A path through which goods and services flow in one direction (from vendor to the consumer), and the

payments generated by them that flow in the opposite direction (from consumer to the vendor). A distribution channel can be as short as being direct from the vendor to the consumer or may include several interconnected intermediaries such as wholesalers, distributors, agents, retailers. Each intermediary receives the item at one pricing point and moves it to the next higher pricing point until it reaches the final buyer. Also called channel of distribution.

importance
Most producers use intermediaries to bring their products to market. They try to develop a distribution channel (marketing channel) to do this. A distribution channel is a set of interdependent organizations that help make a product available for use or consumption by the consumer or business user. Channel intermediaries are firms or individuals such as wholesalers, agents, brokers, or retailers who help move a product from the producer to the consumer or business user. A companys channel decisions directly affect every other marketing decision. Place decisions, for example, affect pricing. Marketers that distribute products through mass merchandisers such as WalMart will have different pricing objectives and strategies than will those that sell to specialty stores. Distribution decisions can sometimes give a product a distinct position in the market. The choice of retailers and other intermediaries is strongly tied to the product itself. Manufacturers select mass merchandisers to sell mid-price-range products while they distribute top-of-the-line products through high-end department and specialty stores. The firms sales force and communications decisions depend on how much persuasion, training, motivation, and support its channel partners need. Whether a company develops or acquires certain new products may depend on how well those products fit the capabilities of its channel members. Some companies pay too little attention to their distribution channels. Others, such as FedEx, Dell Computer, and Charles Schwab have used imaginative distribution systems to gain a competitive advantage. Functions of Distribution Channels Distribution channels perform a number of functions that make possible the flow of goods from the producer to the customer. These functions must be handled by someone in the channel. Though the type of organization that performs the different functions can vary from channel to channel, the functions themselves cannot be eliminated. Channels provide time, place, and ownership utility. They make products available when, where, and in the sizes and quantities that customers want. Distribution channels provide a number of logistics or physical distribution functions that increase the efficiency of the flow of goods from producer to customer. Distribution channels create efficiencies by reducing the number of transactions necessary for goods to flow from many different manufacturers to large numbers of customers. This occurs in two ways. The first is called breaking bulk. Wholesalers and retailers purchase large quantities of goods from manufacturers but sell only one or a few at a time to many different customers. Second, channel intermediaries reduce the number of transactions by creating assortmentsproviding a variety of products in one locationso that customers can conveniently buy many different items from one seller at one time. Channels are efficient. The transportation and storage of goods is another type of physical distribution function. Retailers and other channel members move the goods from the production site to other locations where they are held until they are wanted by customers. Channel intermediaries also perform a number of facilitating functions, functions that make the purchase process easier for customers and manufacturers. Intermediaries often provide customer services such as offering credit to buyers and

accepting customer returns. Customer services are oftentimes more important in B2B markets in which customers purchase larger quantities of higher-priced products. Some wholesalers and retailers assist the manufacturer by providing repair and maintenance service for products they handle. Channel members also perform a risk-taking function. If a retailer buys a product from a manufacturer and it doesnt sell, it is stuck with the item and will lose money. Last, channel members perform a variety of communication and transaction functions. Wholesalers buy products to make them available for retailers and sell products to other channel members. Retailers handle transactions with final consumers. Channel members can provide two-way communication for manufacturers. They may supply the sales force, advertising, and other marketing communications necessary to inform consumers and persuade them to buy. And the channel members can be invaluable sources of information on consumer complaints, changing tastes, and new competitors in the market. The Internet in the Distribution Channel By using the Internet, even small firms with limited resources can enjoy some of the same competitive advantages as their largest competitors in making their products available to customers internationally at low cost. E-commerce can result in radical changes in distribution strategies. Today most goods are mass-produced, and in most cases end users do not obtain products directly from manufacturers. With the Internet, however, the need for intermediaries and much of what has been assumed about the need and benefits of channels will change. In the future, channel intermediaries that physically handle the product may become largely obsolete. Many traditional intermediaries are already being eliminated as companies question the value added by layers in the distribution channel. This removal of intermediaries is termed disintermediation, the elimination of some layers of the distribution channel in order to cut costs and improve the efficiency of the channel. Wholesaling: Wholesaling is all activities involved in selling products to those buying for resale or business use. Wholesaling intermediaries are firms that handle the flow of products from the manufacturer to the retailer or business user. Wholesaling intermediaries add value by performing one or more of the following channel functions: Selling and Promoting Buying and Assortment Building Bulk-Breaking Warehousing Transportation Financing Risk Bearing Market Information giving information to suppliers and customers about competitors, new products, and price developments Management Services and Advice helping retailers train their sales clerks, improving store layouts and displays, and setting up accounting and inventory control systems.

