Channel:Physical distribution channel is the term usedto describe the method and means by which aproduct or a group of products are physicallytransferred, or distributed, from their point ofproduction to the point at which they are madeavailable to the final customer.
Identifying channelsalternative:Company can choose from a widevariety of channels from reachingcustomers.Most companies use a mix ofchannels. So that the product reachesa different segment of buyers.
A channel alternative isdescribed by three elements:1. Type of intermediaries2. No. of intermediaries Exclusive distribution Selective distribution Intensive distribution
3. Terms and responsibilities ofchannels members: Price policy Condition of sale Mutual services and responsibilities
Evaluating alternatives: Economic criteria Control criteria Adaptive criteria
Economic criteria:Firms tries to align customer andchannels to maximise demand at thelowest overall cost.
Control Criteria :Firm tend to achieve proper control overthe channel.Adaptive Criteria :In rapidly changing , volatile oruncertain product markets, the producerneeds channel structures and policiesthat provide high adaptability.
Alternative Channel Systemsfor Consumer Products
Manufacturer Direct To RetailStore.The manufacturer or supplier deliversdirect from the production point to theretail store. As a general rule, thischannel is only used when full vehicleloads are being delivered.
Advantages : Loyalty, pride in company/product Control brand image, positioningDisadvantage :● Limited coverage● Cannot call on large customerbase
Manufacturer Via RetailerDistribution Centre to RetailStore.Manufacturers supplying theirproducts to National DistributionCenters (NDCs), which are sites runby the retail organizations. Theretailers then deliver full vehicle loadsof all the different manufacturersproducts to their own stores. Mostretailers now use third parties to runthese final delivery operations.
Advantage : Focused customer base Assume financial and inventory riskDisadvantage : Carry competitive products, less loyal Unmanageable; have own agenda
Manufacturer to Wholesaler toRetail Shop.Wholesalers acted as theintermediaries in distribution chains,providing the link between themanufacturer and the small retailersshops.Ex. Biscuit, grocery items.
Advantage :● Good relationships with customers● Minimal distribution costs.Disadvantage : Expensive commissions If they leave, you lose the customer
Mail order.Goods are ordered bycatalogue, and delivered tothe home by post orparcels carrier. Thephysical distributionchannel is thus frommanufacturer to mail orderhouse as a conventionaltrucking operation, andthen to the consumershome by post or parcelscarrier, bypassing the retailstore.
Advantage: Relatively inexpensive Can reach a large customer in lessertime .Disadvantage: Postage costs rising Catalog shopping is fun
Internet and shopping fromhome.Initial physical distributionchannels were similar to thoseused by mail order operations - bypost and parcels carrier. Themove to internet shopping forgrocery products has led to theintroduction of specialist homedelivery distribution operations.These are almost all run by third-party companies. In addition, it isnow possible to distribute someproducts, such as music, softwareand films, directly, computer tocomputer.
Advantage: Instantly global if desired, wideexposure Open 24/7/365, access growingwirelessDisadvantage: Limited audience (not everyone has itor will use it for shopping) Lack of one-to-one interaction,impersonal
Factory direct to home.It can occur by direct selling methods,often as a result of newspaperadvertising. It is also commonly usedfor one-off products that are speciallymade and do not need to be stockedin a warehouse to provide a particularlevel of service to the customer.
Some other specific channels: Manufacturer via broker to retail shop. Manufacturer via small parcels carrierto retail shop. Manufacturer via third-partydistribution service to retail shop. Manufacturer to cash-and-carrywholesaler to retail shop
Alternative Channel Systemsfor Industrial Products
Factory to factory/business tobusiness.The factory-to-factory or business-to-business channel is an extremelyimportant one, as it includes all of themovement of industrial products, ofwhich there are very many. This maycover raw materials, components,part-assembled products, etc. Optionsvary according to the type and size ofproduct and order, may range from fullloads to small parcels, and may beundertaken by the manufacturersthemselves or by a third party.