Describes the meaning and need of distribution channel is selling process.

1. Distribution Management

2. Distribution management
• Involves Place aspect of marketing mix
• Management of all activities which facilitate
efficient movement of finished goods
from end of production line to
consumer
• Involves co-ordination of supply vis a vis
demand by creation of utilities ( see next
slide no 2 )

3. Distribution Channel /Marketing/ Trade channel
utilities ( students ,please note the alternate
names used )
• Takes care of the following ‘discrepancies’ or provides
following utilities
– Place or Spatial -from factory to near home
– Time or Temporal - after factory hours ,seasonal product
Also speed
– Form or Breaking bulk -relevant pack sizes at retail level
– Assortment - items needed together are available
together eg……. or right assortment required in an area
eg ………..
– Possession utility -Transfer of title or ownership

4. Distribution Channel Alternatives – Broad
Types
Company has broadly two types of channel alternatives it can
use to reach its products/services to customers
1. Direct distribution channel means manufacturer directly
distributes product / service without use of intermediaries to
reach out to its customers ie B2C or B2B.
Also called zero level channel
1. Indirect distribution channel, means using various
intermediaries who are links between manufacturer and
customers

5. Channel Levels
• Zero level – if the product or service is
provided to the end user directly by the
company.
• One level – consists of one intermediary
• Two level – consists of two intermediaries
and is the most common for FMCG products
• Three level –consists of three
intermediaries ( see slide 7)

6. Channel Levels
Manufacturer Manufacturer
Manufacturer
User
Dealer / Retailer
User
Distributor /Dealer/Retailer
User
Distributor
Zero level Two level
One level

7. Channel levels ( contd )
• Zero level channel- eg Street vendors peddling, factory outlets ,
company owned store , tv shopping network , selling through
company website/Internet selling ,exhibition stalls, Company own
sales team for serving B2B segment for internal consumption (
tea served in canteens ,unlike star bazaar which is one level
channel ) or B2C ( Eureka forbes )
• One level channel –shopping goods of big size eg furniture , cars
etc
• Two level channel – eg FMCG
• Three level channel or more – eg Manufacturer to CFA to
Distributor/stockist to wholesaler / substockist to retailer to
consumer
• Where does three level channel or more get used ?????? Egs
rural areas ,leather ,diamonds etc etc……

8. Outsourcing Distribution -Why are
intermediaries used ( why not Direct channel
/zero channel )
1.Not feasible / practical eg FMCG . Intermediaries have far better
reach than the company
2.Lack of financial resources for direct selling
3.Reduces the number of touchpoints ( see next slide -9)
4.Specialisation/expertise benefits- provide local experience and
contact, experience while company can concentrate on its core
competence ie manufacturing ,branding
5.Channel members create utilities and perform number of
functions ( see later slides )
6. Flexibility - outsourced easy to modify vs own salesforce in
direct channel / own set up
7.The cost of operations of an intermediary like a distributor/
wholesaler / retailer is shared with many businesses.
• Hence, indirect channels more effective, efficient and less costly
than direct channels

9. Marketing /distribution/trade Channels
M
M
M
C
C
C
M C
M
M
C
C
D
No of contacts = 9 No. of contacts = 6

10. MARKETING /DISTRIBUTION /TRADE CHANNELS
MARKETERS SERVE THREE BROAD NEEDS
1. SALES CHANNEL (Talking about /promoting /advising about product
or visibility /merchandising and negotiating fair bargains with /
ensuring fair prices to consumers
2. DELIVERY CHANNEL ensures physical possession and/or title changes
hands through
A) Distribution channel selected - level eg. zero level etc. and type eg.
online, company salesforce etc.
B) Facilitation companies eg. warehousing , transporters , insurance ,
banking, courier etc.)
3. SERVICE CHANNEL (Installation, after sales service returns)
THE THREE CHANNELS NEED NOT BE SAME.

11. Are intermediaries always necessary? –No
• WHY??????? HOW ??????
• Factors supporting direct distribution channel ( Zero channel )-
(see next slide12 )

12. Factors supporting direct distribution channel
( Zero channel )
1)Buyer characteristics -Ltd number of buyers ,geographically
concentrated buyers , customer demands attention ,complex , (B2B ) ,
2)Product characteristics- Perishable , bulky, technically complex
products
3)Company factors - Some companies may choose no
intermediaries as strategy bcos differentiation eg Eureka forbes;
concept selling; need for control eg Café coffee day
3)Other factors
a)Internet has made it easy to directly deal with customers,
b)cost of direct lower
c)small quantities produced /small company
d)no channel support forthcoming ,eg Nirma Karsan bhai
e)Personalized local service