Independent Intermediaries Independent intermediaries do business with many different manufacturers and many different customers. Because they are not owned or controlled by any manufacturer, they make it possible for many manufacturers to serve customers throughout the world while keeping prices low. Merchant Wholesalers Merchant wholesalers are independent intermediaries that buy goods from manufacturers and sell to retailers and other B2B customers. Because merchant wholesalers take title to the goods, they assume certain risks and can suffer losses if products get damaged, become out-of-date or obsolete, are stolen, or just dont sell. At the same time, because they own the products, they are free to develop their own marketing strategies including setting prices. Merchant wholesalers include fullservice merchant wholesalers and limited-service wholesalers. Limited-service wholesalers are comprised of cash-and-carry wholesalers, truck jobbers, drop shippers, mail-order wholesalers, and rack jobbers.

Merchandise Agents or Brokers Merchandise agents or brokers are a second major type of independent intermediary. Agents and brokers provide services in exchange for commissions. They may or may not take possession of the product, but they never take title; that is, they do not accept legal ownership of the product. Agents normally represent buyers or sellers on an ongoing basis, whereas brokers are employed by clients for a short period of time. Merchandise agents or brokers include manufacturers agents (manufacturers reps), selling agents, commission merchants, and merchandise brokers.

Manufacturer-Owned Intermediaries Manufacturer-owned intermediaries are set up by manufacturers in order to have separate business units that perform all of the functions of independent intermediaries, while at the same time maintaining complete control over the channel. Manufacturer-owned intermediaries include sales branches, sales offices, and manufacturers showrooms. Sales branches carry inventory and provide sales and service to customers in a specific geographic area. Sales offices do not carry inventory but provide selling functions for the manufacturer in a specific geographic area. Because they allow members of the sales force to be located close to customers, they reduce selling costs and provide better customer service. Manufacturers showrooms permanently display products for customers to visit. They are often located in or near large merchandise marts, such as the furniture market in High Point, North Carolina. Types of Distribution Channels: The first step in selecting a marketing channel is determining which type of channel will best meet both the sellers objectives and the distribution needs of customers. Channel Length Distribution channels can be described as being either short or long. A short channel involves few intermediaries. A long channel, on the other hand, involves many intermediaries working in succession to move goods from producers to consumers. In general, business products tend to move through shorter channels than consumer products due to geographical concentrations and comparatively few business purchases. Service firms market primarily through short channels because they sell intangible products and need to maintain personal relationships within their channels. Not-for-profit institutions also tend to work with short, simple, and direct channels. Please note Table 15.1 below that highlights the characteristics of short and long marketing channels.

Consumer Channels The simplest and shortest distribution channel is a direct channel. A direct channel carries goods directly from a producer to the business purchaser or consumer. One of the newest means of selling in a direct channel is the Internet. A direct channel may allow the producer to serve its customers better and at a lower price than is possible using a retailer. Sometimes a direct channel is the only way to sell the product because using channel intermediaries may increase the price above what consumers are willing to pay. Another reason to use a direct channel is control.

Many producers, however, choose to use indirect channels to reach consumers. Customers are familiar with certain retailers or other intermediaries and habitually turn to them when looking for what they need. Intermediaries also help producers fulfill the channel functions previously cited. By creating utility and transaction efficiencies, channel members make producers lives easier and enhance their ability to reach customers. The producer-retailer-consumer channel is the shortest indirect channel. GE uses this channel when it sells small appliances through large retailers such as Wal-Mart or Sears. The producer-wholesalerretailer-consumer channel is another common distribution channel in consumer marketing. Business-to-Business Channels B2B distribution channels facilitate the flow of goods from a producer to an organizational customer. Generally, B2B channels parallel consumer channels in that they may be direct or indirect. The simplest indirect channel in industrial markets occurs when the single intermediarya merchant wholesaler referred to as an industrial distributor rather than a retailerbuys products from a manufacturer and sells them to business customers. Direct channels are more common to businessto-business markets because B2B marketing often means selling high-dollar, high-profit items to a market made up of only a few customers. In such markets, it pays for a company to develop its own sales force and sell directly to customers at a lower cost than if it used intermediaries. Channels for Services Because services are intangible, there is no need to worry about storage, transportation, and the other functions of physical distribution. In most cases, the service travels directly from the producer to the customer. Some services, however, do need an intermediary, often called an agent, who helps the parties complete the transaction. Examples include insurance agents, stockbrokers, and travel agents. Note the alternative distribution channels for consumer goods, business goods, and services illustrated in Figure 15.2 below:

