This document discusses marketing channels and distribution strategies. It defines marketing channels as the organizations and individuals that facilitate moving goods from producers to customers. The key functions of marketing channels are routinizing decisions, financing the distribution process, participating in pricing, communicating between producers and customers, assisting with promotion, and minimizing transactions. The document outlines different types of marketing channels for consumer and industrial goods, and factors to consider when evaluating and selecting marketing channels.

1. Place, Functions of
Marketing Channels
and Distribution
Strategies

2. The Nature and Functions of Marketing Channels
Products are really meant to be sold to buyers. This is
possible if the products are able to reach the customers.
The firm must be devise some means to bring the product
to the customers. The gap between the firm and its
customers must be closed by a facilitating tool called
marketing channels.
Marketing channels are human creations and they may be
designed and structured to serve the needs of the user.

3. Marketing Channel Defined
- May be defined as a set of
interdependent organizations and
individuals that facilitate the movement
and transfer of ownership of commodities
from the producers to the ultimate users.

4. • Functions of the Marketing Channels
Marketing channels play an important role in the marketing of goods and
services. Specifically, they perform the following functions:
1. They routinize decisions and work;
2. They finance the process for moving goods from the
producers to the consumers;
3. They are active participants in the pricing process'
4. They serve as a channel of communication between the
products and the consumers'
5. They assist in the promotional aspects of marketing; and
6. They minimize the number of transactions in the system.

5. Routinization of Decisions- The marketing channel provides
the manufacturers with a much reduced number of people to
contact when transactions are made.
Financing- When manufacturers sell directly to
consumers, they may have to reckon with the financing
of the following:
1. Sales calls to prospective customers;
2. Purchase of selling equipment;
3. Construction of display stores;
4. Extension of credit to customers; and
5. Training of retail salespersons

6. The manufacturer may not be in a financial position to handle these
activities, especially if it is undertaken on a nationwide scale. The
distributor performs these functions which, in effect, relieves the
manufacturer from financing such activities.
• Pricing- the difficulty of pricing one's products is aggravated by lack
of direct contact with consumers, especially if they are scattered
throughout a wide area of concern. The distributor directly deals with
the consumers and can provide important information regarding the
setting of a realistic factory price.
• Channels of Communication- The changing requirements of users
are oftentimes relayed to the ditributor, Individual buyers, for instance,
may inform the retailer that they will be buying next season only items
with new designs. This information will be relayed by the distributor to
the manufacturer. The distributor, in effect, is acting as a channel of
distribution.

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• Assistance in Promotional Activities- When the distributor
attempts to increase his sales by promoting his products, he is
actually complementing the promotional activities of the
manufacturer. For example, a certain rretailer gives free items to
buyers every time a particular brand of soap is purchased from his
store.
• Minimization of Number of Transactions- The distributor
plays an iimportant role in minimizing the number of
transactions within the system.
Types of Marketing Channels
Marketing channels consist of two basic types:
1. Consumer channels
2. Industrial channels

8. MARKETING CHANNELS FOR CONSUMER PRODUCTS
PRODUCER PRODUCER PRODUCER PRODUCER
AGENT/
BROKER
WHOLESALER
OR
DISTRIBUTOR
RETAILER
CONSUMERS
CONSUMERS
CONSUMERS
CONSUMERS
RETAILER
RETAILER
WHOLESALER
OR DISTRIBUTOR
DIRECT CHANNEL RETAIL
CHANNEL
WHOLESALE
CHANNEL
AGENT CHANNEL

9. Consumer Channels- are those that are used in the distribution
of consumer goods. As shown in the figure above, Direct channel
is a direct distribution channel. This is an arrangement where the
producer sells his goods or services directly to the consumers.
Examples of these are the "bibingka" vendor (who is also the
producer), the TV company (which directly sells its services to
televiewers), and the chicken farmer (who sells his products
directly to the consumers).
Retail channel- is that type where one middleman interposes
between the producer and the consumer. Recording companies
market their CDs and VCDs using this type of channel. These
companies deal with music shops which directly sell their products
to consumers.

10. Wholesale channel- is that type of channel where the wholesaler
and the retailer provide linkage between the producer and the
consumer. Groceries, cement, and noodles are examples of
products that pass through this type of channel.
Agent channel- is that type of channel where an agent apart from
the wholesaler and the retailer provides linkage between the
producer and the consumer. Examples of products which pass
through this type of channel are candies and canned goods.
Industrial Channels- are those which are used in the distribution
of industrial goods.

11. As shown in figure below, they consist of three
types:
Producer Producer Producer
Manufacturer's
representatives or
sales branch
Business
distributor
Business customer
Business
distributor
Business customer
Business customer
Channel 1 Channel 2 Channel
3

12. 1. The manufacturer selling directly to the industrial
users- An example is the manufacturer of trucks and
buses in Japan directly selling to bus companies like
Victory Liner.
2. The manufacturer assigning industrial distributors
which sells directly to industrial buyers. An example
is the spare parts manufacturers who sells to
industrial distributors in Metro Manila who, in turn,
sell to jeepney operator.
3. The manufacturer dealing with agents who call on
industrial users. Universities are oftentimes called on
by agents who sell books published by well-known

13. Evaluating the Prospective Channel Member
The list of channel alternatives is really an enumeration of distributors with
possibilities of serving the company as middlemen. The list must be
trimmed down to the exact number of middlemen required. This can be
achieved through careful and objective evaluation of the prospects.
A set of criteria that may be useful in evaluating a channel is as follows:
1. Credit and financial condition of the distributor
- A review of the credit performance and the financial statements will
provide a clue as to the desirability of selecting the prospective distributor.
2. Sales strength
- This refers to the sales capacity of the prospective distributor and is
indicated by the quality, the actual number and the technical competence
of the salespeople.