13. Indirect Distribution channel
• Goods may move through a set of intermediaries in between the
manufacturer and the consumer
• Thus, Can be one , two, three or more levels
• Used by B2C and also by B2B for MRO resupplies
• Intermediaries can be of different types - include CFA, stockists
,distributors, wholesalers , retailers , dealers , agents , brokers
,franchisee ( see later slides for explanation)

14. Patterns/Intensity of Distribution
• Intensity decides the service coverage
level provided
• Types of distribution intensity strategy:
– Intensive distribution strategy
– Selective distribution strategy
– Exclusive distribution strategy

15. Distribution Intensity
• Intensive: distribution and availability in each and
every reasonable/possible outlet available eg
FMCG
(India has 12-13 million outlets of which 9 million are
fmcg /Kirana )
• Selective: multiple, but not all outlets and areas in
the market – eg
• Exclusive: may be only one outlet in a market/area

16. Intensive Distribution
• Strategy is to make sure that the product is available in as many
outlets as possible
• Gives wide spread availability, coverage , volumes
• Absolute necessity in convenience and low value impulse
products
• But some disadvantages -channel control not easy, large
number of channel partners required , geographical accessibility
may be difficult and getting good partners may not be easy
• May not be needed in some products eg diet coke ,veeba
• May not be chosen when new in business

17. Selective Distribution
• A few select outlets or selective areas will be
permitted to keep the products
• Outlets selected in line with the image the company
wants to project eg Arrow shirts for selective target
segment .
• Preferred for high value products or products
required by few / specialized segment eg Hearing
aids , Also international foods , health foods , diet coke
• Helps keep distribution costs lower

18. Exclusive Distribution
• Highly selective choice of outlets – may be even one outlet in an
entire market
• Helps to create prestigious and premium brand image
• Chosen strategy due to exclusivity of product eg photographic
equipment undersea or exclusivity of brand eg Charag Din ,
Devotie ,designer labels eg Masaba
• Could include outlets set up by companies themselves eg flagship
store (Asian paints colour world ) or through exclusive dealers
• Company wants a close watch and control on the distribution of
his products.
• Exclusive distribution goes hand in hand with expectation by
company that the dealer will exclusively keep only this company
product ( and not multi brand )

19. Channel Intensity
Intensity Features Characteristics
Intensive Ensures widespread
coverage, volumes and
availability
Provides convenience to a very
large number of consumers. large
number of channel partners –
channel control not easy
Selective Good image, moderate
market coverage, limited
channel control.
Limited number of brand
conscious users. Moderate
number of channel members.
Exclusive Premium and prestigious
image for the product.
Stable prices, high
margins.
Good channel control and
loyalty. Companies focus on
major or key accounts. Limited
number of channel partners
and sales potential.

20. Channel member functions
• Short channels vs long channels depends on various factors
(see slide 12 ie factors supporting zero channel)
• Each Channel level member exists becos certain functions have
to be performed
• There is no debate on whether various channel functions need
to be performed or not but rather who is to perform which of
these functions .
• The channel function is ideally to be handled by the most
competent type of channel member eg agency vs own set up
etc who can deliver best service at the lowest cost.

21. Channel member functions
1.Adds utilities-Time , place , form , assortment ,possession
2.Disseminates information lower down the channel and
finally to customer
3.Retailer influences/recommends to customer eg rural,
consumer durables
4. Manages brand image and sales through
visibility/merchandising eg shelf facings , window displays ,
POS/POP
5.Helps impulse buy through placement eg chocolates
6.Provides information to company - consumers reactions of
products and promotions , competitors activities
7.Participates in BTL activities eg free trials
8.Logistics and physical distribution – eg assembly, storage,
sorting, transportation of goods from manufacturers to customers

22. Channel member functions (contd)
8. Negotiates with suppliers on products and promotions
9. Places orders to prevent stockouts
10. Inventory management eg rotation of stock based on shelf life
11.Shares promotion costs eg teashops
12. Ensuring quality of goods eg refrigeration in shelf life, proper
storage and upkeep
13.Financing and risk sharing with company through title
14.Provides financial support -through credit to market
15. Value added service eg software installation, bicycle
16.After sales support eg maintenance service support (cars -
10000kms or 3 months ) , training customer and customer employees to
operate and maintain
17. Handles complaints and returns of damaged and expired
goods

23. Primary vs secondary vs tertiary sales
• Primary sales ( from Mfrs thru CFA to
distributors ,dealers )
• Secondary sales ( from distributors to
retailers
• Tertiary sales – from retailers to final
consumers