Horizontal Marketing Systems A horizontal marketing system is a channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity. By working together, companies can combine their financial, production, or marketing resources to accomplish more than any one company could alone. Companies can join forces with competitors or noncompetitors. McDonalds places express versions of its restaurants in Wal-Mart stores. McDonalds benefits from Wal-Marts considerable store traffic, while Wal-Mart keeps hungry shoppers from having to go elsewhere to eat. Multichannel Distribution Systems A multichannel distribution system is a distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments. This is also called a hybrid marketing channel. Multichannel distribution systems offer many advantages to companies facing large and complex markets. With each new channel, the company expands its sales and market coverage and gains opportunities to tailor its products to the specific needs of diverse customers. Multichannel distribution systems, however, are harder to control, and they generate conflict as more channels compete for customers and sales. Channel Strategy: Marketers face several strategic decisions in choosing channels and marketing intermediaries for their products. Selecting a specific channel is the most basic of these decisions. Marketers must also

resolve questions about the level of distribution intensity, the desirability of vertical marketing systems, and the performance of current intermediaries. Marketing Channel Selection Marketing channel selection can be facilitated by analyzing market, product, producer, and competitive factors. A marketer could refer to Table 15.1 above for insights into whether the distribution channel should be short or long for the product in question. Then, he or she could refer to Figure 15.2 above and consider the alternative long or short channels for consumer goods, business goods, or services. Distribution Intensity Distribution intensity refers to the number of intermediaries through which a manufacturer distributes its goods. The decision about distribution intensity should ensure adequate market coverage for a product. In general, distribution intensity varies along a continuum with three general categories: intensive distribution, selective distribution, and exclusive distribution. Intensive Distribution An intensive distribution strategy seeks to distribute a product through all available channels in an area. Usually, an intensive distribution strategy suits items with wide appeal across broad groups of consumers, such as convenience goods. Selective Distribution Selective distribution is distribution of a product through only a limited number of channels. This arrangement helps to control price cutting. By limiting the number of retailers, marketers can reduce total marketing costs while establishing strong working relationships within the channel. Moreover, selected retailers often agree to comply with the companys rules for advertising, pricing, and displaying its products. Where service is important, the manufacturer usually provides training and assistance to dealers it chooses. Cooperative advertising can also be utilized for mutual benefit. Selective distribution strategies are suitable for shopping products such as clothing, furniture, household appliances, computers, and electronic equipment for which consumers are willing to spend time visiting different retail outlets to compare product alternatives. Producers can choose only those wholesalers and retailers that have a good credit rating, provide good market coverage, serve customers well, and cooperate effectively. Wholesalers and retailers like selective distribution because it results in higher sales and profits than are possible with intensive distribution where sellers have to compete on price. Exclusive Distribution Exclusive distribution is distribution of a product through one wholesaler or retailer in a specific geographical area. The automobile industry provides a good example of exclusive distribution. Though marketers may sacrifice some market coverage with exclusive distribution, they often develop and maintain an image of quality and prestige for the product. In addition, exclusive distribution limits marketing costs since the firm deals with a smaller number of accounts. In exclusive distribution, producers and retailers cooperate closely in decisions concerning advertising and promotion, inventory carried by the retailers, and prices. Exclusive distribution is typically used with products that are high priced, that have considerable service requirements, and when there are a limited number of buyers in any single geographic area. Exclusive distribution allows wholesalers and retailers to recoup the costs associated with long selling processes for each customer and, in some cases, extensive after-sale service. Specialty goods are usually good candidates for this kind of distribution intensity. Channel Conflict The channel captain or leader, the dominant and controlling member of a distribution channel, must work to resolve conflicts between channel members. Conflicts can be horizontal and vertical.

