Distribution Channels

1. DISTRIBUTION
CHANNEL

2. What is a marketing/distribution channel?
◦ A marketing/distribution channel is a set of interdependent organizations involved in the process of making a product or service
available for use/consumption.

3. What is the need of Distribution Channel ?

4. Need for a distribution channel
◦ Spatial discrepancy (Distance – Transportation)
◦ Temporal discrepancy (Time of production & consumption: inventory mgmt – stock out)
◦ Need for breaking the bulk
◦ Need for assortment (market served – demography & psychography – product line)
◦ Reduction in number of contacts

6. Distribution channel & strategic advantage
Channel design
Channel
management
Channel expenses (substantial
proportion of total marketing
cost)
Product/service delivery
Differentiation
advantage
Cost advantage
Competitive
advantage

7. Distribution channel - Members
Agents
Merchants
Facilitators
Promote product & generate sales but don’t buy or stock
Buy, stock and sell products to other channel members and end-users
(Retailer, Wholesaler, Distributor)
Facilitate movement, storage & delivery of products but not involved in
promoting/trading
(CFA, Independent warehouse, Transporter)

8. Channel structure (Based on Density)
Intensive
Distribution
Selective
Distribution
Exclusive
Distribution
How does the distribution channel structure depend on the types of products?

9. Channel intensity: Comparison
Characteristics FMCG Men’s Apparel (LP) Musical instrument
Product type
Purchase frequency
Purchase volume
Lead time/involvement
Need for reach
Channel intensity

10. Channel intensity: Comparison
Characteristics FMCG Men’s Apparel (LP) Musical instrument
Product type Convenience good Shopping good Specialty good
Purchase frequency Very frequent / regular Infrequent but regular every year.
Repeat purchase rate medium
Very rare (individual buyer)
Regular (Professionals/Institutes)
Purchase volume Small Low - medium Generally small
Lead time/involvement Very short / Low
involvement
Medium-High Long / very High involvement
Need for reach Very high Medium (buyers will not mind travelling
a distance to find a specific shop if the
where the brand is available)
Low
Channel intensity Very high (Intensive) Medium (Partly exclusive) Very Low

11. Marketing Channels: Consumer markets
Company
Customer
Retailer/Distributor
Distributor Retailer
Distributor Retailer
Wholesaler
Zero-level Channel
One-level Channel
Two-level Channel
Three-level Channel

12. Marketing Channels: Services
Company
Customer
Franchise/Agent
Zero-level Channel
One-level Channel

13. Direct & In-Direct Channel

14. Framework for channel design & implementation
Segmentation:
Recognize and respond to the target
customers’ service output demands
Decisions about efficient channel
response:
1. Channel Structure:
-Type of intermediaries
-Who are they?
-How many intermediaries?
2. Splitting Workload:
-With what responsibilities?
3. Degree of Commitment:
-Distribution alliance?
-Vertical integration?
Channel power:
Identify sources for all the
channel members
Channel Conflict:
Identify actual and potential
sources
Manage/Defuse Conflict
Use power source strategically
subject to legal constraints
Goal:
Channel coordination
CHANNEL DESIGN CHANNEL IMPLEMENTATION

15. Segmentation for marketing channel design

16. Service outputs of marketing channel
◦ A framework for codifying and generalizing how the end-users want to buy a particular product
◦ Channel systems perform duties that reduce:
A. End-users’ search
B. Waiting time
C. Storage
D. Other costs

17. The generic service outputs
End-users’ ability to buy their desired (possibly small) number of units of a product/service even
though they may be produced in large
Provided by market decentralization of wholesale and/or retail outlets to reduce customers’
transportation requirement and search cost
Time period that the end-user must wait between ordering and receiving goods or after-sales
service
Product Variety The depth and breadth of product assortment available to end-users
Bulk Breaking
Spatial
Convenience
Waiting Time
Customer Service
All aspects of easing the shopping and purchase process for end-users and providing after-sales
service
Information
Provision
Education of end-users about product attributes or usage capabilities or about services offered (Eg:
HP experience centre/Asian paints: Signature store – Color with Asian paint)

18. Class Exercise
◦ Select a product category
◦ Identify the consumer segments that will be served
◦ Identify the levels of different service outputs that these customers would demand
◦ In response, how would you design the distribution channel

19. Channel Flows

20. Understanding Channel Efficiency
Purpose
◦ Who is doing what functions and flows in the channel
◦ How much of the combined cost and value each channel member is responsible for
◦ Whether each channel member is being fairly compensated for the performance of these flows
Implications
◦ Strengthened ability to defend the allocation of total channel profits among channel members
◦ A set of recommendations regarding alteration of the split of channel profits

21. Channel Efficiency Template - 1
Proportional Cost
Potential
Benefit
Final
Weight Mfgr Distributor Retailer
Physical possession 30% High 35% 30% 30% 40%
Ownership 12% Medium 15% 30% 40% 30%
Promotion 10% Low 8% 20% 60% 20%
Negotiation 5% Low 4% 20% 60% 20%
Financing 25% Medium 29% 30% 30% 40%
Risking 5% Low 2% 30% 50% 20%
Ordering 6% Low 3% 20% 60% 20%
Payment 7% Low 4% 20% 60% 20%
Total 100% 100% 28% 38% 34%

22. Channel Efficiency Template-2 (Step-I)
Proportional
Cost
Potential
Benefit
Final
Weight Mfgr Distributor Retailer
Physical possession 30% High 35% 2 2 2
Ownership 12% Medium 15% 2 2 2
Promotion 10% Low 8% 1 3 1
Negotiation 5% Low 4% 1 2 1
Financing 25% Medium 29% 2 2 2
Risking 5% Low 2% 2 2 1
Ordering 6% Low 3% 1 2 1
Payment 7% Low 4% 1 2 1
Total 100% 100%

23. Channel Efficiency Template-2 (Step-II)
Proportional
Cost
Potential
Benefit
Final
Weight Mfgr Distributor Retailer
Physical possession 30% High 35% 33% 33% 33%
Ownership 12% Medium 15% 33% 33% 33%
Promotion 10% Low 8% 20% 60% 20%
Negotiation 5% Low 4% 25% 50% 25%
Financing 25% Medium 29% 33% 33% 33%
Risking 5% Low 2% 40% 40% 20%
Ordering 6% Low 3% 25% 50% 25%
Payment 7% Low 4% 25% 50% 25%
Total 100% 100% 31% 37% 31%