24. Listing of Indirect Channel Members
• C&FAs and CSAs (consignment selling agent)
• Distributors
• Stockists/substockists
• Commission agents, brokers and jobbers
• Wholesalers
• Retailers /Dealers and subdealers
• Value added resellers
• Franchisees
• Electronic channels

25. C&FAs / C&SAs
• C&FA: Carrying and forwarding agent
• C&SA: Carrying and selling agent
• Both are on contract with a company
• Collect products from the company, store in a central location(
depots, distribution centres) , break bulk and despatch to
distributors against indents
• C&SA also sells the goods on behalf of the company but remits
proceeds after sale,
• Both do not take title. Goods belong to the company
• Both get commission

26. Distributors, Stockists, Substockists , Agents ,
brokers , jobbers
• Distributors buy products from the company on margins or mark-
up, take title , work in the markets as per beat plan and sell
stocks to wholesalers , retailers, dealers .
• Distributors may or may not get credit from company but extend
credit
• Distributors could be exclusive for a company to prevent clash of
interest eg FMCG or nonexclusive eg computers
• Stockists just invest in the products, stock products but expect
company to sell to customers eg pharma .
• Agents/brokers , do not take title but are only helping distribution
with their contacts in the mktplace by bringing buyer and seller
together eg housing .
• Jobbers also do not take title but do some job and add value eg
gems polishing,grading , cloth dyeing

27. Wholesalers
• Operate out of the main markets
• Are not on contract with any company, just like
retailers
• Operate on high volumes and low margins
• Deal with a number of company products of their
choice
• Sell to other smaller wholesalers, retailers who visit
them
• Negotiate about 15 days credit from company distributors –
also provide credit to their customers

28. Retailers /Dealers /Sub dealers
• Are the final contact with consumers
• Located closest to consumers for convenience
• Called as Retailers in FMCG while as Dealers /
Subdealers in Consumer durables . They buy from
company , dealers etc
• Operate out of their shops and sell a large assortment
and variety of goods / services
• Provide personalised services to their customers.
May extend credit to 25% customers , home delivery
• Earn highest margins in the network depending on
type of product eg soaps, perfumes vs consumer
durable

29. Retailers /Dealers /Sub dealers ( contd )
• Retailers/dealers buy/take title from company or
distributors or wholesalers
• Covered by company or distributors through
beat plan .If not serviced by company ,then the
retailer will go and buy from wholesalers
• Negotiate with companies and distributors on credit,
promotions ,renting display space etc
• Retailer power increasing due to retailer
associations ie vyapari mandals a problem for new
companies, new products , play one competitor
against another eg pepsi vs coke

30. Value added resellers
• Value added resellers purchase
incomplete product /kit and add value
by assembling it and selling to customer
according to his specifications eg
personal computer,bicycle

31. Franchise and Electronic channels
• Franchise- licensed agreement between the
franchisor and franchisee to use the
franchisor brand name ,operating system and
ongoing support
• Electronic channels – use of tv, telephone,
computers and internet , interactive
multimedia eg financial , information , media
services ( movies on dd, news, music,library
and databases, education, interactive
gaming, remote health services , desktop
videoconferencing, Exercise )

32. Online Retailing
Companies are increasing looking at this option due to changing consumer
behavior, data analytics ,and helps companies reduce costs eg ticketing ,
banking
• Accessibility of consumers to computers important
• 81% visited internet sites but only 55% bought on net
• Predominantly used in some categories ,
• Younger people use it more
• Allows Unlimited assortment,
• Shopping 24X7,
• Time saved ,
• Comparison shopping possible .
• More information makes the customer a better shopper
• After sales service eg tracking order status , returns
• Benefits to consumers in terms of reduced pricing and promotions and also
reviews

33. Concerns of electronic /online retailing
• Security concerns- Security , pricing and delivery are cited as three
major concerns for online shoppers in India
• Product returns not easy sometimes for consumer and company eg
furniture
• Stockouts. Items may not be on hold
• Delivery delays
• Wrong product delivery / damaged
• Customers unsure if price is good bargain
• Consumers resent paying for shipping or handling
• No product touch or feel
• No joy /experience of atmospherics

34. Distribution in Rural Markets
• Low penetration but high potential
• Characteristics of rural markets – different lifestyles, inadequate
infrastructure and access ,but aspirations match urban consumers
• Rural consumer understands colours and symbols better
than brands, also more brand loyal.
• Three level channels or more used by FMCGS , Weekly haats
(shandies) and feeder markets provide indirect access, Video
on wheels . For consumer durables , town level distribution
fine
• Rural outlets are small and about two to four in a small village.
Retailer prefers to stock only one or few brands in a
category as cannot invest in more brands. Stocking
influenced by access to the brand.
• But geographical access may be difficult and normal beat
distribution coverage expensive . So other methods used eg
substockists ,HUL Shakti Amma

