This document discusses channels of distribution, which refers to the chain of businesses that move a product from the manufacturer to the final consumer. It identifies key functions of distribution channels like facilitating transactions, logistics, marketing, and risk sharing. Common channel types include one level (manufacturer to retailer), two level (manufacturer to wholesaler to retailer), and three level channels. Factors that influence channel selection include market factors, product characteristics, company resources, competitive landscape, and the environment. Choosing the right distribution channel is important and depends on aligning with strategic goals and adding value for consumers.
2. What is a Channel of Distribution?
A Channel of Distribution is a
chain of businesses or
intermediaries through which a
good or service passes until it
reaches the final buyer or the end
consumer. They can
include Wholesalers, Retailers,
Distributors and even the
Internet.
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3. A distribution channel, also known as placement, is part of a
company's marketing strategy, which also includes the product,
promotion, and price.
Distribution channels are part of the downstream process,
answering the question "How do we get our product to the
consumer?" .
This is in contrast to the upstream process, also known as the
supply chain, which answers the question "Who are our suppliers?".
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4. 4
Functions of Channels of
Distribution
+ Transactional Function :
Utility of time, place and ownership; making the product
available anywhere, anytime and in any amount.
+ Logistics & Physical Distribution :
Responsibility of assembly, storage, sorting and transporting of
goods from manufacturers to customers.
5. + Facilitation :
Pre-sale and post-purchase services like financing,
maintenance, information dissemination and channel
coordination.
+ Creating Efficiencies :
Bulk Breaking and Creation of Assortments by intermediate
channels making different products available at one place for
the consumer.
+ Sharing Risk :
Channels buy products beforehand and share the risk.
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6. + Marketing :
Customer touch-points of brands.
+ Negotiation :
Reaching on agreement of price and other terms of sale.
+ Promotion :
Sale promotion activities like demonstration, special displays,
etc. by the middlemen.
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7. Types of Distribution Channel
Distribution channels can be short or long and depend on the
number of intermediaries required to deliver a product or service.
Increasing the number of ways a consumer is able to find a good,
can increase sales. But it can also create a complex system that
sometimes makes distribution management difficult.
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11. One Level Channel
In this, the only intermediary adopted is the ‘Retailer’. Goods pass
from the manufacturers to the retailers who, in turn, sell these
goods to the final users.
Example:- Maruti Udyog sells its cars through company approved
retailers.
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12. Two Level Channel
In this, two intermediaries are involved i.e. ‘Wholesaler’ and
‘Retailer’. This is the most commonly adopted network for
consumer goods where manufacturer sells the goods in bulk to
wholesaler who sells in small lots to retailers who then supply
these to ultimate customers.
Example:- Soaps, Oils, Rice, Pulses, etc.
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13. Three Level Channel
In this network, there are three intermediaries involved i.e. ‘Agent’,
‘Wholesaler’ and ‘Retailer’. Manufacturer sells the goods using their
own selling agents, who connect them with wholesalers and then
with retailers.
It is suitable for manufacturers of limited product line with
customers spread over a wide geographical area.
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14. Dual Distribution
When a manufacturer uses more than one channel for distribution
simultaneously to reach the end user, it is called Dual Distribution
Strategy.
Example:- Smartphone companies open their own showrooms to
sell smartphones and use internet marketplaces/retailers to
attract more customers as well.
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15. Channel of Distribution for
Services
Unlike Tangible Goods, services can’t be stored. But that doesn’t
mean that all the services are always delivered using the direct
channels.
With the arrival of Internet, Online Marketplaces, Aggregator
Business Model and On-Demand Business Model, even services now
use intermediaries to reach the final consumer.
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16. Internet as a Channel of
Distribution
Internet has revolutionised the way of delivery of goods and
services. Other than the traditional direct and indirect channels,
manufacturers now use online marketplaces like Amazon and
Flipkart and intermediaries like Zomato and Ola to deliver goods
and services, which has resulted in the removal of unnecessary
middlemen.
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Factors Affecting Choice of
Channels of Distribution
Market Factors Product
Related
Factors
Company
Characteristics
Competitive
Factors
Environment
Factors
18. ~ Market Factors
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FACTORS Shorter Channel Longer Channel
Size of the market
(No. of buyers)
Small number of buyers Large number of buyers
Geographical
Concentration of Buyers
Concentration of buyers in
particular area
Scattering of buyers over
wide geographical area
Size of Order Larger order size Relatively small order size
19. ~ Product Related Factors
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FACTORS Shorter Channel Longer Channel
Nature of product
Specially ordered industrial
products
Standard and frequently
bought consumer goods
Perishable v/s Non-
Perishable product
Good for perishable goods
Good for non-perishable
goods
Unit Value of product In case of costly goods
In case of inexpensive
goods
Product complexity
Complex product, requiring
technical details
Preferred for non-complex
product
20. ~ Company Characteristics
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FACTORS Shorter Channel Longer Channel
Financial Strength of
Company
Involvement of huge
investment of funds
Unavailability of more
funds
Degree of Control
Want of greater control on
channel members
Doesn’t want more control
over intermediaries
21. ~ Competitive Factors
+ Competitors’ Channel of Distribution :
If competitors have selected a particular channel then others
would like to adopt the same.
Example:- Sale of a Shaving Cream.
In some cases, manufacturers may want to avoid the channel used
by competitors.
Example:- Cosmetic Products being sold through retail stores by
one and through door-to-door selling by other.
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22. ~ Environmental Factors
Environmental factors such as economic conditions and legal
constraints also affect the choice of channel of distribution.
Example:- In a Depressed Economy, producers use shorter channel
to distribute the goods.
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23. Choosing the Right
Distribution Channel
Not all distribution channels work for all products, so it's important
for manufacturers to choose the right one.
+ Alignment with the overall mission and strategic vision
including its sales goals.
+ Adding value to the consumer.
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24. Following questions should be introspected -
+ Do consumers want to speak to a salesperson?
+ Will they want to handle the product before they make a
purchase?
+ Do they want to purchase it online with no hassles?
+ How quickly it wants its product(s) to reach the buyer?
Answering these questions can help to determine which channel
should be chosen.
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25. Certain products are best served by a direct distribution channel
such as meat, while others may benefit from an indirect channel.
If multiple distribution channels are selected, such as selling
products online and through a retailer, the channels should not
conflict with one another. Companies should strategize so one
channel doesn't overpower the other.
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