after filtration to show its benefits and do some talking about
the product or when you need to customized the product to some degree to
make it more attuned to the needs of consumers like in various kinds of
consultancy services, Lenskart.
• Internet is helping companies distribute directly to consumer as well as business
market. Internet has helped a lot in making direct contact with customers and
enabling the companies to make the product available to customers and sell
directly to them. Lot of companies are selling their products online through their
websites and apps.
• Examples of direct channel: Company’s salesperson calling upon consumer,
company’s own showroom, company’s website, telemarketing, text messaging,
catalogue etc. For example, salespersons of HPCL selling to organization
buyers, Tanishq having their own retail shops to sell their products to consumers.
For certain service organizations consumers avail the service directly. Banks,
consultancy firms, software companies, etc. are examples of direct channel of
distribution of service.

Indirect distribution Channel

• It is a multilevel structure where the goods or services are sold using
intermediaries between producer and consumer. middlemen.
• Intermediaries could be wholesalers, retailers, distributors etc.
• In this case, manufacturers do not have much control over distribution channels.
• Customer reach- it possible to reach and sell to large number of customers at
widely scattered locations. Inexpensive products which are sold to thousands of
consumers, bought in small quantity and bought frequently are usually sold by
indirect channel resulting in larger sales volumes.
• Lowers cost of goods to consumers by creating market utility. It will be costlier to
go for direct channel to make direct contacts with customers, to make products
reach widely spread and large number of customers. Products like small
stationary items, personal products like soap, shampoo, grocery items, hardware,
electrical items are distributed through indirect channel involving middlemen.
Indirect channel makes it more cost-effective. E.g., like investing in own
 showrooms or investing in other ways to sell to too many widely scattered small
customers is more expensive.

Channel Design Decisions

Following factors need to be considered before selecting a channel design.
• Specify the ole of Distribution Channel
• Specify the role of Pull vs Push in Channel Strategy
• Consider the factors influencing channel choice-like Product, Customers,
Company, Competitors, Middlemen Characteristics

Channel Design Decisions

Steps in designing Channels are:
• 1. Identify major Channel Alternatives in terms of: types of channels and
type of Mm
• 2. Decide Market Coverage or Intensity of Distribution Strategy
• 3. Selecting Specific Channel Members
• 4. Terms and esponsibilities of Channel members-- Trade elations Mi

Specify the ole of Distribution Channel-be clear about the role and services
of marketing channel-identify the functions/services you need. Just hiring Mmen
because your competitors are doing so or to be different from competitors, will not justify
your investment in the channel. Distribution channel must be aligned to help in fulfilling
marketing objectives. e.g., A company’s marketing objective of: fast coverage and
penetration of market or building premium brand, developing competitive advantage of
providing better customer service. Each of these objectives would require different kind
of channel design.
Also, channel strategy should be well aligned within the context of marketing mix.
Luxury or economy products need different type of channel. Similarly, need to consider
the influence of distribution costs on pricing of the product. For example, if it is economy
product to be sold at lower price, distribution should be such that it aligns in keeping
prices low and does not add to the prices become high.

Channel Strategy – Pull vs Push

Specify the role of Pull vs Push in Channel Strategy

• Channel Strategy – Pull vs Push

 • Push distribution strategy–pushing the product towards consumers.
Manufacturer using its sales force or commissions, discounts, allowances for
intermediaries as trade promotions to induce intermediaries to carry, promote and
sell their brands.
It is suitable for low brand loyalty products, when brand choice is made in the
store, product is an impulse item, product benefits are well understood. Small
grocery items, stationary items, phone accessories, Screwdriver etc.

• Pull distribution strategy – pulling consumers towards products. Manufacturer

using advertising and sales promotion to induce consumers to buy the product
from retailers thus making the retailers keep the product. It is suitable when there
is high brand loyalty, high involvement, people perceive differences in brands;
choose the brand before they go to store. Microwave, TV

Similar companies may differ in their emphasis on pull /push strategy in designing
a channel.
Decide the extent of Pull or Push distribution strategy required for company’s marketing
objectives. Suppose, company is not having enough budget for advertising, it may use
more of push by its middlemen to sell the product or if company has the plan of using
advertising heavily to pull the consumers to retailers- manufacturer would require lesser
services from retailer. Hence, it is important to coordinate channel design with the
pull/push strategy of the company.
Factors Affecting Length of Channel and Choice of Channel (already
discussed above).
Channel Design Decisions
Steps in designing Channels are:
1. Identify major Channel Alternatives in terms of: types of channels and Mmen
2. Decide Market Coverage or Intensity of Distribution Strategy
3. Terms and esponsibilities of Channel members-- Trade elations Mi

