Distribution Channel

Management- An Introduction
Dr. Neeraj Dixit
Associate Professor
IES Management College
Mumbai

Contents
Definition of Distribution Management
Time, Place & Possession Utility
What are Distribution/Marketing channels &

their importance
Functions of distribution channel members
Role of Marketing Channels
Channel functions & Flows
Channel levels
Patterns of distribution
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Distribution ManagementDefinition
Broad range of activities concerned with

the efficient movement of finished products

from the end of the production line to the
consumer.

Distribution ManagementTime, Place & Possession

Place Utility-Whenever the consumer
Utility
desires for ex. a Colgate toothpaste the
distribution management of Colgate ensures
it is available in a shop near to the
consumers.
Time Utility-If the consumer wants it to be
available at a reasonable time then it is
available
Possession Utility-The consumer gets title to
the goods he is buying, he becomes the
owner.
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MARKETING CHANNELS
Marketing channels are sets of interdependent

organizations involved in the process of making a product

or service available for use or consumption.

Most producers do not sell their goods directly to the final

users; between them stands a set of intermediaries

performing a variety of functions.
These intermediaries constitute a marketing channel (also
called a trade channel or distribution channel).
Some intermediaries buy, take title to, and resell the
merchandise, they care called merchants.
Others search for customers and may negotiate on the
producers behalf but do not take title to the goods, they
are called agents.
Still others assist in the distribution process but neither
takes title to goods nor negotiates purchases or sales, they
are called facilitators.
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The Importance of Channels

A marketing channel system is the

particular set of marketing channels

employed by a firm.
Decisions about the marketing channel system
are among the most critical facing management.
In the United States, channel members
collectively earn margins that account for 30 to
50 percent of the ultimate selling price.
Marketing channels also represent a substantial
opportunity cost.

Converting potential buyers into profitable orders is

one of the chief roles of marketing channels.

Marketing channels must not just serve markets,
they must also make markets
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The Importance of Channels

The channels chosen affect all other marketing

decisions:
The companys pricing depends on whether it
uses mass-merchandisers or high-quality
boutiques.
The firms sales force and advertising decisions
depend on how much training and motivation
dealers need.
In addition, channel decisions involve relatively
long-term commitments to other firms as well
as a set of policies and procedures.
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The Importance of Channels

In managing its intermediaries, the firm must decide how

much effort to devote to push versus pull marketing.

1)
A push strategy involves the manufacturer using its
sales force and trade promotion money to induce
intermediaries to carry, promote, and sell the product to end
user.
a.
Push strategy is appropriate where there is low brand
loyalty in a category, brand choice is made in the stores, the
product is an impulse item, and product benefits are well
understood.
2)
A pull strategy involves the manufacturer using
advertising and promotion to induce consumers to ask
intermediaries for the product, thus inducing the
intermediaries to order it.
a.
Pull strategy is appropriate when there is high brand
loyalty and high involvement in the category, when people
perceive differences between brands, and when people
choose the brand before they go to the store.
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Intermediaries in distribution
Distributor
C&FA( Carrying & Forwarding Agent)

( Dabur has 47 C&FA)

Dealer/Stockist
Wholesaler
Retailer

Functions of Distribution Channel

Members
1.

2.
3.
4.
5.
6.
7.
8.

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Collection of information about the customers,

competitors for the companys Marketing & sales
Departments.
Providing for storage & physical movement of goods.
Placing orders to the producers for the goods for delivery
to customers/consumers.
Canvassing the sales of the products they handle. In
many cases they do the actual selling.
They are the link for transfer of ownership of the goods
from the producer to customer.
Financing the inventories after the goods leave the
manufacturer till they reach the end user.
Provide credit facilities to their buyers.
Help the manufacturers to effectively run trade &
consumer promotions.

THE ROLE OF MARKETING

CHANNELS
Why would a producer delegate some of the selling job
to intermediaries? Delegation means relinquishing
some control over how and to whom the products are
sold. Producers do gain several advantages by using
intermediaries.
Many producers lack the financial resources to carry out direct
marketing.
Producers who do establish their own channels can often earn
a greater return by increasing investment in their main
business.
In some cases direct marketing simply is not feasible.
Intermediaries normally achieve superior efficiency in making
goods widely available and accessible to target markets.
Through their contacts, experiences, specialization, and scale
of operations, intermediaries usually offer the firm more than
it can achieve on its own.
The next Figure shows how a distributor increases
efficiency.

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12

Channel Functions and Flows

A marketing channel performs the work of

moving goods from producers to

consumers. It overcomes the time, place,
and possession gaps that separate goods
and services from those who need and
want them.
Members of the marketing channel perform a

number of key functions.

Some functions constitute a forward flow of

activity from the company to the customer.

Other functions constitute a backward flow
from customers to the company.
Still others occur in both directions.
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1.

Physical Flow
Suppliers

2.

