Chapter 9
PLACE AND
DEVELOPMENT OF
CHANNEL SYSTEMS
WHY IS THE PLACE OF
SALE OF A PRODUCT
IMPORTANT?
PLACE AND CHANNEL
SYSTEMS
In this pandemic
situation, how the sale of
products in the world
was affected, when the
stores had to close their
establishments
PLACE AND CHANNEL
SYSTEMS
Customers may have different needs with
respect to time, place, and possession as they
make different purchases.
Product classes suggest place objectives.
Different levels of customer urgency,
convenience, and product information needs
naturally suggest different place needs as well.
PLACE AND CHANNEL SYSTEMS
What are distribution channels? the means through which a
manufacturing company chooses to deliver its products to the final
consumer, trying to make it as profitable and efficient as possible.
3 important actors participate in a
distribution channel:
the producers;
wholesalers;
and the retailers.
These participants can be warehouses, transport companies,
businesses, among others.
PLACE AND CHANNEL SYSTEMS
What is the importance of distribution channels?
The importance of distribution channels lies mainly in the fact that
through a third party it is possible for the product to reach a greater
number of consumers, and therefore its sales can grow.
Producers generally do not have their own distribution network, which
is why they work with a tertiary company that usually has extensive
commercial contacts and has a greater geographical reach.
Through distribution channels, a manufacturing company achieves
important objectives: to place its merchandise in the right place, within
reach of the consumer, in the shortest possible time.
CHANNEL SYSTEM MAY BE
DIRECT OR INDIRECT
Some Reasons For Choosing Direct Channels:
•Greater Control.
•Lower Cost.
•E-commerce Makes Direct Distribution Easier.
•Direct Contact with Customers.
•No Suitable Intermediaries.
When Indirect Channels are best
•Convenience.
•Store loyalty.
•Lower initial investments.
WHAT CHANNEL SYSTEM DO YOU
KNOW?
DIRECT OR INDIRECT
CHANNEL SYSTEMS
Depending on the quantity of merchandise, we can divide the
types of distribution system into:
Wholesale channel.
Retail channel.
According to the distributor subject, we classify them as:
Direct distribution channel.
Indirect distribution channel.
According to the length, we differentiate:
Short distribution channel.
Long distribution channel.
CHANNEL SYSTEMS
According to the development, the types of distribution channels
of a company will be:
Horizontal.
Vertical.
According to the distribution square, we distinguish:
Intensive
Selective
Exclusive
CHANNEL SYSTEMS
Wholesale channel.
Example of a wholesale channel or wholesale distribution: a mobile
motherboard factory. Wholesale channels are designed for large
volume sales: the factory will distribute its plates to one or more
mobile brands that will take care of their subsequent assembly and
marketing.
Retail channel.
Example of a retail or retail channel: a trophy store. The production
of each trophy is carried out with the end customer in mind and,
although there may occasionally be a large volume sale (for
example, making 1000 equal trophies for a convention), it is usual
to work the product in detail.
CHANNEL SYSTEMS
Direct distribution channel.
Example of a direct distribution channel: (manufacturer ► end
customer) A plant nursery. The plant nursery produces its plants
and trees and sells them directly to professionals and individuals
from its facilities, either on site or by mail. There are no
intermediaries in this type of channel.
Indirect distribution channel.
Example of an indirect distribution channel: (manufacturer ►
mediator ► end customer). A screw factory. The screws will be
sold to a wholesaler who works with other hardware and hardware
tools (nuts, lag screws, tips, etc.) and who is the one who
distributes, in turn, to retailers (hardware stores).
CHANNEL SYSTEMS
Within the indirect distribution channel, we distinguish these two types of distribution
channels by product based on the length of the product's distribution path:
Example of a short distribution channel: (manufacturer ► retailer ► end customer). An
example of this type of distribution channel is the production of fresh and organic milk. As it is
a very perishable and specific product, it is common for the dairy producer himself to contact
supermarkets and stores and take care of the delivery of the product to them without the
intervention of a wholesaler.