Horizontal & Vertical Conflict Horizontal conflict occurs among firms at the same level of the channel (i.e. between two retailers). Vertical conflict is conflict between different levels of the same channel (i.e. between a wholesaler and a retailer). Some conflict in the channel takes the form of healthy competition. Severe or prolonged conflict, however, can disrupt channel effectiveness and cause lasting harm to channel relationships. Vertical Marketing Systems A vertical marketing system (VMS) is a distribution channel structure in which producers, wholesalers, and retailers act as a unified system. One channel member owns the others, has contracts with them, or has so much power that they all cooperate. A conventional distribution channel consists of one or more independent producers, wholesalers, and retailers. A vertical marketing system, on the other hand, provides a way to resolve the channel conflict that can occur in a conventional distribution channel where channel members are separate businesses seeking to maximize their own profitseven at the expense sometimes of the system as a whole. The VMS can be dominated by the producer, wholesaler, or retailer. There are three major types of vertical marketing systems: corporate, contractual, and administered. A corporate VMS is a vertical marketing system that combines successive stages of production and distribution under single ownershipchannel leadership is established through common ownership. A little-known Italian eyewear maker, Luxottica, sells its many famous eyewear brandsincluding Giorgio, Armani, Yves Saint Laurent, and Ray-Banthrough the worlds largest optical chain, LensCrafters, which it also owns. A contractual VMS is a vertical marketing system in which independent firms at different levels of production and distribution join together through contracts to obtain more economies or sales impact than they could achieve alone. Coordination and conflict management are attained through contractual agreements among channel members. The franchise organization is the most common type of contractual relationship. There are three types of franchises:manufacturer-sponsored retailer franchise system (Ford Motor Co.), manufacturer-sponsored wholesaler franchise system (Coca-Cola bottlers), and service-firm-sponsored retailer franchise system (McDonalds). The fact that most consumers cannot tell the difference between contractual and corporate VMSs shows how successfully the contractual organizations compete with corporate chains. An administered VMS is a vertical marketing system that coordinates successive stages of production and distribution, not through common ownership or contractual ties, but through the size and power of one of the parties. Manufacturers of a top brand can obtain strong trade cooperation and support from resellers (P&G). Large retailers such as Wal-Mart can exert strong influence on the manufacturers that supply the products they sell. Logistics: Logistics is the process of designing, managing, and improving the movement of products through the supply chain. The supply chain is all the firms that engage in activities necessary to turn raw materials into a product and put it in the hands of the consumer or business customer. The difference between a supply chain and a distribution channel is the number of members and their function. A supply chain consists of those firms that supply the raw materials, component parts, and supplies necessary for a firm to produce a product plus the firms that facilitate the movement of that product from the producer to the ultimate users of the productthe channel members. Physical Distribution Logistics has the objective of delivering exactly what the customer wantsat the right time, in the right place, and at the right price. In planning for the delivery of goods to customers, marketers have usually looked at a process termed physical distribution, which refers to the activities used to move finished goods from manufacturers to final customers. Physical distribution activities include order processing, warehousing, materials handling,transportation, and inventory control. This process impacts how marketers physically get products where they need to be, when they need to be there, and at the lowest possible cost.

In logistics, the focus is on the customer. When planning for the logistics function, firms consider the needs of the customer first. The customers goals become the logistics providers goals. With most logistics decisions, firms must compromise between low costs and high customer service.

http://www.scribd.com/sravanic/d/42732862-Amul-Report
http://www.consumerpsychologist.com/dist_Channel_Structure.html

http://media.wiley.com/product_data/excerpt/45/EHEP0006/EHEP000645.pdf

http://www.scribd.com/doc/51139429/42/Amul-distribution-channel form is shown http://www.scribd.com/doc/87348187/Mother-Dairy-45454

nice comparison in table

http://www.scribd.com/doc/24533399/sales-and-distribution-amul-icecreams (make sure see this link its on ice cream)

Distribution channels move products and services from businesses to consumers and to other businesses. Also known as marketing channels, channels of distribution consist of a set of interdependent organizationssuch as wholesalers, retailers, and sales agents involved in making a product or service available for use or consumption. Distribution channels are just one component of the overall concept of distribution networks, which are the real, tangible systems of interconnected sources and destinations through which products pass on their way to final consumers. As Howard J. Weiss and Mark E. Gershon noted in Production and Operations Management, a basic distribution network consists of two parts: 1) a set of locations that store, ship, or receive materials (such as factories, warehouses, retail outlets); and 2) a set of routes (land, sea, air, satellite, cable, Internet) that connect these locations. Distribution networks may be classified as either simple or complex. A simple distribution network is one that consists of only a single source of supply, a single source of demand, or both, along with fixed transportation routes connecting that source with other parts of the network. In a simple distribution network, the major decisions for managers to make include when and how much to order and ship, based on internal purchasing and inventory considerations. In short, distribution describes all the logistics involved in delivering a company's products or services to the right place, at the right time, for the lowest cost. In the unending efforts to realize these goals, the channels of distribution selected by a business play a vital role in this process. Well-chosen channels constitute a significant competitive advantage, while poorly conceived or chosen channels can doom even a superior product or service to failure in the market. Multiple Channels of Distribution For many products and services, their manufacturers or providers use multiple channels of distribution. A personal computer, for example, might be bought directly from the manufacturer, either over the telephone, direct mail, or the Internet, or through several kinds of retailers, including independent computer stores, franchised computer stores, and department stores. In addition, large and small businesses may make their purchases through other outlets. Channel structures range from two to five levels. The simplest is a two-level structure in which goods and services move directly from the manufacturer or provider to the consumer. Two-level structures occur in some industries where consumers are able to order products directly from the manufacturer and the manufacturer fulfills those orders through its own physical distribution system. In a three-level channel structure retailers serve as intermediaries between consumers and manufacturers. Retailers order products directly from the manufacturer, then sell those products directly to the consumer. A fourth level is added when manufacturers sell to wholesalers rather than to retailers. In a four-level structure, retailers order goods from wholesalers rather than manufacturers. Finally, a manufacturer's agent can serve as an intermediary between the manufacturer and its wholesalers, creating a five-level channel structure consisting of the manufacturer, agent, wholesale, retail, and consumer levels. A five-level channel structure might also consist of the manufacturer, wholesale, jobber, retail, and consumer levels, whereby jobbers service smaller retailers not covered by the large wholesalers in the industry. Benefits of Intermediaries If selling directly from the manufacturer to the consumer were always the most efficient methodology for doing business, the need for channels of distribution would be obviated. Intermediaries, however, provide several benefits to both manufacturers and consumers: improved efficiency, a better assortment of products, routinization of transactions, and easier searching for goods as well as customers.