Transporters,
Warehouses

Manufacturer

Transporters,
Warehouses

Dealers

Transporters

Customers

Title Flow
Manufacturer

Suppliers

3.

Manufacturer

Banks

Dealers

Banks

Customers

Transporters,
Warehouses,
Banks

Manufacturer

Transporters,
Warehouses,
Banks

Dealers

Transporters,
Banks

Customers

Promotion Flow

Suppliers

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Banks

Information Flow

Suppliers

5.

Customers

Payment Flow

Suppliers

4.

Dealers

Advertising
agency

Manufacturer

Advertising
agency

Dealers

Customers

Channel Levels-Reverse Flow

Channels normally describe a forward

movement of products from source to user.

One can also talk about reverse-flow channels.
Reverse-flow channels are important in the
following cases:
To reuse products or containers.
To refurbish products for resale.
To recycle products.
To dispose of products and packaging.
Several intermediaries play a role in reverseflow channels.

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Channel Levels
The producer and the final consumer are

part of every channel.

A zero-level channel (also called a directselling channel) consists ofa manufacturer
selling directly to the final consumer.
A one-level channel contains one selling
intermediarysuch as a retailer.
A two-level channel contains two intermediaries
Distributor and a retailer.
A three-level channel containsDistributors,
Dealers/Stockist and retailers.
Next Figure illustrates several consumergoods marketing channels of different
lengths.
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(a) Consumer Marketing Channels

0-level
Manufacturer

1-level
Manufacturer

2-level

3-level

Manufacturer

Manufacturer

Distributor

Distributor

Dealer/Stockist

Consumer
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Retailer

Retailer

Consumer

Consumer

Consumer and Industrial Marketing Channels

Retailer

Consumer

Zero Level Channel

It is also called as direct marketing channel
Door-to-door selling- Eureka Forbes
Home parties-Tupperware
Mail order- Otto Burlington
Telemarketing- ICICI Bank cards
TV Selling- Asian Sky Shop
Internet Selling- Amazon, Indiatimes
Manufacturer-owned stores- Bata, IOC, BP

Petrol pumps
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(b) Industrial Marketing Channels

0-level
Manufacturer

1-level
Manufacturer

2-level

3-level

Manufacturer

Manufacturer

Manufacturers
representative

Manufacturer's
sales branch

Industrial
distributors

Industrial
Customer
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Industrial
Customer

Industrial
Customer

Industrial
Customer

Patterns of Distribution
This determines the intensity of desired
distribution after a firm has decided on
the most appropriate channels of
distribution.
In a way, the intensity denotes the service
level that the organization provides to its
customers.
There are three types of Distribution intensity
1. Intensive Distribution.
2. Selective Distribution
3. Exclusive Distribution
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Intensive distribution
This strategy is to make sure that the product is

made available in as many outlets as possible so

that anywhere the customer goes he/she should
be able to get the products of his choice.
This system helps increase coverage & hence
sales. This system is normally used for FMCG
Goods.
Intensive distribution increases product & service
availability but may lead to price wars among
the retailers & may hurt the brand equity.
Ex. HUL reaches out to 63 lakh outlets.

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Selective Distribution
Only a few select outlets are permitted to

keep the company products.

Selective distribution is the strategy in
which several but not all retail outlets in a
given area distribute a product.
The outlets are carefully selected by the
company in line with the image it wants to
project about itself & its exclusive products.
Ex. Tanishq Jewellery.

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Exclusive Distribution
Exclusive distribution means severely

limiting the number of intermediaries

Exclusive distribution has its own
advantages & disadvantages and is
suitable for products having characteristics
of high price, high margin and low volume.
Ex. Mercedes Benz outlets & Rolls Royce
outlets

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Pharmaceutical distribution
Stockists in India operate on a margin of

8% on MRP of Price controlled drugs &

16% on decontrolled drugs.
Stockists normally operate on 2-2.5 % and
pass on as much as 6% to chemists.
For retail chemists the margins offered
are 16% in case of controlled formulations
& 20% for decontrolled formulations.
Competition has increased in retail of
medicines- subiksha, Medicine shoppe,
Big bazaar etc.
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Indian Retail Market

The Indian retail market, which is the fifth largest

retail destination globally, according to industry

estimates is estimated to grow from the US$ 330
billion in 2007 to US$ 427 billion by 2010 and
US$ 637 billion by 2015. Simultaneously, modern
retail is likely to increase its share in the total
retail market to 22 per cent by 2010.
India has one of the largest number of retail
outlets in the world. Of the 12 million retail
outlets present in the country, nearly 5 million
sell food and related products. Thought the
market has been dominated by unorganised
players, the entry of domestic and international
organised players is set to change the scenario.

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Application Question
Sharpedge

is a company making razor

blades. They want to enter the market in
Hyderabad
&
Andrapradesh.
Harsh
Malhotra, their Marketing Manager is of the
opinion that razor blades need selective
distribution
by
a
direct
company
distribution network.
Discuss the merits of the suggestion & give
the right direction to Harish.

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