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SALES AND ADVERTISING
MANAGEMENT
Channels of Distribution
Presented by:Abhishek U. Agrawal
BBA- 3rd year
CHANNELS

OF

DISTRIBUTION

Meaning and Definition of Channels of Distribution
•The main problems of a manufacturer can broadly be divided in
two parts- 1)Production & 2)Distribution.
•Every manufacturer attempts at producing the goods and
services of best possible quality at minimum possible cost.
•This is only a half-success of a manufacturer.

•The success is completed when he makes these goods and
services available at time and place.
Continue…
o It is not enough to produce the goods and service the best
quality at a minimum cost, it is equally important, more
important that these goods and services must be made
avail to the consumers at proper time and place because
the ultimate of every manufacturer is to earn maximum
profits through maximize sales and this object can be
achieved, only if the goods and service rightly distributed
to their consumers.
o Goods and services may distributed to the consumers
through different ways.
CONT:• Goods and services may distributed to the consumers
through different ways.

• The ways through which the goods and services are
distributed from manufacturer, consumers are called
channels of distribution.
• The term 'Channels of Distribution' has been defined by
many eminent authors.
Definitions
Some important definitions are as follows:


:- “A Channel of distribution
(sometime a trade channel) for a product is the route
taken by the title to the goods as they move from the
producer to the ultimate consumer or industrial user.”



Cundiff, Still & Govani :- “Marketing Channels are

William J. Stanton

distribution networks through which producer's products
flow to the market.”


:- “Any sequence of institutions from
the producer or consumer including none or any number
of middlemen is called channel of Distribution.”

Prof. McCarthy
CONT:

:- “Every producer seeks to link together
the marketing intermediaries that best fulfill the firm's
objectives. Hence, marketing intermediaries is called the
marketing channel (also trade channel or channel of
distribution).”



:- “Distribution Channels are the
systematic economic institutions through which a producer
of goods delivers them into the hands of their users.”

Philip Kotler

Richard Buskirk
CONT:• On the basis of an analytical study of the above definitions,
it can be concluded that a channel of distribution is a chain
through which a producer transfers the ownership of his
goods and services to his consumers.

• Channels of distribution are also known as middlemen,
agent of distribution and distribution chains.

• A channel of distribution is a bridge to cover the gap
between a manufacturer and consumers.
Characteristics or Elements
of Channel of Distribution
1. Route or Pathway : Channel of distribution is a route or
pathway through which goods and services flow from the
manufacturers to consumers.
2. Flow : The flow of goods and services is smooth and
sequential and usually unidirectional.
3. Composition : It is composed of intermediaries, such as
wholesalers, retailers, agents, distributors etc, also called
middlemen who participate in the flow voluntarily.
CONT:4. Functions : The intermediaries perform such functions
which facilitate transfer of ownership title and possession
of good and services from manufacturers to consumers.
5. Remuneration : The intermediaries are paid in the form of
commission for the services rendered by them. The same
is compensated by the manufacturer in the form of
commission allowed by the manufacturer or added in the
price of the goods sold.
Function of Channels of Distribution
1. Helpful in Price Determination : Channels of distribution
are very helpful in determining the price of products
because they are in direct touch with consumers. They
can estimate paying capacity of consumer for product.
Therefore, the manufacturer must invite the suggestion of
middleman while determining the price of his products.
2. To Manage Finance : All the manufacturers have limited
financial resources. Middlemen help manufacturers in
making adequate financial resources available. They
purchase the goods produced by manufacturers and make
the payment for that. This way, they help in solving the
financial problems of manufacturers.
CONT:3. To Make the Process of Distribution Easy : It is not possible
for a producer, particularly a producer of consumer goods to be
in direct touch with all the consumers. Therefore it is not very
practical for a producer to distribute his goods to his consumers
directly. Channel of distribution help producers in this regard.
They distribute the goods produced by producers at right time
and right place to the right consumers.
4. Promotional Activities : Channels of distribution help
producers not only in the distribution of goods and services but
also in promoting the sales of these producers. Wholesalers
advertise for the goods dealt with by them and retailers help in
increasing the sales by adopting the measures of sales
promotion. Retailers display the goods in their showrooms so
that more and more consumers may be attracted.
CONT:5. Helpful in Communication: It is the time of Change.
Habits, tastes, nature and attitudes of consumers keep on
changing frequently. In the light of these changes, it
becomes imperative for every producer to make
necessary changes in his products.
Channels of distribution helps producers in communicating
the changes in products to the consumers and in
communicating the changes in habits, tastes, likings and
preferences of consumers to the manufacturers.
Thus, channel of distribution play an important role in
communicating the needs of consumers to the
manufacturers and policies of manufacturers to the
consumers. It increases the sales of manufacturers.
CONT:6. Matching of Demand and Supply : The most important
function of middlemen is to collect goods and services from
many producers so that consumers may select from among a
large number of alternatives.
In the words of Wroe Alderson , "The goal of
marketing is the matching of segments of demand and
supply." Thus, the middleman play the game of matching
demand and supply of goods and services in a market.
7. Other Functions : Other functions of channels of distribution
may be –
a) To stabilize the prices;
b) To help in forecasting the demand for a product;
c) To help in marketing research;
d) To help in production activities.
Factors Determining the
Choice of Distribution Channels
• There are a number of factors-both objective and subjective
varying from company to company which govern choice or
selection of channel of distribution.

• But there are some which stand out and influence channel
of distribution choice in all cases.

• They may be described as under :A.
B.
C.
D.
E.

Factors Relating to Product Characteristics
Factors Relating to Company's Characteristics

Factors Relating to Market or Consumer's Characteristics
Factors Relating to Middlemen Considerations
Factors Relating to Environmental Characteristics
A. Factors Relating to
Product Characteristics
Product manufactured by a company is a governing factor
in the selection of the channel of distribution.
 Product characteristics are as follows:

Industrial/Consumer Products.
2) Perishability.
3) Unit Value.
4) Style Obsolescence.
5) Weight and Technicality.
6) Standardized Products.
7) Purchase Frequency.
8) Newness and Market Acceptance.
9) Seasonality.
10) Product Breadth.
1)
Characteristics:1.Industrial/Consumer Product :- When the product being
manufactured and sold is industrial in nature, direct channel
of distribution is useful because of the relatively small
number of customers need for personal attention, salesman
technical qualifications and after sale servicing etc.
However, in case of a consumer product, indirect channel
of distribution, such as wholesalers, retailers is the most
suitable.
2.Perishability :- Perishable goods, such as vegetables,
milk, butter, bakery products, fruits, sea foods etc. require
direct selling as they must reach the consumers as easily
as possible after production because of the dangers
associated with delays and repeated handling.
CONT:3.Unit Value :- When the unit value of a product is high, it is
usually economical to choose direct channel of distribution
such as company's own sales force than middlemen. On
the contrary, if the unit value is low and the amount
involved in each transaction is generally small, it is
desirable to choose indirect channel of distribution, i.e.
through middlemen.
4.Style Obsolescence :- When there is high degree of style
obsolescence in products like fashion garments, it is
desirable to sell direct to retailers who specialize in fashion
goods.