Three elements for type of channel decisions:

1. Type of intermediaries--own salespeople, wholesalers & Retailers, Franchising,
agents, distributors, stockists etc.
2. Market coverage-- Number of Intermediaries—- How extensively to cover the market
(customers) It can be:
Intensive distribution, Selective distribution, E clusive distribution
3. Terms and Responsibilities of each channel participants-Price policies, territorial
rights, conditions of sale, specific services and responsibilities to be performed by each
party

1. Identify Major Channel Alternatives and Decide on the types of

channel intermediaries to be used
There are number of possible options for consumer markets and business markets
Companies can choose from a wide variety of channels for selling their products
to customers.
Type of Channel Intermediaries-own salesforce, online selling through own website, e-
commerce platform, telephone and catalog selling, wholesalers & Retailers, Franchising,
agents, distributors, stockists etc.

• For example, whether to sell the product through own salesforce, wholesalers,
Retailers/ mail order, own website, e-commerce platform, telephone and catalog
selling, wholesalers & Retailers, Franchising, agents, distributors, stockists etc.
• A company can sell Apparel or footwear directly through own retail store, through
its own website, mail order, catalogues, through other e-commerce platform or
through channel of retailers or through channel of wholesalers and retailers or
any combination of these channels. A Car stereo manufacturer can sell its
product directly to car manufacturers, through website, and/or indirectly through
auto-part retailers, dealers’ showrooms, mail order etc.
 • Each channel has its own strengths and weaknesses. Suitable channel is
selected for the given type of target customers, type of product, competitors’
channels based on costs and profit analysis and achieving desired objectives.

For example, own salespeople on salary basis will result in high fixed costs but they
may give full attention to selling of company products, can be suitably trained, more
control over them. Salespeople on commissions-no fixed costs and expense of
commission related to profit from their sale, may result in higher turnover, less control
over them, do not share the risks.

Wholesalers and Retailers-less control over them, expenses in commissions and

incentives for them, may not give desired attention to your brand, lesser risk, help from
their selling expertise and contacts
Companies can choose from a wide variety of channels for selling their products
to customers.

Choosing the Right Distribution Channel

• Not all distribution channels work for all products, so it's important for companies
to choose the right one. The channel should align with the firm's overall mission
and strategic vision including its sales goals.
• The method of distribution should add value to the consumer. Do consumers
want to speak to a salesperson? Will they want to handle the product before they
make a purchase? Or do they want to purchase it online with no hassles?
Answering these questions can help companies determine which channel they
choose.
• Secondly, the company should consider how quickly it wants its product(s) to
reach the buyer. Certain products are best served by a direct or short distribution
channel such as meat or produce, while others may benefit from an indirect
channel.
• If a company chooses multiple distribution channels, such as selling products
online and through a retailer, the channels should not conflict with one another.
Companies should strategize so one channel doesn't overpower the other.
• Channel must contribute to profits of the company by being cost efficient and
leading to good sales.

2. Determine Intensity of Distribution (e tent of market coverage)

It is determining the number of middlemen to be involved to distribute the product.
Three Levels of Intensity in market coverage: Intensive, Selected, Exclusive distribution

Market Coverage or Number of Intermediaries/Mm- it refers to extent of customer

coverage through product selling outlets. Different degrees may be appropriate for
different products and customers situations--size of the target market with different
geographic and demographic spread of customers, production capacity, price of the
product.

Example, number of locations for selling of FMCG products like water bottles, cigarette,
shampoo sachet- total sales are directly linked to the number of outlets used. Thus, it
requires reaching very close to customers. For expensive products like cars, luxury
apparels or technical products like machinery, computers-customers do not desire them
to be available at arm’s length- top brands decide to have their shops in malls at
Gurugram, Noida, South Delhi only -or for fertilizer-objective can be-farmers need not
travel more than 3 Kms, Service- decision about number of ATMs to reach customers,
number of car service centers to cover its customers in Delhi or different market
coverage decisions for inorganic fruits and vegs and Organic fruits and vegs, high end
cosmetics and low end cosmetics

Intensive – product is kept at all possible outlets of sale. Selling the product through as
many outlets as possible soft drink, chips.
Selective - products are available at some selected stores but not on all the possible
outlets (televisions and refrigerators)
E clusive - only chosen few outlets to sell the products. Product is sold exclusively and
not along with competing brands. (Designer clothes and prestige watches)
Marketer’s choice regarding desired channel intensity will depend upon nature of
product, nature of customers, company considerations, middlemen considerations etc.

