DISTRIBUTION CHANNELS

1. Marketing deals with the creation of form, time, place and possession utilities.

2. Distribution channels deals with the firm’s effort to create place utilities successfully.

3. Even before a product is ready for the market, the management shoulddetermine what methods and routes will it use to get the product to the

customer?

4. This basically means establishing strategies for the product's distribution channels and physical distribution.

Middlemen and Distribution channels :

1. Ownership of a product has to be transferred somehow from the firm to the consumer who needs and buys it.

2. Products must be physically transported from where they are produced to where they are needed.

3. The most important activity of getting the product from the producer and arranging it for sale to the customer, where and when he wants it is the major role of the distribution channel.

Middlemen :

1. Middlemen are independent individual firms that render services directly related to the sale or purchase of a product as it flows from the producer to the consumer.

2. Middlemen are commonly classified on the basis of whether or not they take title to the products they distribute.

3. Merchant middlemen actually take the title and possession of the products they help to market.

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4. Agent Middlemen never actually take title or possession of the products, but they only arrange the transfer of title. E.g.: - Real estate brokers, travel agents and manufacturers agents.

5. Facilitators: - besides producers. Middlemen and final customers. There are other institutions that help the distribution process.

6. Among these intermediaries are banks. Transport companies, storage firms and insurance companies.

7. However. because the above intermediaries do not take title to the products and they are not actively involved in purchase or selling activities. They are not formally included in the distribution channel. They are normally referred to as facilitators.

Importance of Middlemen :

1."Middlemen are parasites who live on the innocent customers, by not adding any additional value to the product".

2. Going by the above quotation some critics say that prices of products are high because there are too many middlemen performing

unnecessary or redundant functions.

3. During the great recession some manufacturing firms attempted to cut costs by eliminating middlemen.

4. Although the middlemen were eliminated from the distribution channels. The experience has been that it did not always result in reduction of costs and in some cases the costs went up and also resulted in poor quality of service.

5. This bitter experience has lead to the quotation that -You can eliminate middlemen, but you cannot eliminate essential distribution activities and services performed by them".

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6. The three major functions performed by middlemen are

a) Concentration: - Collecting or concentrating the outputs of various producers and making them available under a single roof.

b) Equalization: - Sub-dividing these outputs into the amounts desired by customers and then putting the various items together in the assortment wanted.

c) Dispersion: - Distribution of this assortment to customers orIndustrial buyers.

Other functions of Middlemen

To Consumer To Producers

1. Anticipate wants 1. Interprets wants 2.Buying specialist 2. Selling specialist 3. Bulk breaking 3. Bulk breaking 4.Transportation 4.Transportation 5. Installation & Service 5. Storage 6. Financing & Credit 5. Financing & Insurance 7. Guarantees the product 6. Risk bearer

Difference between Retail and Wholesale Sale:

a) Retail Sale: includes all activities directly related to the sale of products or services to the ultimate consumer for personal non-business use.

(i) Any firm, wholesaler or retailer that sells something to ultimate consumers for their non business use is making a retail sale, regardless of how the product is sold e.g.: in person, by telephone, mail or vending machine or where it is sold either in a store or at the customers house.

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b) Wholesaling: - includes the sale and activities directly incident to the sale, of products or services to those who are buying for resale or for business use.

i) Going by the above interpretation it is pertinent to understand that a retail store is engaged in wholesaling when it sells pencils or stationery to a restaurant.

ii) At this juncture it is important to understand that it is the purpose for which a product or a service is purchased that determines whether it is a whole sale or a retail sale and not the quantity of a product or service purchased.

Selecting Channels of Distribution for Consumer Goods

1 2 3 4 5Producer Producer Producer Producer Producer

Consumer Retailer Wholesaler Agent Agent

Consumer Retailer Retailer Wholesaler

Consumer Consumer Retailer

Consumer

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Distribution Of Industrial Goods

1 2 3 4 Producer Producer Producer ProducerIndustrial User Industrial distributor Agent Agent

User User Industrial Distributor

User

Some principles about distribution channels

1. Channel design should begin with the final customer and work backward to the producer and keep the consumer buying habits in mind while determining the distribution channel.

2. The channel selected must be appropriate to the basic objectives of the firms marketing programme e.g.: - If a firm wants widest possible distribution of its products it cannot go for exclusive franchise policy at the retail level.

3. The channel should provide access to a predetermined share of the market.

4. The channels must be flexible enough so that the use of one channel does not permanently close off another. E.g.: - an exclusive store for watches refusing to sell a brand if the same brand of watches is sold through departmental stores.

5. Channels of distribution and middlemen are always on trial and changes occur constantly as there is a change in the consumer buying habits e.g.: - door to door selling becoming more popular as the size of working women population is increasing.

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Conflicts between manufactures and wholesalers

From Manufacturers Point of view :

1. Wholesalers fail to promote products aggressively.

2. Wholesalers are no longer performing the storage services that producers were accustomed to earlier.

3. Some wholesalers promote their own brands that are in direct competition with the manufacturers brands.

4. Wholesaler’s services are too expensive.

5. Manufacturers want closer contact with their market and customers.

6. Some products may need rapid physical distribution.

7. Large-scale retailers usually prefer to buy directly from manufacturers.

Conflicts from wholesaler’s point of view :

1. Manufacturers do not understand that the primary obligation of wholesalers is to serve their customers. Serving producers is only secondary.

2. Manufacturers expect too much. Wholesaler’s discounts are not high enough to justify the level of warehousing and promotion expected by producers.

3. Manufacturers skim the cream off the market.

Options open to Manufacturers :

1. Sell directly to retailers2. Establish sales offices or branches3. Sell directly to consumers4. Use missionary sales force

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Options open to Wholesalers :

1. Improve internal Management2. Provide management assistance to retailers3. Form voluntary chains4. Develop and promote their own brands.

Factors affecting choice of distribution channel :

1. Market considerations:(a) Number of potential customers (b) Geographic concentration of

the market(c) Order size.

2. Product considerations:(a) Unit value of the product (b) Perishability (c) Technical nature of

the product.

3. Middlemen considerations:(a) Services provided by middlemen (b) Availability of desired

middlemen (c) Attitude of middlemen towards manufacturers policies.

4.Company considerations: (a) Financial resources (b) Ability of management (c) Desire for

channel control (d) Services provided by seller.

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