5.Weight and Technicality :- When the products are bulky,
large in size and technically complicated, it is useful to
choose direct channel of distribution.
CONT:6. Standardized Products :- When the products are standardized
each unit is similar in shape, size, weight, colour and quality etc.
it is useful to choose indirect channel of distribution. On the
contrary, if the product is not standardized and is produced on
order, it is desirable to have direct channel of distribution.
7. Purchase Frequency :- Products that are frequently purchased
need direct channel of distribution so as to reduce the cost and
burden of distribution of such products.
8. Newness and Market Acceptance :- For new products with
high degree of market acceptance, usually there is need for an
aggressive selling effort. Hence indirect channels may be used
by appointing wholesalers and retailers as sole agents. This
may ensure channel loyalty and aggressive selling by
intermediaries.
CONT:9. Seasonality :- When the product is subject to seasonal
variations, such as woolen textiles in India, it is desirable to
appoint sole selling agents who undertake the sale of
production by booking orders from retailers and direct mills to
dispatch goods as soon as they are ready for sale as per the
order.
10. Product breadth :- When the company is manufacturing a
large number of product items, it has greater ability to deal
directly with customers because the breadth of the product
line enhances its ability to clinch the sale. Hence, direct
channel is the best choice, such as Delhi Cloth Mills, Bombay
Dyeing, mafatlal Group of Cotton Mills, Calico Mills, Bata
Shoe Company etc. They have got wide product range and
thus sell their products direct through their own multiple
shops or authorized retail shops.
B. Factors Relating to
Company’s Characteristics
• The choice of channel of distribution is also influenced by
company's own characteristics as to its size, financial
position, reputation, past channel experience, current
marketing policies and product-mix etc.

• In this connection, some of the main factors are as follows:
1)
2)
3)
4)
5)
6)

Financial Strength.
Marketing Policies.
Size of the Company.
Past channel Experience.
Product-Mix.
Reputation.
Characteristics:1. Financial Strength :- The financial strength of the company
also determines the channel of distribution. A company which
is financially sound may engage itself in direct selling. On the
contrary, a company which is financially weak has to depend
on intermediaries and, therefore, has to select indirect channel
of distribution, such as wholesalers, retailers, with strong
financial background.
2. Marketing Policies :- The marketing policies formulated by a
company play a very important role in influencing channel
choice. The policies relevant to channel decision may relate to
delivery, advertising, after sale service and pricing etc. For
instance, a company which likes to have a policy of speedy
delivery of goods to ultimate consumers may prefer direct
selling and thus avoid intermediaries and will adopt a speedy
transportation system.
CONT:3.Size of the Company :- A large-sized company handling a
wide range of products would prefer to have a direct
channel for selling its products. On the contrary, a smallsized company would prefer indirect selling by appointing
wholesalers, retailers etc.
4.Past Channel Experience :- Past channel experience of
the company also influences the choice of selection of
channel of distribution. For instance, in case of an old and
established company its past good experience of working
with certain kind of intermediaries will like to opt for the
same channel. However, different will be the case of
reverse situation.
CONT:5.Product-Mix :- The wider is the company's product-mix,
the greater will be its strength to deal with its customer
directly. Similarly, consistency in the company's product-mix
ensure greater homogeneity or uniformity and similarity in
its marketing channels.
6.Reputation :- It is said that reputation travels faster than
the man. It is true in the case of companies also who wish
to select channel of distribution. In case of companies with
outstanding reputation like Tata Steel, Bajaj Scooters,
Hindustan Levers etc., indirect channel of distribution
(wholesalers, retailers etc.) is more desirable and profitable.
C. Factors Relating to Market
or Consumer's Characteristics


Market or consumer's characteristics refer to buying habits,
location of market, size of orders etc.



They influence the channel choice significantly.



They may be summarized as under:
1)

Consumers' Buying Habits.

2)

Location of the Market.

3)

Number of Customer.

4)

Size of Order
Characteristics:1.Consumers' Buying Habits :- Consumers' buying habits
also Influence the channel decision. If the consumer
expects credit facilities or desires personal services of the
salesman or desires to make all purchases at one place,
the channel distribution may be short or long depending on
the capacity of the company for providing these facilities. If
the manufacturer can afford these facilities, the channel will
be shorter otherwise longer.

2.Location of the Market :- When the customers are spread
over a wide geographical area, the long channel of
distribution is most suitable. On the contrary, if the customer
are concentrated and localized, direct selling would be
beneficial.
CONT:3.Number of Customer :- The number of customers also
influence the channel decision. For instance, if the number
of customers is quite large, the channel of distribution may
be indirect and long, such as wholesalers, retailers etc. On
the contrary, if the number of customers is small or limited,
direct selling may be beneficial.
4.Size of Orders :- Size of orders of the customers
influences the channel decision significantly. Where
customers purchase the product in large quantities, direct
selling may be preferred. On the contrary, where customers
purchase the product in small quantities, frequently and
regularly, such as cigarettes, matches etc., long channel
(wholesalers, retailers etc.) of distribution may be preferred.
D. Factors Relating to
Middlemen Considerations
• The choice of the channel of distribution is also influenced
by the middlemen consideration.

• They may include the following:
1) Sales Volume Potential.

2) Availability of Middlemen.
3) Middlemen's Attitude.
4) Services Provided by Middlemen.

5) Cost of Channel.
Characteristics:1. Sales Volume Potential :- In selecting channel of distribution,
the company should consider the capability of the middlemen to
ensure a targetted sales volume. The sales volume potential of
the channel may be estimated through market surveys.
However, it should be kept in mind that no single channel is
capable for achieving the targetted sales potential. Two or more
channels may be required for this purpose.
2. Availability of Middlemen :- Availability of the right type of
middlemen is also an important consideration in making channel
choice decision. In this connection, the company should make
efforts to select aggressive oriented middlemen. In case if they
are not available, it is desirable to wait for some time and then to
pick up. In such cases, the company should manage its own
channel so long the right type of middlemen are not available.
CONT:3.Middlemen's Attitude :- The attitude of the middlemen
towards the policies of the company also influences the
channel decision. For example, if the company follows the
resale price maintenance policy, the choice is limited. On
the contrary, if the company allows the middlemen to adopt
their own price policy, the choice is quite wide. Quite a large
number of middlemen would be interested in selling
company's products.
4.Services Provided by Middlemen :- If the nature of
product requires after-sales services, repair services etc.,
such as automobiles, cars, scooters etc., only those
middlemen should be appointed who can provide such
services, otherwise the company will adopt direct selling
channel.
CONT:5.Cost of Channel :- Another factor considered is the cost
involved in the distribution. Direct selling generally is
costlier and thus distribution arranged through middlemen
is more economical. In this connection, it must be kept in
mind that the channel which ensures efficient distribution at
the least expenses and which secures the desired volume
of sales should be chosen.
E. Factors Relating to
Environmental Characteristics


The environmental factors include competitor's channels,

economic conditions, legal restrictions, fiscal structure etc,
as given below, affect significantly the channel choice.
1)

Economic Condition.

2)

Legal Restrictions.