The improved efficiency that results from adding intermediaries in the channels of distribution can easily be grasped with the help of a few examples. Take five manufacturers and 20 retailers, for instance. If each manufacturer sells directly to each retailer, there are 100 contact linesone line from each manufacturer to each retailer. The complexity of this distribution arrangement can be reduced by adding wholesalers as intermediaries between manufacturers and retailers. If a single wholesaler serves as the intermediary, the number of contacts is reduced from 100 to 25: five contact lines between the manufacturers and the wholesaler, and 20 contact lines between the wholesaler and the retailers. Reducing the number of necessary contacts brings more efficiency into the distribution system by eliminating duplicate efforts in ordering, processing, shipping, etc. In terms of efficiency there is an effect of diminishing returns as more intermediaries are added to the channels of distribution. If, in the example above, there were three wholesalers instead of only one, the number of essential contacts increases to 75: 15 contacts between five manufacturers and three wholesalers, plus 60 contacts between three wholesalers and 20 retailers. Of course this example assumes that each retailer would order from each wholesaler and that each manufacturer would supply each wholesaler. In fact geographic and other constraints typically eliminate some lines of contact, making the channels of distribution more efficient. Intermediaries provide a second benefit by bridging the gap between the assortment of goods and services generated by producers and those in demand from consumers. Manufacturers typically produce large quantities of a few similar products, while consumers want small quantities of many different products. In order to smooth the flow of goods and services, intermediaries perform such functions as sorting, accumulation, allocation, and creating assortments. In sorting, intermediaries take a supply of different items and sort them into similar groupings, as exemplified by graded agricultural products. Accumulation means that intermediaries bring together items from a number of different sources to create a larger supply for their customers. Intermediaries allocate products by breaking down a homogeneous supply into smaller units for resale. Finally, they build up an assortment of products to give their customers a wider selection. A third benefit provided by intermediaries is that they help reduce the cost of distribution by making transactions routine. Exchange relationships can be standardized in terms of lot size, frequency of delivery and payment, and communications. Seller and buyer no longer have to bargain over every transaction. As transactions become more routine, the costs associated with those transactions are reduced. The use of intermediaries also aids the search processes of both buyers and sellers. Producers are searching to determine their customers' needs, while customers are searching for certain products and services. A degree of uncertainty in both search processes can be reduced by using channels of distribution. For example, consumers are more likely to find what they are looking for when they shop at wholesale or retail institutions organized by separate lines of trade, such as grocery, hardware, and clothing stores. In addition, producers can make some of their commonly used products more widely available by placing them in many different retail outlets, so that consumers are more likely to find them at the right time. What Flows Through the Channels Members of channels of distribution typically buy, sell, and transfer title to goods. There are, however, many other flows between channel members in addition to physical possession and ownership of goods. These include promotion flows, negotiation flows, financing, assuming risk, ordering, and payment. In some cases the flow is in one direction, from the manufacturer to the consumer. Physical possession, ownership, and promotion flow in one direction through the channels of distribution from the manufacturer to the consumer. In other cases there is a two-way flow. Negotiation, financing, and the assumption of risk flow in both directions between the manufacturer and the consumer. Ordering and payment are channel flows that go in one direction from the consumer to the manufacturer. There are also a number of support functions that help channel members perform their distribution tasks. Transportation, storage, insurance, financing, and advertising are