Example of a long distribution channel: (manufacturer ► wholesaler ► retailer ► end
customer). Manufacturers of computer components: the components (tablets, laptops, hubs,
keyboards, mice, etc.) are manufactured and sold to a wholesale channel that, in turn, has a
portfolio of stores (retailers, franchisees) to whom it resells said components to be marketed
now, finally, to customers and users.
CHANNEL SYSTEMS
VERTICAL DISTRIBUTION
Example of vertical distribution channel: oil and electricity
companies. They take care of all activities: extraction,
transformation, distribution and sale.
HORIZONTAL DISTRIBUTION
Example of horizontal distribution channel: a mobile phone
company that creates several subsidiaries with different pricing
plans to cover the entire phone market.
CHANNEL SYSTEMS
Example of intensive distribution: candies. The purpose is that the candy
brand of a company is present in all possible places: in the supermarket, the
kiosk, bars, cinemas, jelly beans stores, vending machines, gas stations and
other sales spaces, so that the customer it is very easy for you to find the
product every day wherever you go.
Example of selective distribution: high-end watches. They are not found
anywhere but the customer interested in the product knows that they can be
found in the stores of the brand itself. The client comes to this point of sale for
a qualitative difference with respect to the competition.
Example of exclusive distribution: a liquor brand. The brand will negotiate with
restaurants, coffee shops, liquor stores or 24-hour stores, for example, so that
certain products (coffee liqueur, pomace cream, herbal liqueur, ...) are sold
exclusively from its brand, in exchange for special sales conditions .
CHANNEL SYSTEMS
Properly choosing a distribution channel is a fundamental decision for a business.
This determines how the products are handled, the speed of delivery to the final
destination and the success of delivery to the final consumer. It is important to find
the right customer and the ideal place for the demand of the product in order to
establish the connection between the product and the final customer.
WHAT TO CONSIDER BEFORE
CHOOSING A DISTRIBUTION CHANNEL.
KIND OF PRODUCT
It is extremely important to be clear about the type of product that the company is
going to offer. By knowing the type of product, you have a better appreciation of
the type of public it is aimed at and the needs it must satisfy.
The product guides the decision of the company by properly choosing the way it
will decide to distribute its product. By understanding the nature of the product
offered and the buyer's need, factors such as:
How quickly could a customer require the product?
How long can the product last before it perishes?
These factors determine how quickly the product should be delivered, defining how
many intermediaries the product would go through. At the end of the day, the less
direct the distribution channel, the longer the product will take before reaching the
final customer.
WHAT TO CONSIDER BEFORE
CHOOSING A DISTRIBUTION CHANNEL.
FINAL PRICE
The price is the final economic value that is attributed to the product to be acquired.
Before deciding on a distribution channel, the perception of the product from the
point of view of the end customer must be taken into account.
How accessible is the product?
Will the buyer consider the product expensive or cheap?
Regardless of the type of product, several companies require different
intermediaries so that the product reaches the hands of the final buyer. It is
important to determine the final price that the product will have and if it is worth the
purchase of such a product at that price.
WHAT TO CONSIDER BEFORE
CHOOSING A DISTRIBUTION CHANNEL.
PRODUCT ADVERTISING
It is important to determine if the customer needs to be educated about the
product, if customer behavior needs to be guided through POP material, advertising
rather than sales, product promotion, in-store activation, tasting, or testing and
promotion.
Projecting the wrong message in the wrong place at the right time drastically
influences the purchase decision. On the other hand, if it is carried out successfully,
the purchase decision of the shopper is effectively assured.
WHAT TO CONSIDER BEFORE
CHOOSING A DISTRIBUTION CHANNEL.
MARKET (TARGET MARKET)
People are the most important element of any sales process or experience. It should
be clear to you:
Who is the product being sold to?