3)

Competitors Channel

4)

Fiscal Structure.
Characteristics:1. Economic condition :- when economic conditions are bright
such as inflation, it is desirable to opt indirect channel of
distribution because there is an all-round mood of expectancy,
market tendencies are bullish and favourable. On the contrary,
if the market is depressed (such as deflation), shorter channels
may be preferred.
2. Legal Restrictions :- The legislative and other restrictions
imposed by the state are extremely formidable and give final
shape the channel choice. For instance, in India, M.R.T.P. Act,
1969 prevents channel arrangements that tend to substantially
lessen competition, create monopoly and are otherwise
prejudicial to public interest. With these objectives at the
backdrop, it prevents
exclusive distributorship, territorial
restrictions, resale price maintenance etc.
CONT:3.Competitors' Channel :- This also influences the channel
choice decision. Mostly, in practice, similar types of
channels of distribution used by the competitors are
preferred.
4.Fiscal Structure :- Fiscal structure of a country also
influences the channel choice decision. For instance, in
India, State Sales Tax rates vary from State to State and
form a significant part of the ultimate price payable by a
consumer. As a result, it becomes an important factor in
evolving channel arrangements. Differences in the sales
tax rates in two different states would not only bring about
difference in the price payable by a consumer but also in
the distribution channel selected.
CONT:• Hence the company should appoint the channel in that
State where the sales tax rates are quite low, such as in
Delhi, and that would give price advantage to the buyers of
those States where the sales tax rates are high.
• For instance, most of the large size companies have either
opened their branches or appointed dealers in Delhi.
• That is why, a large number of customers from neighboring
States like Rajasthan, U.P., Haryana etc. make their
purchases from Delhi in view of the high sales tax rates in
their respective States.
• For example sales tax on plastic goods in Delhi is only 2%
as against 12% in U.P.
• Thus, the manufacturer or the producer should take into
consideration the above factors in the channel decision.
Types of Channels of Distribution
 The flow of goods from the producer to the ultimate
consumer may take place through different types of
channels of distribution.
 In this connection, different experts have discussed
different types of channels of distribution.
 According to R.S. Davar , there are three main types of
channels of distribution, as given below :
1. Producer -> Ultimate Consumer
2. Producer -> Retailer -> Ultimate Consumer
3. Producer -> Wholesaler -> Retailer -> Ultimate Consumer
CONT: According to Philip Kotler , the four main type of channels
of distribution are as follows:
1. Producer ->Ultimate Consumer
2. Producer -> Retailer -> Ultimate Consumer
3. Producer -> Wholesaler -> Retailer ->Ultimate Consumer.
4. Producer -> Wholesaler -> Jobber -> Retailer -> Ultimate
Consumer.
CONT: William J. Stanton has suggested the following five types
of channels of distribution for consumer goods :
1. Producer ->Ultimate Consumer
2. Producer -> Retailer -> Ultimate Consumer
3. Producer -> Wholesaler -> Retailer -> Ultimate Consumer
4. Producer -> Agent -> Retailer -> Ultimate Consumer
5. Producer -> Agent -> Wholesaler -> Retailer -> Ultimate Consumer
 From the above, it is clear that opinions differ as to types of
channels of distribution. However, the most popular and common
channels of distribution used for bringing the products in the market
from the producer to the ultimate consumer are as follows:
1) Producer —> Ultimate Consumer
1. This is the oldest, simplest and shortest type of channel of
distribution.
2. Under this method, the producer or the manufacturer directly
sells goods to the ultimate consumer without any middlemen.
3. There are 3 alternatives in making direct sales to ultimate
consumer  Sale through advertising and direct methods, such as mail order
selling,
 Sale through traveling sales force, such as house to house
canvassing,
 Sale through retail or multiple shops of producer or manufacturer,
such as Delhi Cloth Mill shops, Bata Shoe shops, Bombay
Dyeing shops etc.
CONT:This method is suitable in the following situations :
1.When there are few potential buyers such as industrial
buyers.

2.When market for the product is concentrated in a particular
geographical area only.
3.When goods produced are in small quantity.
4.When the product requires demonstration, tests, lengthy
negotiations before sale and there is need to provide after
sale service, such as machinery, automobiles etc.
CONT:5.When the channel costs are higher than that of direct
selling system.

6.When the middlemen are not prepared to undertake the
sale of a new market and introduce the new product in the
market.
7.When the producer or the manufacturer decides to
eliminate middlemen.
8.When the product is of perishable nature, such as
vegetables, eggs, etc.
2) Producer -> Retailer ->Ultimate Consumers

• This is also a simple, easy, old and most popular type of
channel of distribution.

• Under this method, producers sell their goods to retailers
and retailers sell them in turn to ultimate consumers.

• Here the producer allows the retailer to have direct access
to him.

• The wholesalers or agents are totally eliminated.
• This channel option is preferable when buyers are large
retailers, such as departmental stores, chain stores, super
bazaars, discount houses, big mail order houses or
cooperative stores.
CONT:• It is also suitable when the products are of perishable
nature, such as vegetables, fruits, eggs, and thus speed in
distribution is essential.

• Home appliances, ready-made garments, automobiles,
shoes etc. are directly sold by the manufacturers to the
retailers.

• This type of channel of distribution maybe suitable in the
following situations :
1.When the product is perishable either physically or due to
changes in fashion and thus requiring speedy distribution.

2.When the wholesalers are unwilling to
promotional efforts needed by the producer.

undertake
CONT:3.When the retailers are financially sound to finance the
producer towards the supplies made to them.

4.When the retailers are large enough to carry on the
distribution work independently and efficiently.
5.When the producers may desire to have closer contacts so
as to understand buyers' preferences and for product
planning.
6.When the demand for the product is constant.
3) Producer -> Wholesaler -> Retailer -> Ultimate
Consumer

• It is a normal, regular, traditional and also popular channel
of distribution.

• Under this method, the producer sells goods in large
quantities to wholesalers.

• The wholesaler distributes the goods to retailers as per
their requirements in small quantities.

• The retailer finally sells the same to the ultimate
consumers.

• In this way the distribution channel is quite long.

• This channel of distribution is desirable for groceries, drugs
and other types of medicines, hardware, food-items etc.
CONT:This type of channel of distribution is suitable in the following
situations :
1.When the producer has a narrow product range.
2.When the wholesalers are specialized and can provide
strong promotional support.
3.When the products are durable and are not subject to
physical deterioration or quick fashion changes.
4.When the retail outlets are more and widely spread.
5.The financial resources of producers are limited.
4) Producer –> Agent ->Wholesaler ->
Retailer -> Ultimate Consumer

• This is the longest channel of distribution.
• In this channel the producer uses the services of an agent
who has greater outlets and contacts.

• The agent in turn may distribute the goods to wholesalers,
who in turn sell to retailers.

• The retailer sells the goods to the ultimate consumers.

• The agents have a wide distribution system on national
level.
CONT:• The agent acts as a sole selling agent of the producer, such
as Voltas.

• In this case the producer is not required to undertake
marketing task as the entire supply is purchased by the
agent.

• This type of channel of distribution is suitable for marketing
agricultural and large scale manufactured products, such as
cotton textiles, cement etc.
5) Producer -> Wholesaler ->
Ultimate Consumer

• In this type of channel of distribution, producer sells the
goods to wholesalers and the wholesalers sell them
directly to ultimate consumers.

• The wholesaler may bypass retailer only when there are
large institutional buyers, such as industrial buyers,
government and educational institutions, hospitals,
consumer cooperative stores and large business houses
etc.
Common Channels of Distribution
of Industrial Goods
• As the industrial goods have quite different nature and
more or less fixed patterns, the channels used by them are
less complicated.