tasks that can be performed by facilitating agencies that may or may not be considered part of the marketing channel. From a channel management point of view, it may be more effective to consider only those institutions and agencies that are involved in the transfer of title as channel members. The other agencies involved in supporting tasks can then be described as an ancillary or support structure. The rationale for separating these two types of organizations is that they each require different types of management decisions and have different levels of involvement in channel membership. Effective management of the channels of distribution involves forging better relationships among channel members. With respect to the task of distribution, all of the channel members are interdependent. Relationships between channel members can be influenced by how the channels are structured. Improved performance of the overall distribution system is achieved through managing such variables as channel structure and channel flows. Selecting Channels for Small Businesses Given the importance of distribution channelsalong with the limited resources generally available to small businessesit is particularly important for entrepreneurs to make a careful assessment of their channel alternatives. In evaluating possible channels, it may be helpful first to analyze the distribution channels used by competitors. This analysis may reveal that using the same channels would provide the best option, or it may show that choosing an alternative channel structure would give the small business a competitive advantage. Other factors to consider include the company's pricing strategy and internal resources. As a general rule, as the number of intermediaries included in a channel increase, producers lose a greater percentage of their control over the product and pay more to compensate each participating channel level. At the same time, however, more intermediaries can also provide greater market coverage. Among the many channels a small business owner can choose from are: direct sales (which provides the advantage of direct contact with the consumer); original equipment manufacturer (OEM) sales (in which a small business's product is sold to another company that incorporates it into a finished product); manufacturer's representatives (salespeople operating out of agencies that handle an assortment of complimentary products); wholesalers (which generally buy goods in large quantities, warehouse them, then break them down into smaller shipments for their customers usually retailers); brokers (who act as intermediaries between producers and wholesalers or retailers); retailers (which include independent stores as well as regional and national chains); and direct mail. Ideally, the distribution channels selected by a small business owner should be close to the desired market, able to provide necessary services to buyers, able to handle local advertising and promotion, experienced in selling compatible product lines, solid financially, cooperative, and reputable. Since many small businesses lack the resources to hire, train, and supervise their own sales forces, sales agents and brokers are a common distribution channel. Many small businesses consign their output to an agent, who might sell it to various wholesalers, one large distributor, or a number of retail outlets. In this way, an agent might provide the small business with access to channels it would not otherwise have had. Moreover, since most agents work on a commission basis, the cost of sales drops when the level of sales drops, which provides small businesses with some measure of protection against economic downturns. When selecting an agent, an entrepreneur should look for one who has experience with desired channels as well as with closely relatedbut not competitiveproducts. Other channel alternatives can also offer benefits to small businesses. For example, by warehousing goods, wholesalers can reduce the amount of storage space needed by small manufacturers. They can also provide national distribution that might otherwise be out of reach for an entrepreneur. Selling directly to retailers can be a challenge for small business owners. Independent retailers tend to be the easiest market for entrepreneurs to penetrate. The merchandise buyers for independent retailers are most likely to get their supplies from local distributors, can order new items on the spot, and can make adjustments to inventory themselves. Likewise, buyers for small groups of retail stores also tend to hold decision-making power, and they are able to try out new items by

writing small orders. However, these buyers are more likely to seek discounts, advertising allowances, and return guarantees. Medium-sized retail chains often do their buying through a central office. In order to convince the chain to carry a new product, an entrepreneur must usually make a formal sales presentation with brochures and samples. Once an item makes it onto the shelf, it is required to produce a certain amount of revenue to justify the space it occupies, or else it will be dropped in favor of a more profitable item. National retail chains, too, handle their merchandise buying out of centralized offices and are unlikely to see entrepreneurs making cold sales calls. Instead, they usually request a complete marketing program, with anticipated returns, before they will consider carrying a new product. Once an item becomes successful, however, these larger chains often establish direct
computer links with producers for replenishment.

Types of Distribution Channels in Marketing

A retail location is a type of distribution channel.

In marketing, a distribution channel is a vehicle used by the company to sell its products and services to it customer base. In general, distribution channels are either direct, meaning the company interacts with customers directly, or indirect, meaning intermediaries perform activities on behalf of the company to reach customers. When a company develops its marketing strategy, it determines which channels it wants to use. Companies can choose to use a single channel or multiple channel strategy.

Traditional Media

Traditional media is a common distribution channel that businesses use to generate awareness about their products and services. Traditional media outlets include TV, radio, billboard advertising, magazines and newspapers. Because the cost of using these channels tends to be high, it's harder for small businesses just starting out to take advantage of them; however, local markets often have small, independent newspapers or community television stations that offer lower cost advertising options.

Direct Response

Direct response marketing is another type of distribution channel. Direct response includes a variety of communications vehicles such as postcards, sales letters, email marketing and television direct response infomercials. When you use direct response marketing, it's important to have a call-to-action. For instance, infomercials often start by showcasing a common problem, then illustrating how the product or service solves that problem. Direct response marketing can be an affordable way for companies to reach potential customers.

Public Relations

Public relations is a broad distribution channel. Today, PR involves pitching stories to media outlets and generating positive buzz about your company or brand, as well as managing your company's online presence and how your company interacts with its customers. For example, if a customer writes a negative review of your business online, your PR team might have a standard way of responding. The purpose of PR is to make people feel good about purchasing your products or services.

