Principles of Marketing - Lecture No 14

The Channels of Distribution

Course Facilitator: Khurshid Alam Swati

University of Swat, Swat Email your query to:

[email protected]

Lecture No: 14

What is distribution?

• The process of getting products from production to the consumer

• In marketing, distribution refers to the process of making a product or service available for use or consumption by a consumer or business user

• It is one of the four elements of the marketing mix

2 ©Khurshid Alam Swati

Different options


Consumer and Business Marketing Channels


Direct Selling

Manufacturer to Consumer

Manufacturer Consumer

Product/Service


Single-Intermediary Channel

Manufacturer to a Retailer to a Customer

Manufacturer Retailer Consumer 6 ©Khurshid Alam Swati

Two-Intermediary Channel

Manufacturer to Wholesaler to Retailer to a Customer

Manufacturer Warehouse Retailer Consumer 7 ©Khurshid Alam Swati

Distribution Policy

- Policy regarding how a business wants its products distributed to consumers

- There are four types

1. Intensive Distribution

2. Selective Distribution

3. Exclusive Distribution

4. Integrated Distribution


1. Intensive Distribution

- Try to get the product sold in as many different places as possible

- Diverse and intensive - Advantages

- Increase sales - Increase recognition

- Disadvantages - Lack of control of retail locations - Intensive competition

- Product examples: Chocolate, Soft drinks Gum etc


2. Selective Distribution

Try to control the distribution of product but not exclusively

Concentrate on selected segments

Advantages

Some control over where product is sold

Can still cover a large area

Disadvantages

Legal implications – purchase minimums

Missing out on possible sales

E.g. Fashion goods, 10 ©Khurshid Alam Swati

3. Exclusive Distribution

Exclusive distribution contracts with one or two businesses in a certain area

Like niche marketing Advantages

Control over image

Favorable agreements

Disadvantages Can severely limit sales

Geographical problems

E.g. Furniture, Jewelry, Cars 11 ©Khurshid Alam Swati

4. Integrated Distribution

When business owns both distribution and manufacturing

Advantage

Total control of product

Keep sales revenue

Disadvantage

Handle all expenses

Handle all difficulties


Marketing Channel

A marketing channel is a set of practices or activities necessary to transfer the ownership of goods, and to move goods, from the point of production to the point of consumption

Links producers to buyers. Performs sales, advertising and promotion. Influences the firm's pricing strategy. Affecting product strategy through branding, policies, willingness to stock


Types of Channels

1. Direct Channels Product goes directly from producer to the consumer

Examples Trade Services “Lemonade stand” Marketing agents


2. Indirect channel 2. Indirect Channels

Use distribution intermediaries who make a profit off holding on to the product


2. Indirect channel

Examples Importers

Foreign made product goes to exclusive importer who sells to retail outlets in a geographical area

Wholesaler Buy products from domestic manufacturers and

sell them to retail stores and other businesses

Retailers Sell product to consumers


Advantages of the Wholesaler for the Retailer

Buy in bulk – lower costs per unit

Warehousing – hold on to greater amount of product in case needed

Risk bearing – retailer has less risk for owning large quantity of a product with unknown or changing demand

Financing – retailers don’t have to borrow money to pay for extra stock, they can use previous sales of smaller quantities to buy more

Buying – saves the time and effort of finding multiple suppliers

Transporting – Wholesalers usually deliver without charge (in the price of the product)

Managing – Wholesalers will provide advice on inventory management and play a major role in controlling inventory levels for their customers

Promoting – wholesalers pass on free promotional materials

Providing market information – they know what's hot, what not and what is on the horizon


3. Specialty Channels

A media whose content is focused on a single genre, subject or targeted market at a specific demographic

Any distribution that does involve a retail store


Intermediaries make distribution and selling processes more efficient

Intermediaries offers supply chain partners more than they could achieve on their own Market Exposure

Technical Knowledge/Information Sharing

Operational Specialization

Scale of operation

The Importance of Marketing Channels


Channel Efficiency: How Intermediaries Reduce the

Number of Channel Transactions


The physical flow of goods, services, and related information from points of origin to points of consumption.

Includes

Inbound distribution

Outbound distribution

Reverse distribution

Marketing Logistics


Transportation Modes

Rail

Nation’s largest carrier, cost-effective for shipping bulk products, piggyback

Truck

Flexible in routing & time schedules, efficient for short-hauls of high value goods

Water Low cost for shipping bulky, low-value

goods, slowest form

Pipeline

Ship petroleum, natural gas, and chemicals from sources to markets

Air

High cost, ideal when speed is needed or to ship high-value, low-bulk items


23

1. Speed

2. Dependability

3. Availability

4. Costs

5. Others

Checklist for Choosing Transportation Modes

Choosing Transportation Modes

©Khurshid Alam Swati

Recent trends in distribution

Increased internet and direct selling of goods and services

Large supermarkets that act as wholesalers and retailers

Complete packages are sold….air flights, rental cars, and hotel accommodations are packaged and distributed together.


Effective Use of Distribution Channels

Feature Products or Services Benefits Drawbacks

Direct Selling

NO intermediaries

Sometimes called “zero

intermediary” channel

• Mail order from

manufacturer

• Farmers markets

• No intermediaries so no

additional profit markup

• Quicker than other

channels

• Producer has complete

control

• All storage and stock

costs paid for by producer

• No retail outlets

• Can be expensive to

deliver products to

customer

One-intermediary

Usually used for consumer

goods but can be used for

B2B

• Travel agents selling

airline, hotel, rental car

services

• Large supermarkets that

old their own stock rather

than wholesalers

• Retailer holds stock and

pays for this cost

• Retailer has product

displays

• Producers focus on

production no selling

• Intermediary takes a profit

which makes product more

expensive

•Producers lose some

control over marketing mix

•Producer has delivery

costs to retailer

Two-intermediaries

Wholesaler buys goods

from producer and sells to

retailer

• In a large country with

many retailers and great

distances, many goods are

distributed this way, e.g.

beverages, books, clothing

• Wholesaler holds goods

and buys in bulk

• Reduces stock holding

costs for producer

• Wholesaler breaks large

stock quantities into smaller

units to sell to retailer

• Another intermediary

takes a profit which

increases the purchases

price

• Slows down the

distribution chanel

HL


What is an Agent?

A business with the authority to act on behalf of another firm to market its products.

Examples: Best Buy sells HP computers and is allowed to handle customer complaints, provide sales force to sell products, and creates sales displays.

HL 26 ©Khurshid Alam Swati

Supply Chain Management (SCM)

Managing the network of businesses that are involved in the provision of products to the final consumers

HL 27 ©Khurshid Alam Swati