• Major channels of distribution, which are commonly used in
the distribution of industrial goods, are as follows:
1. Producer -> Industrial User
2. Producer -> Wholesaler -> Industrial Users
3. Producer -> Agent -> Industrial Users

4. Producer -> Agent -> Industrial Distributor -» Industrial User
1) Producer -> Industrial User
• This is the most popular and commonly used channel in
the distribution of industrial goods.

• This system is most suitable if the goods are sold to few
industries and the number of such industries is quite small.

• This will help in maintaining close contact with customers
and prospective buyers and create opportunities for more
sales.

• This system is in a position to supply highly specialized
technical service along with after-sales service to their
customers.
2) Producer -> Wholesaler -> Industrial Users

• In this case, the producers sells goods to wholesalers who
sell them to industrial users.

• This channel of distribution is beneficial when the market is
scattered and the volume of sales in each area is quite
thin.

• This system is useful for small-scale manufacturers of
equipment for air conditioning plants, building construction,
small-sized tools and other standard pieces of equipment
etc.
3) Producer -> Agent -> Industrial Users
• In this case, the producer uses the services of agents for
selling goods to industrial users.

• The agent may be a broker or commission agent or sales
agent.

• The producer has to rely only on one agent in each
geographical area and is to be prepared to hand over the
marketing function to one agent in a particular area.

• In this case, the cost of distribution is quite low.

• This system is more suitable for small-sized industrial
enterprises or for introducing a new product in the market.
4) Producer -> Agent -> Industrial
Distributor -> Industrial User

• This is the longest and popular channel of distribution
which is mostly adopted by
enterprises for selling their goods.

large-sized

industrial

• In this case, the producer uses the services of the agent
though the goods are sold to industrial distributors, who in
turn, sell them to industrial users.

• The agent may be a broker, commission agent, sales
agent or producer's agent.

• This channel of distribution is suitable for selling new
products or to enter new markets.
Evaluating the Effectiveness
of Channels Distribution
• We have discussed earlier in this chapter, the various
channel alternatives available to a producer.

• Now the main problem before the producer is to decide
which of the alternatives would best satisfy the long term
objectives of the firm taking in view the factors which would
affect the channel decision.

• For this purpose, each alternative must be rated against
economic, control, and adaptive criteria.
1) Economic Criteria
• For evaluating the effectiveness of the channels of
distribution, the economic criteria are the most important
since the firm pursues the profits.

• From the economic point of view, three factors are to be
considered :

1.What would be the sale volume under each of the channel
alternatives? And would a channel be able to push up the
sale of the company? This can be judged by having a
market survey of the sale volume of different channels of
distribution and the sale can be estimated under each
alternative.
CONT:2.The second consideration is to estimate the selling and
distribution costs of each alternative. For this purpose it
would be considered whether the costs of a particular
alternative are reasonable and within the capacity of the
company considering its sale volume and the financial
resources.

3.Then the sales and the costs of different alternatives should
be compared having a comparative view of cost-effect on
the net profit of the firm. Company's own sale force should
also be taken in view and should decide whether it should
hire its own sales force or use the sales agency.
CONT:3.In comparing the estimated net profits available from each
alternative, cost associated with different sales levels
should also be considered. For this purpose, the total costs
should be splitted into fixed costs and variable costs.
Smaller firms having low sales volume or larger firms
marketing in smaller territories would have larger fixed
selling and distribution costs if it decides to install its direct
channel. So, in such circumstances, services of middlemen
should be sought. Contrarily, larger firms or smaller firms,
when their costs for using its own sales force and using
other agency reach at break even point, it would be then
better to have its own sale force.
2) Control Criteria
• In evaluating the channels the second main consideration
is that of the control, i.e., how would the marketer be in a
position to have a control over a particular channel?

• The more would be the control, the better would be the
channel of distribution.

• For this purpose, he is to consider the relationship between
various channels of distribution, their interests and attitude
about company's product and conflicts among them legal
aspect in appointing a particular channel should also be
considered.
3) Adaptive Criteria
• The next consideration in channel decision is to see
whether the channel would be suitable to adapt to the
changing conditions in future.

• Each channel alternative involves some duration of
commitment and loss of flexibility.

• For example, a channel alternative involving a long
commitment must appear to be greatly superior on
economic or control grounds in order to be considered but
it is not valid on the ground of adaptability.
Problems Involved in the Initial Determination
of Marketing Channels
• Several problems are faced by producers for the
determination of marketing channels.

• The main problems are :
1. Adjustment to Buyers Needs and Expectations.
2. Determining the Best Channel Alternatives.
3. Determining Distribution Intensity.
1) Adjustment to Buyer's
Needs and Expectations
• Producers determining the market channels adjust to
buyer's wants and expectations.

• As regards the consumer goods marketing, the final buyers
are ultimate consumers and they buy from those retailers

who best serve their needs.
2) Determining the Best
Channel Alternatives
• From the producer's point of view determining the best
channel alternatives involves :

1. Recognizing what best means.
2. Comparing various alternatives in terms of this meaning.
•
•
•
•

Best means most profitable sales volume and cost.
The producer must have long run estimates of market potential.
He is free to choose single channel or a number of channels.
The ultimate test of a policy must be the effectiveness and
economy of serving the customer.
3) Determining Distribution Intensity
• The distribution methods usually adopted are :
1.Intensive distribution,

2.Selective distribution,
3.Exclusive distribution,

4.Consignment selling, and
5.Franchise selling.
CONT:i) Intensive Distribution:- Under this method, the
management seeks to use as many outlets as possible.
The method, is referred to as maximum expansion. The
method is adopted in the case of convenience goods such
as cigarettes, sweets, etc.
ii) Exclusive Distribution:- This refers to the practice of
selecting and giving a distributor exclusive area of sale
called 'Territory'. The distributor agrees not to handle or
deal in any competing product. It gives some sort of
prestige to the product as having an exclusive dealer. The
exclusive dealer is protected from competitors in the area
allotted.
CONT:iii.Selective
•
•
•
•
•

•
•

Distribution:- Under this policy, a manufacturer

selects the limited number of wholesale or retail distributors and
works closely with them to further the sale of his products.
This requires considerable planning and thorough knowledge of
the market.
Selective distribution can be used on any type of product.
There are certain distinctive advantages of the policy.
The manufacturer can pick the best outlets he wants.
Selective distribution is suitable in the case of shopping goods
which carry a higher unit price and which are not purchased as
frequently as convenience goods.
Goods which require after-sales service are often sold through
selective distribution outlet.
Washing machines, typewriters etc. are generally sold under
this method.
CONT:iv.Consignment
•
•
•
•
•
•
•

Selling:- It is a practice of placing goods in

the hands of middlemen with the title and control remaining in
the hands of the seller.
The distributors are neither wholesalers nor retailers but occupy
only the position of agents.
They usually get a commission on the sales effected together
with charges incurred thereon.
The manufacturer specifies the manner, time and price of sale.
The advantages of the system is that the distributor runs no risk
of buying and being struck with goods.
Further they need not invest any money.
As for the manufacturer, he could retain all his control over his
merchandise even when they lie in the distributor's hands.
This kind of distribution is not very commonly found now-adays.
CONT:v. Franchise Selling:• This method is typically American. A manufacturer
arranges distribution with some individual outlets providing
the required machinery for selling.