14. 3. Product lines
-Determining the types of products carried by the prospective
distributor will reveal whether the sales objectives of the firm can
be expected.
4. Reputation
- This is a very important requirement in determining the
possibility of profitable relationship.
5. Market coverage
- The market covered by the prospective distributor must be the
market coverage desired by the manufacturer.
6. Sales performance
-The prospective distributor must be able to show satisfactory
sales performance. This is indicated by sales volume.

15. 7. Management succession
- A prospective distributor who has a qualified person to succeed him in
case of a need for replacement is a phan factor in evaluation.
8. Management ability
- When the quality of management of a distributorship in poor, it is not
worth considering the prospect.
9. Attitude
- If the prospective distributor has the right attitude, the possibility of long-
term success in handling by the manufacturer's product is possible. This is
indicated by the distributor's aggressiveness, enthusiasm, and initiative.
10. Size
- When the prospective distributor is into large-scale operations, larger
sales volume for the manufacturer's products is possible. Large firms
usually employ more salesperson, have better equipment offices,
personnel, and facilities.

16. Factors that Influence Channel Selection
There are several factors that influence the selection of a channel. They
are the following:
1. The nature of the product
- It will determine which channel of distribution is best suited. Highly
expensive products like ships and airplanes, for instance, require more
direct dealing with users.
2. The nature of the market
-It is also an important consideration. Buyers of detergent soaps, for
instance, are scattered throughout the country, so the manufacturer will
have to choose a channel that will serve this particular market.
3. The nature of the company
The size of the company and its organizational set-up will also be a factor
in selecting a channel. Large companies can afford to adapt even a multi-
channel approach in its distribution activities.

17. Supply Chain
-Is the network of all the individuals, organizations, resources, activities, and
technology involved in the creation and sale of a product. The chain starts
from the delivery of materials from the supplier to the manufacturer, to the
eventual delivery of the finished product to its user. The supply chain
segment involved in the delivery of the product from the manufacturer to the
consumer is known as the distribution channel.
Wholesaling and Retailing
1. Wholesaling- is the sale of goods for resale. Wholesaling is an important
product distribution function. Without wholesalers, product manufacturers
would have to deliver goods directly to retailers.
2. Retailing- Is defined as the sale of goods/services to the final customer
for his personal consumption. Typical examples of retailing establishments
are drug stores, sari-sari stores, restaurants, movie houses, convenience

18. Types of Distributorships
1. Online resellers- Companies like Shopee exist to serve as Internet-
based distribution points for a number of manufacturers and dealers
especially as online buying is steadily growing in the local market. In
theory, it should be easy for any business to set up its own online store. In
actual practice, it may make better sense to avail the service of online
resellers because these can take care of the marketing, are already well
entrenched, have a large base of users, and would likely have well-tested
online payment options that would be difficult for smaller enterprises to set
up on their own. The downside? Online resellers may demand for quite a
bit of margin from the suppliers.
2. Wholesalers- these buy your products in bulk, typically taking
ownership and therefore transferring the risks involved with ownership into
their hands. In exchange, wholesalers ask for territorial exclusivity and

19. credit terms, allowing them to practically make money without having to
have an initial outlay.
3. Company sales force- in-house sales teams may be manageable when
lean, such as when a firm is just starting up. But complexity can escalate
quickly as the team grows in number. A sales force works best when there
is order and discipline among the ranks. There should be clear roles and
mission orders for everyone along with its corresponding incentives and
penalties that is stated clearly. Otherwise, it is easy for the teams to
devolve into idle individuals with no motivation to pursue their targets.
4. Value-added Resellers (VAR)- these are firms that put together
products from different suppliers in order to come up with systems or
solutions that appeal to markets with specific needs. A VAR serves as a
sort of one-stop shop and firms that supply to VARS hope to become

20. industries where solutions to complex problems often require mix-and-
match methodologies.
5. Professional sales agencies- if you cannot set up your own sales
team, then perhaps you can get a sales team that is for hire. Professional
sales organizations take on the selling of products in exchange for
commission schemes. These organizations ask for, at the least, 20% of
SRP as their revenue share. The advantage of these agencies is that
their sales organizations are already in place so it is just nearly a matter
of plug-and-play for the firm.
6. Specialty dealers- these are distributors that specialize in either
particular products categories or in the specialized needs of very distinct
target markets. The more specialized the store, the higher the margins
that it can charge. But it is also expected to have highly trained and highly
educated staff who can easily answer customer queries.

21. Distribution Strategies
Decisions must be made by the firm on how broadly or narrowly its
products will be distributed. This will determine the number of
intermediaries that will be tapped.
Distribution strategies consist of three types:
1. Intensive distribution
- Is a strategy that requires the firm to sell its product through every
available outlet in a market where a consumer might reasonably try to find
them. Intensive distribution is applicable to convenience goods like
groceries, and softdrinks. When the consumer feels a need for a
convenience good, it must be satisfied immediately and the product that is
readily available has the advantage of getting sold.

22. 2. Selective distribution
- is selling through only those outlets which will give the product special
attention. This strategy decreases the number of outlets who will carry the
product. Selective distribution is used for purposes like avoiding making
sales to middlemen with any of the characteristics as follows:
1. Poor credit rating:
2. A reputation for making too many returns or requesting too much
services;
3. Place orders that are too small to justify making calls or service; and
4. Are not in a position to perform satisfactorily.
3. Exclusive distribution
-Agreement is one where the producer grants exclusive selling right to a

23. middlemen in a certain area. In return, the middleman is
required to carry all the producer's products. Exclusive
distribution is applicable to specialty products or services like
automobiles and expensive watches. The agreement is
designed to help control prices and the service offered in a
channel.

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