Is the customer more likely to buy from retailers or from a digital channel?
Knowing who the ideal buyers are will help identify the places where these potential
shoppers are located. Taking into consideration the type of product, the final price it
will have, the sales process that it may require, guides the location of potential
buyers.
There are various points of sale where the product can be distributed: stores,
kiosks, supermarkets, markets, neighborhood stores, restaurants
TIPS FOR CHOOSING A SUITABLE
DISTRIBUTION CHANNEL
Observe competitors and the methods they use.
Observing competitors and understanding the logic by which they determined a
distribution channel can be very beneficial. There is even the possibility that they
have overlooked a distribution channel and it gives the company an advantage to
use it.
Examine the costs and benefits.
After deciding on a distribution method, creating the support systems that go with it
takes time and costs. Once the business is oriented around a specific distribution
channel, carefully examine the costs and benefits associated with each option
before allocating resources.
TIPS FOR CHOOSING A SUITABLE
DISTRIBUTION CHANNEL
Sort your options
After reviewing the various distribution channels, rank them in order of preference
based on your budget. Choose the option that allows you to reach the most
customers without breaking your budget.
Have a growth plan.
Defining a distribution channel does not prevent you from adding additional
intermediaries as your business expands. It will require additional methods to
connect the customer with the products. It's important to keep up with your market
and your competitors so you can continue to make informed distribution decisions
as your market grows.
DISTRIBUTION CHANNELS ACCORDING TO
CONSUMER GOODS
Producer → consumer. The shortest and simplest distribution channel for consumer goods has
no intermediaries. The producer can sell door to door or by mail.
Producer → retailer → consumer. Many large retailers buy directly from manufacturers and
agricultural producers. To the anger of various wholesale intermediaries, Wal-Mart increased its
direct dealings with producers.
Producer → wholesaler → retailer → consumer. If there is a traditional channel for consumer
goods, this is it. Small retailers and manufacturers find this channel the only economically viable
option.
Producer → agent → retailer → consumer. Rather than employing wholesalers, many producers
prefer to use middlemen to reach the retail market, especially large-scale retailers.
Producer → agent → wholesaler → retailer → consumer. To reach small retailers, producers
sometimes use intermediary agents, who in turn visit wholesalers who sell to large chains or
small retail stores.
DISTRIBUTION CHANNELS ACCORDING TO
CONSUMER GOODS EXAMPLES
Producer → consumer. Producer → wholesaler → retailer → consumer.
Producer → retailer → consumer. Producer → agent → retailer → consumer.
Producer → agent → wholesaler → retailer → consumer.
DISTRIBUTION CHANNELS ACCORDING TO SERVICE
Producer → consumer. Since the service is intangible, the production process or the sales
activity often requires personal contact between the producer and the customer. So a direct
channel is used. Direct distribution is characteristic of many professional services, such as
health care and legal advice, and for personal services, such as haircutting and weight
reduction consultation. However, other services, such as travel and insurance, can also be sold
and distributed directly.
DISTRIBUTION CHANNELS ACCORDING TO SERVICE
Producer → agent → consumer. Although direct distribution is often required to perform a
service, producer-customer contact may not be required for distribution activities. Agents often
assist a service producer with the transfer of ownership (the sales job). Many services, notably
travel, accommodation, advertising, entertainment, and insurance, are sold through agents.
However, various advances in computer and communications technology have made it easier
for customers to deal directly with service providers, which is a threat to the role of agents.
WHAT ARE THE DISTRIBUTION CHANNELS IN
DIGITAL MARKETING?
It is impossible in today's technological times that we do not think that traditional distribution
channels can be taken to the digital world.
Yes, distribution channels are part of digital marketing and they are nothing more than those
online routes through which an increasingly better service is offered to customers.
Philip Kotler, one of the leading marketing experts, was of the opinion that when companies
began to grow at the production level and their distribution channels also began to improve, it
was essential to refocus the business structure, incorporating marketing strategies. marketing
that would help improve internal administrative processes.e digital world is that they facilitate
the access that the consumer can have to a particular product or service. This access is only
possible by generating valuable content.