• This method is necessary when the owners of outlets lack
capital and knowledge of marketing the products.

• The parent company provides loans, designs for building,
trainings for both the owner and his staff and, helps in
advertising and promoting the business.

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Channels of distribution

  • 1. SALES AND ADVERTISING MANAGEMENT Channels of Distribution Presented by:Abhishek U. Agrawal BBA- 3rd year
  • 2. CHANNELS OF DISTRIBUTION Meaning and Definition of Channels of Distribution •The main problems of a manufacturer can broadly be divided in two parts- 1)Production & 2)Distribution. •Every manufacturer attempts at producing the goods and services of best possible quality at minimum possible cost. •This is only a half-success of a manufacturer. •The success is completed when he makes these goods and services available at time and place.
  • 3. Continue… o It is not enough to produce the goods and service the best quality at a minimum cost, it is equally important, more important that these goods and services must be made avail to the consumers at proper time and place because the ultimate of every manufacturer is to earn maximum profits through maximize sales and this object can be achieved, only if the goods and service rightly distributed to their consumers. o Goods and services may distributed to the consumers through different ways.
  • 4. CONT:• Goods and services may distributed to the consumers through different ways. • The ways through which the goods and services are distributed from manufacturer, consumers are called channels of distribution. • The term 'Channels of Distribution' has been defined by many eminent authors.
  • 5. Definitions Some important definitions are as follows:  :- “A Channel of distribution (sometime a trade channel) for a product is the route taken by the title to the goods as they move from the producer to the ultimate consumer or industrial user.”  Cundiff, Still & Govani :- “Marketing Channels are William J. Stanton distribution networks through which producer's products flow to the market.”  :- “Any sequence of institutions from the producer or consumer including none or any number of middlemen is called channel of Distribution.” Prof. McCarthy
  • 6. CONT: :- “Every producer seeks to link together the marketing intermediaries that best fulfill the firm's objectives. Hence, marketing intermediaries is called the marketing channel (also trade channel or channel of distribution).”  :- “Distribution Channels are the systematic economic institutions through which a producer of goods delivers them into the hands of their users.” Philip Kotler Richard Buskirk
  • 7. CONT:• On the basis of an analytical study of the above definitions, it can be concluded that a channel of distribution is a chain through which a producer transfers the ownership of his goods and services to his consumers. • Channels of distribution are also known as middlemen, agent of distribution and distribution chains. • A channel of distribution is a bridge to cover the gap between a manufacturer and consumers.
  • 8. Characteristics or Elements of Channel of Distribution 1. Route or Pathway : Channel of distribution is a route or pathway through which goods and services flow from the manufacturers to consumers. 2. Flow : The flow of goods and services is smooth and sequential and usually unidirectional. 3. Composition : It is composed of intermediaries, such as wholesalers, retailers, agents, distributors etc, also called middlemen who participate in the flow voluntarily.
  • 9. CONT:4. Functions : The intermediaries perform such functions which facilitate transfer of ownership title and possession of good and services from manufacturers to consumers. 5. Remuneration : The intermediaries are paid in the form of commission for the services rendered by them. The same is compensated by the manufacturer in the form of commission allowed by the manufacturer or added in the price of the goods sold.
  • 10. Function of Channels of Distribution 1. Helpful in Price Determination : Channels of distribution are very helpful in determining the price of products because they are in direct touch with consumers. They can estimate paying capacity of consumer for product. Therefore, the manufacturer must invite the suggestion of middleman while determining the price of his products. 2. To Manage Finance : All the manufacturers have limited financial resources. Middlemen help manufacturers in making adequate financial resources available. They purchase the goods produced by manufacturers and make the payment for that. This way, they help in solving the financial problems of manufacturers.
  • 11. CONT:3. To Make the Process of Distribution Easy : It is not possible for a producer, particularly a producer of consumer goods to be in direct touch with all the consumers. Therefore it is not very practical for a producer to distribute his goods to his consumers directly. Channel of distribution help producers in this regard. They distribute the goods produced by producers at right time and right place to the right consumers. 4. Promotional Activities : Channels of distribution help producers not only in the distribution of goods and services but also in promoting the sales of these producers. Wholesalers advertise for the goods dealt with by them and retailers help in increasing the sales by adopting the measures of sales promotion. Retailers display the goods in their showrooms so that more and more consumers may be attracted.
  • 12. CONT:5. Helpful in Communication: It is the time of Change. Habits, tastes, nature and attitudes of consumers keep on changing frequently. In the light of these changes, it becomes imperative for every producer to make necessary changes in his products. Channels of distribution helps producers in communicating the changes in products to the consumers and in communicating the changes in habits, tastes, likings and preferences of consumers to the manufacturers. Thus, channel of distribution play an important role in communicating the needs of consumers to the manufacturers and policies of manufacturers to the consumers. It increases the sales of manufacturers.
  • 13. CONT:6. Matching of Demand and Supply : The most important function of middlemen is to collect goods and services from many producers so that consumers may select from among a large number of alternatives. In the words of Wroe Alderson , "The goal of marketing is the matching of segments of demand and supply." Thus, the middleman play the game of matching demand and supply of goods and services in a market. 7. Other Functions : Other functions of channels of distribution may be – a) To stabilize the prices; b) To help in forecasting the demand for a product; c) To help in marketing research; d) To help in production activities.
  • 14. Factors Determining the Choice of Distribution Channels • There are a number of factors-both objective and subjective varying from company to company which govern choice or selection of channel of distribution. • But there are some which stand out and influence channel of distribution choice in all cases. • They may be described as under :A. B. C. D. E. Factors Relating to Product Characteristics Factors Relating to Company's Characteristics Factors Relating to Market or Consumer's Characteristics Factors Relating to Middlemen Considerations Factors Relating to Environmental Characteristics
  • 15. A. Factors Relating to Product Characteristics Product manufactured by a company is a governing factor in the selection of the channel of distribution.  Product characteristics are as follows: Industrial/Consumer Products. 2) Perishability. 3) Unit Value. 4) Style Obsolescence. 5) Weight and Technicality. 6) Standardized Products. 7) Purchase Frequency. 8) Newness and Market Acceptance. 9) Seasonality. 10) Product Breadth. 1)
  • 16. Characteristics:1.Industrial/Consumer Product :- When the product being manufactured and sold is industrial in nature, direct channel of distribution is useful because of the relatively small number of customers need for personal attention, salesman technical qualifications and after sale servicing etc. However, in case of a consumer product, indirect channel of distribution, such as wholesalers, retailers is the most suitable. 2.Perishability :- Perishable goods, such as vegetables, milk, butter, bakery products, fruits, sea foods etc. require direct selling as they must reach the consumers as easily as possible after production because of the dangers associated with delays and repeated handling.
  • 17. CONT:3.Unit Value :- When the unit value of a product is high, it is usually economical to choose direct channel of distribution such as company's own sales force than middlemen. On the contrary, if the unit value is low and the amount involved in each transaction is generally small, it is desirable to choose indirect channel of distribution, i.e. through middlemen. 4.Style Obsolescence :- When there is high degree of style obsolescence in products like fashion garments, it is desirable to sell direct to retailers who specialize in fashion goods. 5.Weight and Technicality :- When the products are bulky, large in size and technically complicated, it is useful to choose direct channel of distribution.
