Channels of Distribution

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• Number of towns and cities: 3,700• Number of Villages: 6,30,700• Total length of road: 3,319,644 KM• Length of concrete road: 1,517,077 KM• Rail Network: 62,915 KM• Retail outlet/population ratio: 5.5/1000• No. of accessible villages: 5,00,000

Diversity of Indian Market

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• Nature and importance of middlemen and distribution channels

• Decisions in designing a channel• Major channels for goods and services• Vertical marketing systems• Choosing specific channels and middlemen• Intensity of distribution• Conflict and control within channels

Lesson Overview

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Middlemen

A business firm thatrenders services directly

related to the sale/purchaseof a product as it flows through

from producer to consumer

A business firm thatrenders services directly

related to the sale/purchaseof a product as it flows through

from producer to consumer

You can eliminate middlemen, but not the essential distribution activities they

perform

You can eliminate middlemen, but not the essential distribution activities they

perform

MiddlemenMiddlemen

Merchant middlemen; Agent middlemen; Chennaibazaar.com – an online supermarket 4

Middleman Activities

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Distribution Channels

DISTRIBUTION CHANNELS

People and firms involvedin the transfer of title to a product

as the product moves from producer to ultimate consumer or business user

DISTRIBUTION CHANNELS

People and firms involvedin the transfer of title to a product

as the product moves from producer to ultimate consumer or business user

Producers Middlemen

Final Consumer

OrBusiness

User6

Sequence of Decisions to Design a Distribution Channel

Direct and indirect distribution 7

Major Channels of Distribution (Consumer Goods)

Producers of consumer goods

Ultimate consumers

Retailers Retailers

Merchantwholesalers

Retailers

Agents

Retailers

Agents

Merchantwholesalers

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Major Channels of Distribution (Business Goods)

Producers of business goods

Business users

Agents

Reseller

Industrialdistributors

MerchantWholesalers

(industrialdistributors)

Agents

MerchantWholesalers

(industrialdistributors)

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Major Channels of Distribution (Services)

Producers of services

Ultimate consumers or Business users

Agents

Multiple distribution channels; Dual distribution 10

Vertical Marketing Systems

Types of Vertical Marketing Systems

Types of System Controlled by Examples

Corporate Ownership BPCL, Bata/Woodlands, Raymond

Contractual

- Retailer owned cooperatives

Stock Ownershipby retailers

Amul (Farmer’s Cooper- ative), Apna Bazaar

- Franchise Organizations Contract Coca-Cola, Pepci,NIIT, APTEC

Administered VMS Economic Power HUL, P&G, TELCOMaruti , etc

- Wholesaler-sponsored voluntary chain

Contract Many in Vegetables & Food Markets

Operating efficiency and Marketing effectiveness 11

Vertical Marketing Systems..Contd

Characteristics

BPCL, Bata, Raymond

Coca-Cola, NIIT, APTEC

Economic Sizeand Power

HUL, P&G, TELCOMaruti etc

Contracts

Types of Channels

TraditionalVertical Marketing Systems

Administered Contractual Corporate

Amount ofCo-operation

Controlmaintained by

Example

Little ornone

Same togood

Fairly good to good

Complete

None Ownership byone company

TypicalChannels of‘Independents’ Parle -80- GS

Mazza, Citra, Limca, etc

How does Big Bazar & More maintain control by? 12

Choice of Channels: Market

Geographic concentration

Ordersize

Type of

Market

Number ofpotential

customers

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Choice of Channels: Product

UnitValue

TechnicalNature

Perishability

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Choice of Channels: Middleman

Producer’s and middlemen’s policies

Producer’s and middlemen’s policies

Services provided by middlemen

Services provided by middlemen

Availability of desired middlemen

Availability of desired middlemen

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Choice of Channels: Company

Desire for channel control

Financial resources

Services provided by seller

Ability of management

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Intensity of Distribution Continuum

Distributionthrough

everydistribution

outlet in the market

Distributionthrough

multiple but not, all reasonable

outlet in the market

Distributionthrough a single

wholesaling middleman

and/or retailerin the market

Intensive ExclusiveSelective

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Conflict in Channels

Horizontal conflictHorizontal conflict

Middlemen of the same type

Middlemen of the same type

Different types of middlemen

on the same level

Different types of middlemen

on the same level

RetailerRetailer Retailer Retailer

Scrambled merchandising – Supermarket, Drug store, Banks 18

Conflict in Channels ..Contd

Vertical conflictVertical conflict

Producervs.

Wholesaler

Producervs.

Retailers

Multichannel level conflictMultichannel level conflict

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Who Controls the Channels?

Expertise

Sanctions

Rewards

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Channel as Partnership

Cooperation Collaboration

RelationshipMarketing

Coordination

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Key Terms and ConceptsKey Terms and Concepts

Middlemen Merchant middlemen Agent middlemen Disintermediation Distribution channel Gray marketing Direct distribution Indirect distribution Multiple distribution channels Vertical marketing system Corporate vertical marketing

system Contractual vertical marketing

system

Administered vertical marketing system

Intensity of distribution Intensive distribution Selective distribution Exclusive distribution Channel conflict Chargeback Horizontal conflict Scrambled merchandising Vertical conflict Slotting fee Channel control Channel power

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