35. Distribution in Rural Markets (contd)
Some of the initiatives
a) Partnering with self help groups/NGOs in Rural india
b) Internet based rural kiosks /hubs
c) Direct selling
d) Distributor model
• Well known initiatives on distribution:
– HUL Project Shakti
– ITC e-Choupal

36. The Services Sector
• Needs specialized channels which
understand the characteristics of service
delivery

37. Characteristics of Services
1. They are intangible – No visual features like size, style . hence
communication ,pricing and patenting difficult
2. They are sometimes inseparable from their service providers –
hence impossible to delegate and a third party cannot deliver
3. They cannot be standardized – heterogeneity becos of
uncontrollable factors, employees and customers
4. Customers are sometimes involved and present to a great
degree – define the service atmospherics
5. They are perishable – cannot be stored for delivery later.
Salvage value of an unsold service is zero. Hence strategies
to sell quickly eg load factor,happy hour
6. Customization required

38. Distribution channel for
services
• Unlike products, services cant be stored
• But, does not mean all services use direct/zero
channels. Even services may use intermediaries to
reach to the final customer eg franchise
• With advent of internet , online mktplaces, aggregator
business model and on-demand business model,
scaling of operations and greater satisfaction
through direct and quick access to customers
feedback and research ( data analytics ) , possible

39. Channels Used for services
• Shorter channels for services than for
products , especially when it is localized or
inseparable eg doctors ,lawyers , dentists ,
accountants
• Some channels used are:
– Direct from service provider to user
– Agents or brokers who primarily bring buyer and
seller together eg travel, airlines, stocks
– Franchisees or contractors eg Café coffee day
,education,
– Electronic channels

40. Alternative indirect distribution channels available for
consumer goods ( already explained earlier)
Producer Producer
Producer
Customer /
consumer
Dealer
Distributor
Distributor
Retailer
Customer/
Consumer
Wholesaler
Customer/
Consumer
Retailer

41. Some Alternative indirect distribution channels available for
Industrial goods
Producer Producer
Industrial Distributor
Industrial Customer
Industrial Distributor
Industrial Customer
Agent/middleman
Note that these are not the only alternatives .Agents eg for rural areas motor pumps
, hardware supplies

42. Distribution channel for consumer durables
In consumer durables ,producer also needs service backup which could be run by company
through its distributors or dealers or through franchisees

43. Distribution channel for Pharma
In pharmaceutical products ,apart from exclusive distributors ,company also
use stockists in small towns .Also both wholesalers and retail chemists may
be serviced by distributors and stockists . Also producer to doctors channel
(for mktg their product )

44. Distribution channel for paper and textiles
Guarantors for payments eg Surat textiles producers selling sarees to
distributors in south India
Also company may use direct channel eg Vimal

45. Distribution channel for chemicals and
fertilisers

46. Distribution channel for automotive and
engineering
In automotive and engineering industry , channel for original equipment (cars ,
two wheelers ) will be producer to dealers to customers .For OEM , direct from
company sales people to customers (car tyres ).Servicing will be through company
dealers ,or authorised service centre ( outsourced )eg in towns where no dealers

47. Distribution channel for service
Eg NMIMS for MBA education vs distance learning program

48. Distribution channel for cellular services
Company sales team for B2B and channel partners for
B2C, ( not shown here) , both in case of hardware as
well as services( post paid , prepaid)

49. Distribution channel for IT hardware
In IT hardware ,company will have own sales team for High value customers and
channel partners for smaller customers ( dealers may also be value added resellers )
Value added resellers /system integrators put software packages as part of
sales deal
Also a service channel which could be own or outsourced

50. Distribution channel for IT software services
and management consulting

51. Unique Distribution Examples

52. ITC e-Choupal
• Purpose of E choupal is to inform,empower and compete
• Uses the power of the internet to ‘work’ with farmers
• Links directly with farmers to facilitate procurement of agricultural
produce – wheat, soyabeans and coffee
• Helps farmers with latest and accurate information about climate,
rainfall and market prices of agri-produce.
• Farmers also learn about good farming practices