  • 18. CONT:6. Standardized Products :- When the products are standardized each unit is similar in shape, size, weight, colour and quality etc. it is useful to choose indirect channel of distribution. On the contrary, if the product is not standardized and is produced on order, it is desirable to have direct channel of distribution. 7. Purchase Frequency :- Products that are frequently purchased need direct channel of distribution so as to reduce the cost and burden of distribution of such products. 8. Newness and Market Acceptance :- For new products with high degree of market acceptance, usually there is need for an aggressive selling effort. Hence indirect channels may be used by appointing wholesalers and retailers as sole agents. This may ensure channel loyalty and aggressive selling by intermediaries.
  • 19. CONT:9. Seasonality :- When the product is subject to seasonal variations, such as woolen textiles in India, it is desirable to appoint sole selling agents who undertake the sale of production by booking orders from retailers and direct mills to dispatch goods as soon as they are ready for sale as per the order. 10. Product breadth :- When the company is manufacturing a large number of product items, it has greater ability to deal directly with customers because the breadth of the product line enhances its ability to clinch the sale. Hence, direct channel is the best choice, such as Delhi Cloth Mills, Bombay Dyeing, mafatlal Group of Cotton Mills, Calico Mills, Bata Shoe Company etc. They have got wide product range and thus sell their products direct through their own multiple shops or authorized retail shops.
  • 20. B. Factors Relating to Company’s Characteristics • The choice of channel of distribution is also influenced by company's own characteristics as to its size, financial position, reputation, past channel experience, current marketing policies and product-mix etc. • In this connection, some of the main factors are as follows: 1) 2) 3) 4) 5) 6) Financial Strength. Marketing Policies. Size of the Company. Past channel Experience. Product-Mix. Reputation.
  • 21. Characteristics:1. Financial Strength :- The financial strength of the company also determines the channel of distribution. A company which is financially sound may engage itself in direct selling. On the contrary, a company which is financially weak has to depend on intermediaries and, therefore, has to select indirect channel of distribution, such as wholesalers, retailers, with strong financial background. 2. Marketing Policies :- The marketing policies formulated by a company play a very important role in influencing channel choice. The policies relevant to channel decision may relate to delivery, advertising, after sale service and pricing etc. For instance, a company which likes to have a policy of speedy delivery of goods to ultimate consumers may prefer direct selling and thus avoid intermediaries and will adopt a speedy transportation system.
  • 22. CONT:3.Size of the Company :- A large-sized company handling a wide range of products would prefer to have a direct channel for selling its products. On the contrary, a smallsized company would prefer indirect selling by appointing wholesalers, retailers etc. 4.Past Channel Experience :- Past channel experience of the company also influences the choice of selection of channel of distribution. For instance, in case of an old and established company its past good experience of working with certain kind of intermediaries will like to opt for the same channel. However, different will be the case of reverse situation.
  • 23. CONT:5.Product-Mix :- The wider is the company's product-mix, the greater will be its strength to deal with its customer directly. Similarly, consistency in the company's product-mix ensure greater homogeneity or uniformity and similarity in its marketing channels. 6.Reputation :- It is said that reputation travels faster than the man. It is true in the case of companies also who wish to select channel of distribution. In case of companies with outstanding reputation like Tata Steel, Bajaj Scooters, Hindustan Levers etc., indirect channel of distribution (wholesalers, retailers etc.) is more desirable and profitable.
  • 24. C. Factors Relating to Market or Consumer's Characteristics  Market or consumer's characteristics refer to buying habits, location of market, size of orders etc.  They influence the channel choice significantly.  They may be summarized as under: 1) Consumers' Buying Habits. 2) Location of the Market. 3) Number of Customer. 4) Size of Order
  • 25. Characteristics:1.Consumers' Buying Habits :- Consumers' buying habits also Influence the channel decision. If the consumer expects credit facilities or desires personal services of the salesman or desires to make all purchases at one place, the channel distribution may be short or long depending on the capacity of the company for providing these facilities. If the manufacturer can afford these facilities, the channel will be shorter otherwise longer. 2.Location of the Market :- When the customers are spread over a wide geographical area, the long channel of distribution is most suitable. On the contrary, if the customer are concentrated and localized, direct selling would be beneficial.
  • 26. CONT:3.Number of Customer :- The number of customers also influence the channel decision. For instance, if the number of customers is quite large, the channel of distribution may be indirect and long, such as wholesalers, retailers etc. On the contrary, if the number of customers is small or limited, direct selling may be beneficial. 4.Size of Orders :- Size of orders of the customers influences the channel decision significantly. Where customers purchase the product in large quantities, direct selling may be preferred. On the contrary, where customers purchase the product in small quantities, frequently and regularly, such as cigarettes, matches etc., long channel (wholesalers, retailers etc.) of distribution may be preferred.
  • 27. D. Factors Relating to Middlemen Considerations • The choice of the channel of distribution is also influenced by the middlemen consideration. • They may include the following: 1) Sales Volume Potential. 2) Availability of Middlemen. 3) Middlemen's Attitude. 4) Services Provided by Middlemen. 5) Cost of Channel.
  • 28. Characteristics:1. Sales Volume Potential :- In selecting channel of distribution, the company should consider the capability of the middlemen to ensure a targetted sales volume. The sales volume potential of the channel may be estimated through market surveys. However, it should be kept in mind that no single channel is capable for achieving the targetted sales potential. Two or more channels may be required for this purpose. 2. Availability of Middlemen :- Availability of the right type of middlemen is also an important consideration in making channel choice decision. In this connection, the company should make efforts to select aggressive oriented middlemen. In case if they are not available, it is desirable to wait for some time and then to pick up. In such cases, the company should manage its own channel so long the right type of middlemen are not available.
  • 29. CONT:3.Middlemen's Attitude :- The attitude of the middlemen towards the policies of the company also influences the channel decision. For example, if the company follows the resale price maintenance policy, the choice is limited. On the contrary, if the company allows the middlemen to adopt their own price policy, the choice is quite wide. Quite a large number of middlemen would be interested in selling company's products. 4.Services Provided by Middlemen :- If the nature of product requires after-sales services, repair services etc., such as automobiles, cars, scooters etc., only those middlemen should be appointed who can provide such services, otherwise the company will adopt direct selling channel.
  • 30. CONT:5.Cost of Channel :- Another factor considered is the cost involved in the distribution. Direct selling generally is costlier and thus distribution arranged through middlemen is more economical. In this connection, it must be kept in mind that the channel which ensures efficient distribution at the least expenses and which secures the desired volume of sales should be chosen.
  • 31. E. Factors Relating to Environmental Characteristics  The environmental factors include competitor's channels, economic conditions, legal restrictions, fiscal structure etc, as given below, affect significantly the channel choice. 1) Economic Condition. 2) Legal Restrictions. 3) Competitors Channel 4) Fiscal Structure.