Internet and E-Commerce

While all the other distribution channels listed work in conjunction with the Internet -- for example, using social media as a part of a PR campaign -- there is a separate set of tools that can be used as a distribution channel that is purely made up of online activities. Internet marketing includes search engine optimization, affiliate marketing and online advertising. Search engine optimization, or SEO, involves tailoring your website and its content so when users search online for products and services similar to what your company provides, your website shows up at the top of the search results. Affiliate marketing and online advertising allow you to promote your brand on other websites with content that would be of interest to your customers.

How to Develop a Distribution Channel Strategy

An effective distribution channel strategy may mean sustained competitive advantage.

Distribution channels are used to sell products to customers. Distribution strategies help identify sales channels that can maximize sales and profits. Distribution is one of the "4-Ps" of marketing -- the first three are product, promotion and price. The fourth, placement, means distribution. A distribution channel must be developed with care so that it does not become a "repository of lost opportunities," cautions Harvard University professor V. Kasturi Rangan.

Instructions
1. o

Learn about the available direct and indirect channels. Direct channels include online, retail and telephone sales. Indirect channels include retailers, such as WalMart or Home Depot, that sell products without major modifications; value-added resellers, or VARs, that add features and services before selling; distributors and wholesalers that typically resell to other channel partners; and telemarketers, sometimes outsourced, who prospect for customers and close deals.
o

2
Evaluate your customers' requirements. These include what they buy, how often and whether they require additional products and services along with your merchandise. Be aware of emerging trends and preferences. For example, if your customers are ordering more items online, you may have to shift your marketing resources more toward the Internet. See if customers are being offered valued-added options by your competitors and adjust your product strategy accordingly.

 3Match the distribution strategy to your objectives and to customer needs. Your objectives may include sales growth, profit margins, market penetration and brand recognition. For example, a retail presence may be necessary if you sell baked goods. However, if you sell insurance, the best distribution strategy may be a combination of wholesale and retail brokers and direct telemarketers. Computer manufacturer Dell sells directly to customers through its web site and a toll-free telephone center, while Apple uses a combination of direct and indirect channels to sell its computers, iTunes, iPhones and iPads. 4
Select the right channel partners. According to marketing firm Moderandi's "Marketing [m.o.]" web site, your natural partners are companies that have existing relationships with your customers. Cindy Kennaugh, president of Silicon Valley marketing consulting firm On The Mark, believes that the strategic fit--alignment of philosophy and outlook-with your channel partner is important. To recruit the ideal partners, Kennaugh suggests that you establish your business credibility and identify how you will meet your potential partner's needs.

5
Manage the distribution channel performance. Professor Rangan has proposed the concept of a "channel steward" who can be any entity in the distribution channel with a vested interest in addressing the needs of end users. A small business often has limited options, but it can leverage the resources of a bigger channel steward, such as an Intel in semiconductors or WalMart in retail, to drive sales and profit growth. Moderandi suggests several ways to improve channel performance, including devoting resources to managing channel relationships, tracking the performance of channel partners, minimizing pricing conflicts by ensuring a fair profit for each channel partner, and taking charge of driving revenues through the channel because your partners will most likely be busy selling products from multiple vendors.

How to Create a Good Direct Distribution Channel for a Service

Distribution channels, or marketing channels, are techniques used by producers or sellers to get their product or service to consumers. Although many distribution channels use intermediaries to assist the movement of goods to consumers, most service-oriented businesses use direct distribution channels because of the nature of the "product." Since a service is an intangible item, it does not lend itself well to intermediaries along the distribution channel. Creating a good direct distribution channel can greatly impact the success of your business.

Instructions
1.

1
Research your market. Although the market for a service may seem obvious, there are often hidden opportunities that can only be uncovered by conducting the proper research into who actually uses the service you offer. More importantly, research can help you ascertain which direct channel is most frequently used by the consumer when looking for your service.

Analyze your budget. Some potential distribution channels may be out of your reach because of budget constraints. Television, for example, can be an effective way to create a direct distribution channel, but it is likely the most costly option as well.

3 Select a medium that fits both your budget and your objectives. For services, the most common direct distribution channels are print media, television, radio and the Internet. Your research should help you decide which direct channel is best suited for the service you offer. 4
Create your advertisement for the direct channel you have selected. Use the research you conducted to focus your advertisements on the demographic group most likely to need your service. A service oriented toward senior citizens, for example, may be more successful using print media than the Internet. A service geared toward teenagers, on the other hand, may fare better using a Web-based channel.