Intensive Distribution – rope in many intermediaries so that product is available at all

possible outlets of sale- wherever consumer is looking for to buy it-it is available. For
wide reach of product, large number of middlemen are used. Soft drink is available at all
kinds of stores, restaurants, vending machines, kiosks near universities, stations etc.
The goal of intensive distribution is to penetrate the market i.e., reaching as many
customers as possible. Intensive distribution is usually required where customers have
a range of acceptable brands to choose from. In other words, if one brand is not
available, a customer will simply choose another. So, the product is placed at arm’s
length to be purchased. For many products, total sales are related to the number of
selling outlets. (e.g., cigarettes, packaged water bottle). Wide availability increases the
probability of it getting sold and thus helps in increasing sales volume. It is suitable for
selling the products which do not require much control over Middlemen. For example,
convenience goods requiring immediate satisfaction of needs & heavily supported by
advertising from producer e.g., soft drink, cigarette, soap

Selective Distribution— the firm selects limited number of outlets in a geographical

area to sell products. Selective distribution caps the number of locations in a particular
area. Distribution is through selective multiple outlets but not all outlets in a market. An
advantage of this approach is that the producer can choose the appropriate outlets and
focus effort (e.g., training) on them, supervise the way they sell the manufacturer’s
products. Selective distribution works best when consumers are prepared to “shop
around” – in other words – they have a preference for a particular brand or price and will
search out the outlets that supply. Consumers do not seek arm’s length availability of
the product. Consumers do not easily replace the brand they want. This alternative is
the middle path approach to distribution. This alternative helps focus the selling effort of
manufacturing firms on a few outlets rather than dissipating it over countless marginal
ones.

It also enables the firm to establish a good working relationship with channel members.
It is easier to manage than intensive distribution, to strengthen customer service,
improve quality control, better image of the product. It can help manufacturer gain
optimum market coverage and control but at a lesser cost. It is suitable for shopping
goods like major home appliances requiring moderate control over Mmen.

E clusive Distribution –Brand is not sold along with any other brand. Product is sold
through own retail outlets or franchisees, which sell its brands exclusively and not its
competing brands. Its retailer or wholesaler, or distributor deal with one manufacturer’s
brand only. The firm hopes to get the benefit of better selling support by such outlets.
This method helps maintain a brand’s image, product exclusivity, perceived value. It is
suitable when-- it is essential for the firm to carry large inventory of the brand to provide
good variety to the customers (clothing, shoes), product is to be sold aggressively, to
create and maintain better relationship with customers, to have more control over the
way it is sold, salesmen need to have more knowledge about the product, product
requires demonstrations, producer can set specific terms for retailers to follow for
inventories, product displays, its price, promotional support, customer service, way of
selling sell its products. For example, selling cars, luxury brand of apparel etc.
Each of them has their strengths and weakness’. It is important for a business to decide
on the emphasis on how they will distribute products and/or services in order to reach
their target market as it can have an effect on a business’s brand image, sales, expenses.

3. Terms And esponsibilities of Channel Members-- Trade

elations Mi
Producers must determine the rights & resp. of participating channel members. Each
channel member must be clear about their responsibilities & performing them must be
profitable to him. Main elements are:
Price Policy Price to final customers – whether all retailers should sell the product at fixed
price or can reduce it from their commission to make sale, allowances/ discounts to
intermediaries that are equitable, sufficient & motivating enough to Mm to do their job well
Conditions of Sale-and service policies etc.
Payment Terms-Cash discounts, defective goods, volume discount & guarantees etc.
Distributors Territorial Rights- geographical area assigned for an outlet e.g., opening two
nearby outlets may interfere with their territorial rights for selling the product. It is deciding
the number of retailers carrying a firm’s product in a particular geographical area. e.g., to
get the credit of the sales made in his territory even if he has not done the selling or
number of retailers carrying a firm’s product in a particular geographical area
Mutual Services & Resp.- to be spelled out carefully. These can be: collecting payment,
credit facility, inventory level to be maintained, market information to be gathered by
intermediaries.
Promotional support- record keeping system, training of retailer’s salesmen technical
assistance. In case of Franchisees – satisfaction of company’s standards regarding
physical facilities, supplies from specified vendors etc.