  • 32. Characteristics:1. Economic condition :- when economic conditions are bright such as inflation, it is desirable to opt indirect channel of distribution because there is an all-round mood of expectancy, market tendencies are bullish and favourable. On the contrary, if the market is depressed (such as deflation), shorter channels may be preferred. 2. Legal Restrictions :- The legislative and other restrictions imposed by the state are extremely formidable and give final shape the channel choice. For instance, in India, M.R.T.P. Act, 1969 prevents channel arrangements that tend to substantially lessen competition, create monopoly and are otherwise prejudicial to public interest. With these objectives at the backdrop, it prevents exclusive distributorship, territorial restrictions, resale price maintenance etc.
  • 33. CONT:3.Competitors' Channel :- This also influences the channel choice decision. Mostly, in practice, similar types of channels of distribution used by the competitors are preferred. 4.Fiscal Structure :- Fiscal structure of a country also influences the channel choice decision. For instance, in India, State Sales Tax rates vary from State to State and form a significant part of the ultimate price payable by a consumer. As a result, it becomes an important factor in evolving channel arrangements. Differences in the sales tax rates in two different states would not only bring about difference in the price payable by a consumer but also in the distribution channel selected.
  • 34. CONT:• Hence the company should appoint the channel in that State where the sales tax rates are quite low, such as in Delhi, and that would give price advantage to the buyers of those States where the sales tax rates are high. • For instance, most of the large size companies have either opened their branches or appointed dealers in Delhi. • That is why, a large number of customers from neighboring States like Rajasthan, U.P., Haryana etc. make their purchases from Delhi in view of the high sales tax rates in their respective States. • For example sales tax on plastic goods in Delhi is only 2% as against 12% in U.P. • Thus, the manufacturer or the producer should take into consideration the above factors in the channel decision.
  • 35. Types of Channels of Distribution  The flow of goods from the producer to the ultimate consumer may take place through different types of channels of distribution.  In this connection, different experts have discussed different types of channels of distribution.  According to R.S. Davar , there are three main types of channels of distribution, as given below : 1. Producer -> Ultimate Consumer 2. Producer -> Retailer -> Ultimate Consumer 3. Producer -> Wholesaler -> Retailer -> Ultimate Consumer
  • 36. CONT: According to Philip Kotler , the four main type of channels of distribution are as follows: 1. Producer ->Ultimate Consumer 2. Producer -> Retailer -> Ultimate Consumer 3. Producer -> Wholesaler -> Retailer ->Ultimate Consumer. 4. Producer -> Wholesaler -> Jobber -> Retailer -> Ultimate Consumer.
  • 37. CONT: William J. Stanton has suggested the following five types of channels of distribution for consumer goods : 1. Producer ->Ultimate Consumer 2. Producer -> Retailer -> Ultimate Consumer 3. Producer -> Wholesaler -> Retailer -> Ultimate Consumer 4. Producer -> Agent -> Retailer -> Ultimate Consumer 5. Producer -> Agent -> Wholesaler -> Retailer -> Ultimate Consumer  From the above, it is clear that opinions differ as to types of channels of distribution. However, the most popular and common channels of distribution used for bringing the products in the market from the producer to the ultimate consumer are as follows:
  • 38. 1) Producer —> Ultimate Consumer 1. This is the oldest, simplest and shortest type of channel of distribution. 2. Under this method, the producer or the manufacturer directly sells goods to the ultimate consumer without any middlemen. 3. There are 3 alternatives in making direct sales to ultimate consumer  Sale through advertising and direct methods, such as mail order selling,  Sale through traveling sales force, such as house to house canvassing,  Sale through retail or multiple shops of producer or manufacturer, such as Delhi Cloth Mill shops, Bata Shoe shops, Bombay Dyeing shops etc.
  • 39. CONT:This method is suitable in the following situations : 1.When there are few potential buyers such as industrial buyers. 2.When market for the product is concentrated in a particular geographical area only. 3.When goods produced are in small quantity. 4.When the product requires demonstration, tests, lengthy negotiations before sale and there is need to provide after sale service, such as machinery, automobiles etc.
  • 40. CONT:5.When the channel costs are higher than that of direct selling system. 6.When the middlemen are not prepared to undertake the sale of a new market and introduce the new product in the market. 7.When the producer or the manufacturer decides to eliminate middlemen. 8.When the product is of perishable nature, such as vegetables, eggs, etc.
  • 41. 2) Producer -> Retailer ->Ultimate Consumers • This is also a simple, easy, old and most popular type of channel of distribution. • Under this method, producers sell their goods to retailers and retailers sell them in turn to ultimate consumers. • Here the producer allows the retailer to have direct access to him. • The wholesalers or agents are totally eliminated. • This channel option is preferable when buyers are large retailers, such as departmental stores, chain stores, super bazaars, discount houses, big mail order houses or cooperative stores.
  • 42. CONT:• It is also suitable when the products are of perishable nature, such as vegetables, fruits, eggs, and thus speed in distribution is essential. • Home appliances, ready-made garments, automobiles, shoes etc. are directly sold by the manufacturers to the retailers. • This type of channel of distribution maybe suitable in the following situations : 1.When the product is perishable either physically or due to changes in fashion and thus requiring speedy distribution. 2.When the wholesalers are unwilling to promotional efforts needed by the producer. undertake
  • 43. CONT:3.When the retailers are financially sound to finance the producer towards the supplies made to them. 4.When the retailers are large enough to carry on the distribution work independently and efficiently. 5.When the producers may desire to have closer contacts so as to understand buyers' preferences and for product planning. 6.When the demand for the product is constant.
  • 44. 3) Producer -> Wholesaler -> Retailer -> Ultimate Consumer • It is a normal, regular, traditional and also popular channel of distribution. • Under this method, the producer sells goods in large quantities to wholesalers. • The wholesaler distributes the goods to retailers as per their requirements in small quantities. • The retailer finally sells the same to the ultimate consumers. • In this way the distribution channel is quite long. • This channel of distribution is desirable for groceries, drugs and other types of medicines, hardware, food-items etc.
  • 45. CONT:This type of channel of distribution is suitable in the following situations : 1.When the producer has a narrow product range. 2.When the wholesalers are specialized and can provide strong promotional support. 3.When the products are durable and are not subject to physical deterioration or quick fashion changes. 4.When the retail outlets are more and widely spread. 5.The financial resources of producers are limited.
  • 46. 4) Producer –> Agent ->Wholesaler -> Retailer -> Ultimate Consumer • This is the longest channel of distribution. • In this channel the producer uses the services of an agent who has greater outlets and contacts. • The agent in turn may distribute the goods to wholesalers, who in turn sell to retailers. • The retailer sells the goods to the ultimate consumers. • The agents have a wide distribution system on national level.
  • 47. CONT:• The agent acts as a sole selling agent of the producer, such as Voltas. • In this case the producer is not required to undertake marketing task as the entire supply is purchased by the agent. • This type of channel of distribution is suitable for marketing agricultural and large scale manufactured products, such as cotton textiles, cement etc.
  • 48. 5) Producer -> Wholesaler -> Ultimate Consumer • In this type of channel of distribution, producer sells the goods to wholesalers and the wholesalers sell them directly to ultimate consumers. • The wholesaler may bypass retailer only when there are large institutional buyers, such as industrial buyers, government and educational institutions, hospitals, consumer cooperative stores and large business houses etc.
  • 49. Common Channels of Distribution of Industrial Goods • As the industrial goods have quite different nature and more or less fixed patterns, the channels used by them are less complicated. • Major channels of distribution, which are commonly used in the distribution of industrial goods, are as follows: 1. Producer -> Industrial User 2. Producer -> Wholesaler -> Industrial Users 3. Producer -> Agent -> Industrial Users 4. Producer -> Agent -> Industrial Distributor -» Industrial User