WHAT ARE THE DISTRIBUTION CHANNELS IN
DIGITAL MARKETING?
And you will ask yourself, what are the applicable distribution channels within the digital world?
Well, they are:
blog pages;
interactive applications;
all social networks;
promotions and advertising;
SEO (Search Engine Optimization);
advertising channels.
The benefit of distribution channels in the digital world is that they facilitate the access that the
consumer can have to a particular product or service. This access is only possible by generating
valuable content. By creating such content, it is possible to improve positioning within Internet
search engines, in addition to gaining customer loyalty.
KEY TERMS
1 Place: Making goods and services available
in the right quantities and locations--when
customers want them.
2 Channel of distribution: Any series of firms
or individuals who participate in the flow of
products from producer to final user or
consumer.
3 Direct marketing: Direct communication
between a seller and an individual customer
using a promotion method other than face-to-
face personal selling.
4 Discrepancy of quantity: The difference
between the quantity of products it is
economical for a producer to make and the
quantity final users or consumers normally
want.
5 Discrepancy of assortment: The difference between the lines a typical producer
makes and the assortment final consumers or users want.
6 Regrouping activities: Adjusting the quantities and/or assortments of products
handled at each level in a channel of distribution.
7 Accumulating: Collecting products from many small producers.
8 Bulk‑breaking: Dividing larger quantities into smaller quantities as products get
closer to the final market.
9 Sorting: Separating products into grades and qualities desired by different target
markets.
10 Assorting: Putting together a variety of products to give a target market what it
wants.
11 Traditional channel systems: A channel in which the various channel members
make little or no effort to cooperate with each other.
12 Vertical channel conflict: Conflict that occurs between firms at different levels in
the channel of distribution.
13 Horizontal channel conflict: Conflict that occurs between firms at the same level
in a distribution channel.
14 Channel captain: A manager who helps direct the activities of a whole channel
and tries to avoid‑‑or solve‑‑channel conflicts.
15 Vertical marketing systems: Channel systems in which the whole channel
focuses on the same target market at the end of the channel.
16 Corporate channel systems: Corporate ownership all along the channel.
17 Vertical integration: Acquiring firms at different levels of channel activity.
18 Administered channel systems: Various channel members informally agree to
cooperate with each other.
19 Contractual channel systems: Various channel members agree by contract to
cooperate with each other.
20 Ideal market exposure: When a product is available widely enough to satisfy
target customers' needs but not exceed them.
21 Intensive distribution: Selling a product through all responsible and suitable
wholesalers or retailers who will stock and/or sell the product.
22 Selective distribution: Selling through only those intermediaries who will give the
product special attention.
23 Exclusive distribution: Selling through only one intermediary in a particular
geographic area.
24 Multichannel distribution: When a producer uses several competing channels to
reach the same target market--perhaps using several intermediaries in addition to
selling directly.
25 Multichannel shoppers: shoppers who use different channels as they move
through the purchase process.
26 Omnichannel: A multichannel selling approach where a single retailer provides a
seamless customer shopping experience from desktop computer, mobile device,
telephone, or brick-and-mortar store.
27 Reverse channels: Channels used to retrieve products that customers no longer
want.
28 Exporting: Selling some of what the firm produces to foreign markets.
29 Waste Electrical and Electronic Equipment (WEEE) Directive: The European
community’s law that requires producers to take back waste electrical and electronic
equipment.
30 Licensing: Selling the right to use some process, trademark, patent, or other right
for a fee or royalty.
31 Management contracting: When the seller provides only management and
marketing skills – others own the production and distribution facilities.
32 Joint venture: A domestic firm enters into a partnership with a foreign firm.
33 Direct investment: When a parent firm has a division (or owns a separate
subsidiary firm) in a foreign market.