53. E-Choupal Working
• Kiosks set up in villages with computers and internet connectivity
(phone-lines or VSAT)
• Kiosk run by a trained farmer known as a ‘sanchalak’
• Kiosk serves about 600 farmers from 10 villages within a radius of 5
kms.
• Collection of agri-produce by ITC in warehouse hub
• Presently covers 6500 kiosks in 40,000 villages of 10 states servicing 4
million farmers .Was expected to be scaled upto 20000 kiosks in
100,000 villages in 15 states ,covering 15 million farmers by 2012
• Also choupal Saagars (rural malls ) near E choupals act as shopping
centres and facilitation centres ( soil testing , product quality
certification ,training etc )

54. HUL Project Shakti
• Meant for empowering rural women
– Creates income generating capabilities in under-
privileged rural women
– Provides a small scale enterprise opportunity
– Helps improve rural living standards with greater
awareness of health and hygiene
• Members of women self-help groups (SHGs) become
Shakti entrepreneurs
– Direct to home distributors of HUL products
– Offers high returns and low risks
– Supports popular rural brands of the company

55. Shakti Working…
• Woman entrepreneur buys goods from the company
• Covers households in nearby villages and canvasses sales of the company
products and their benefits to rural women consumers
• Typical distributor sells about Rs 10K to Rs 15K per month and earns
about Rs 1000
• the Shakti initiative was started in 50 villages in AP . By 2009,covered
80,000 villages through 26,000 distributors
• Also Shakti vani ,social awareness program ,was created to build social
awareness on topical issues eg drinking ,girl child ,education for girls ,
hygiene. Operational in MP ,AP ,Karnataka and Chattisgarh
• Also I-Shakti program , where desktops have been set in houses of Shakti
distributors .Software developed by Unilever -TCS, gives access to
content on education , employment ,agriculture , health and entertainment

56. Vending Machines
• A cash or card operated retailing format
that dispenses products or services
• Used normally for low value and frequently
purchased items
• Eliminates use of sales people, provides
24X7 service and placed in consumer
preferred high traffic locations
• Evolved to accept bills (notes) and coins
on a global basis

57. Direct Selling – Eureka Forbes
• First company to directly sell domestic water
purifiers and vacuum cleaners in India
– Selling new concepts – company decided to use
the direct selling route
– Presently works with over 5000 salesmen
touching about 1.3 million homes directly and
converting about 1500 new customers every day
– The dynamic and highly motivated sales people
are called as ‘Eurochamps’
• EF has since started using ‘dealers’ for a
different set of brands Tornado and Aquaflow

58. Amway – Multi-level Marketing
• Founding principles based on freedom, family, hope and reward.
• World’s biggest direct selling company present in 80 countries
• 450 products and 6000 employees world-wide.
– Manufactures and sells world-class consumer products
– All products covered by a 100% money back guarantee
– In India, sources products locally and helps set up manufacturing
facilities
– In India sells 105 products

59. Amway Features
• Four product categories – Personal care, Home
care, Nutrition and wellness and Cosmetics
• Distribution and selling network – independent
sales consultants who recruit similar sales
people. Each salesperson earns income on his
own sales and on the sales made by
salespeople ‘recruited’ by him.
– Presently in India, has provided business
opportunities to 450,000 active and independent
business owners.
– Company reaches 3000 locations through a host
of logistics service providers

60. Mumbai Dabbawalas (MD)
• Every day in Mumbai, 5000 dabbawalas deliver
200,000 meal boxes to customers without any
mix-up
– Collects the food box from the house of the
customer
– Deliver the food box at the workplace of the
customer
– Returns the empty food box back to the customer
house
– Use simple, alpha-numeric codes for identity of
boxes
– All this is done using bicycles and public transport

61. Mumbai Dabbawalas (MD)
Core Values
• No hierarchy in the organisation
• All members are shareholders of the
organisation
• The only source of income for the
members – deliver service with utmost
commitment
• Expect quick customer response (10
seconds ) to maintain delivery record
• Simple processes, employees capable of
multi-tasking

62. Mumbai Dabbawalas (MD)
• Harvard case
• ISO certification
• Six sigma By 1998 in forbes magazine
• Management practices are
• Main beliefs – work is worship, customer is God , time is money ,
unity is power ,
• They have zero fuel , zero modern technology , zero investment ,zero
disputes and 100% customer satisfaction
• They must wear uniform , report on time ,respect customers and carry
ID
• Decisions are taken instantly without meetings and conventions

63. Key Learnings
• Distribution channels provide the time, place and
possession utility for consumers for the company
products
• Distribution channels are of 2 broad types – direct or
indirect Factors influence the choice of channel
• Distribution channels have levels from zero channel
onwards
• Distribution channels could be sales, service or
delivery focused
• Channels perform a number of functions

64. Key Learnings
• Companies choose the intensity of distribution based
on their products and distribution objectives
• Distribution could be intensive, selective or exclusive