  • 50. 1) Producer -> Industrial User • This is the most popular and commonly used channel in the distribution of industrial goods. • This system is most suitable if the goods are sold to few industries and the number of such industries is quite small. • This will help in maintaining close contact with customers and prospective buyers and create opportunities for more sales. • This system is in a position to supply highly specialized technical service along with after-sales service to their customers.
  • 51. 2) Producer -> Wholesaler -> Industrial Users • In this case, the producers sells goods to wholesalers who sell them to industrial users. • This channel of distribution is beneficial when the market is scattered and the volume of sales in each area is quite thin. • This system is useful for small-scale manufacturers of equipment for air conditioning plants, building construction, small-sized tools and other standard pieces of equipment etc.
  • 52. 3) Producer -> Agent -> Industrial Users • In this case, the producer uses the services of agents for selling goods to industrial users. • The agent may be a broker or commission agent or sales agent. • The producer has to rely only on one agent in each geographical area and is to be prepared to hand over the marketing function to one agent in a particular area. • In this case, the cost of distribution is quite low. • This system is more suitable for small-sized industrial enterprises or for introducing a new product in the market.
  • 53. 4) Producer -> Agent -> Industrial Distributor -> Industrial User • This is the longest and popular channel of distribution which is mostly adopted by enterprises for selling their goods. large-sized industrial • In this case, the producer uses the services of the agent though the goods are sold to industrial distributors, who in turn, sell them to industrial users. • The agent may be a broker, commission agent, sales agent or producer's agent. • This channel of distribution is suitable for selling new products or to enter new markets.
  • 54. Evaluating the Effectiveness of Channels Distribution • We have discussed earlier in this chapter, the various channel alternatives available to a producer. • Now the main problem before the producer is to decide which of the alternatives would best satisfy the long term objectives of the firm taking in view the factors which would affect the channel decision. • For this purpose, each alternative must be rated against economic, control, and adaptive criteria.
  • 55. 1) Economic Criteria • For evaluating the effectiveness of the channels of distribution, the economic criteria are the most important since the firm pursues the profits. • From the economic point of view, three factors are to be considered : 1.What would be the sale volume under each of the channel alternatives? And would a channel be able to push up the sale of the company? This can be judged by having a market survey of the sale volume of different channels of distribution and the sale can be estimated under each alternative.
  • 56. CONT:2.The second consideration is to estimate the selling and distribution costs of each alternative. For this purpose it would be considered whether the costs of a particular alternative are reasonable and within the capacity of the company considering its sale volume and the financial resources. 3.Then the sales and the costs of different alternatives should be compared having a comparative view of cost-effect on the net profit of the firm. Company's own sale force should also be taken in view and should decide whether it should hire its own sales force or use the sales agency.
  • 57. CONT:3.In comparing the estimated net profits available from each alternative, cost associated with different sales levels should also be considered. For this purpose, the total costs should be splitted into fixed costs and variable costs. Smaller firms having low sales volume or larger firms marketing in smaller territories would have larger fixed selling and distribution costs if it decides to install its direct channel. So, in such circumstances, services of middlemen should be sought. Contrarily, larger firms or smaller firms, when their costs for using its own sales force and using other agency reach at break even point, it would be then better to have its own sale force.
  • 58. 2) Control Criteria • In evaluating the channels the second main consideration is that of the control, i.e., how would the marketer be in a position to have a control over a particular channel? • The more would be the control, the better would be the channel of distribution. • For this purpose, he is to consider the relationship between various channels of distribution, their interests and attitude about company's product and conflicts among them legal aspect in appointing a particular channel should also be considered.
  • 59. 3) Adaptive Criteria • The next consideration in channel decision is to see whether the channel would be suitable to adapt to the changing conditions in future. • Each channel alternative involves some duration of commitment and loss of flexibility. • For example, a channel alternative involving a long commitment must appear to be greatly superior on economic or control grounds in order to be considered but it is not valid on the ground of adaptability.
  • 60. Problems Involved in the Initial Determination of Marketing Channels • Several problems are faced by producers for the determination of marketing channels. • The main problems are : 1. Adjustment to Buyers Needs and Expectations. 2. Determining the Best Channel Alternatives. 3. Determining Distribution Intensity.
  • 61. 1) Adjustment to Buyer's Needs and Expectations • Producers determining the market channels adjust to buyer's wants and expectations. • As regards the consumer goods marketing, the final buyers are ultimate consumers and they buy from those retailers who best serve their needs.
  • 62. 2) Determining the Best Channel Alternatives • From the producer's point of view determining the best channel alternatives involves : 1. Recognizing what best means. 2. Comparing various alternatives in terms of this meaning. • • • • Best means most profitable sales volume and cost. The producer must have long run estimates of market potential. He is free to choose single channel or a number of channels. The ultimate test of a policy must be the effectiveness and economy of serving the customer.
  • 63. 3) Determining Distribution Intensity • The distribution methods usually adopted are : 1.Intensive distribution, 2.Selective distribution, 3.Exclusive distribution, 4.Consignment selling, and 5.Franchise selling.
  • 64. CONT:i) Intensive Distribution:- Under this method, the management seeks to use as many outlets as possible. The method, is referred to as maximum expansion. The method is adopted in the case of convenience goods such as cigarettes, sweets, etc. ii) Exclusive Distribution:- This refers to the practice of selecting and giving a distributor exclusive area of sale called 'Territory'. The distributor agrees not to handle or deal in any competing product. It gives some sort of prestige to the product as having an exclusive dealer. The exclusive dealer is protected from competitors in the area allotted.
  • 65. CONT:iii.Selective • • • • • • • Distribution:- Under this policy, a manufacturer selects the limited number of wholesale or retail distributors and works closely with them to further the sale of his products. This requires considerable planning and thorough knowledge of the market. Selective distribution can be used on any type of product. There are certain distinctive advantages of the policy. The manufacturer can pick the best outlets he wants. Selective distribution is suitable in the case of shopping goods which carry a higher unit price and which are not purchased as frequently as convenience goods. Goods which require after-sales service are often sold through selective distribution outlet. Washing machines, typewriters etc. are generally sold under this method.
  • 66. CONT:iv.Consignment • • • • • • • Selling:- It is a practice of placing goods in the hands of middlemen with the title and control remaining in the hands of the seller. The distributors are neither wholesalers nor retailers but occupy only the position of agents. They usually get a commission on the sales effected together with charges incurred thereon. The manufacturer specifies the manner, time and price of sale. The advantages of the system is that the distributor runs no risk of buying and being struck with goods. Further they need not invest any money. As for the manufacturer, he could retain all his control over his merchandise even when they lie in the distributor's hands. This kind of distribution is not very commonly found now-adays.
  • 67. CONT:v. Franchise Selling:• This method is typically American. A manufacturer arranges distribution with some individual outlets providing the required machinery for selling. • This method is necessary when the owners of outlets lack capital and knowledge of marketing the products. • The parent company provides loans, designs for building, trainings for both the owner and his staff and, helps in advertising and promoting the business.