Distribution Channel Structure

Major distribution channels for products include wholesale, retail, franchise and direct sales.

A distribution channel structure relates to the system used by a company to deliver goods and products to consumers. A combination of choices exist, from direct to indirect distribution channels. Four important factors have been identified as shaping a company's distribution channel structure, according to Adriano Manioba da Silva in

a research paper published in "Periodico de Divulgacao Cientifica da FALS." These factors are: consumer habits, product characteristics, the market and company factors.

Consumer Habits

Patterns of consumer behavior are considered when deciding on the most efficient means of distributing a product. This includes factors such as how geographically dispersed the consumer is, speed of product consumption and the purchasing frequency for the product. According to Manioba da Silva's research, short channels of distribution exist when consumption patterns are rapid. More direct distribution channels are more efficient to fulfill the intensity of consumer demand. Consumers that are widely dispersed geographically generally show indirect distribution channels. Wholesale and broker channels are more frequently used to deliver products to retailers and ultimately the consumer.

Product Characteristics

Product characteristics include factors such as unit value, product complexity, position for brand quality among competitors and product perishability. Naturally, products that are highly perishable demand a more direct distribution channel to consumers. Short distribution channels exist when a product has a high quality position among competitors, according to researchers. High product unit value produces shorter distribution channels

The Market

A focus on mass market distribution and the rate of change of distribution technologies are a couple of the important market factors that shape's company decisions on distribution channel structure. For instance, products that seek mass market distribution produce long channels of distribution if demand for the product is high. Conversely, short channels of distribution tend to exist when frequent technology changes required in the distribution process occur.

Company Factors

Firm size, product order size, market share, promotional budget and product ranges are some of the company factors that determine the most efficient mode and design of product distribution. For example, short distribution channels exist when market share and promotion budget are low. A large firm size or a wide range of product offerings by the firm tend to create short channels of distribution.

Types of Distribution Channels

Types of Distribution Channels

Distribution channels are the methods that companies use to enter the consumer market with their product. While many methods exist, they have changed over the years because of the Internet and global sales.

Definition

A distribution channel is the method a company uses to get its products into the marketplace for consumer use. The traditional channel goes from supplier, manufacturer, distributor, wholesaler and retailer. Two types of distribution channels exist: indirect and direct.

Indirect Channel

The indirect channel is used by companies who do not sell their goods directly to consumers. Suppliers and manufacturers typically use indirect channels because they exist early in the supply chain. Depending on the industry and product, direct distribution channels have become more prevalent because of the Internet.

Direct Channel

A direct distribution channel is where a company sells its products direct to consumers. While direct channels were not popular many years ago, the Internet has greatly increased the use of direct channels. Additionally, companies needing to cut costs may use direct channels to avoid middlemen markups on their products.

Indirect Channel Methods

Distributors, wholesalers and retailers are the primary indirect channels a company may use when selling its products in the marketplace. Companies choose the indirect channel best suited for their product to obtain the best market share; it also allows them to focus on producing their goods.

Direct Channel Methods

Selling agents and Internet sales are two types of direct distribution channels. Selling agents work for the company and market their products directly to consumers through mail order, storefronts or other means. The Internet is an easy distribution channel because of the global availability to consumers

Advantages & Disadvantages of Direct Distribution

By Corr S. Pondent, eHow Contributor , last updated September 10, 2011

Doing away with middlemen helps manufacturers cut down on costs.

An important decision relating to marketing a product is how to distribute it, or in what retail channels to make it available to customers. The choice of a distribution channel could contribute to the success, or failure, of a product. Manufacturers may sell directly to their customers or through middlemen such as wholesalers and retailers. Selling directly to consumers, or direct distribution, has some advantages and disadvantages.

Direct Distribution Methods

Selling through the Internet is one method of direct distribution that has become more common as e-commerce has taken off. Consumers can buy products directly from a manufacturer through his website. Some manufacturers also own their own retail outlets to sell directly to consumers. Mail order is another way that consumers can buy directly from manufacturers. Consumers can look at a manufacturers catalog with a description of the goods and order the goods directly.

Consumer Contact

One major advantage of direct distribution is that manufacturers interact directly with consumers. This gives them the chance to observe trends in the marketplace and changes in consumer preferences. Thus, based on this feedback the manufacturer can adapt her product offerings.

Eliminates Middlemen

By selling directly to consumers, a manufacturer does away with middlemen. This offers certain advantages, such as doing away with the cost of an additional layer of distribution between the consumer and the manufacturer. Using outside distributors adds transportation costs, for instance. Cutting down on such distribution costs by doing away with middlemen typically translates into a better price for consumers. As well, doing away with middlemen gives the manufacturer better control over a products sales and pricing.

Lack of Expertise

The main disadvantage of direct distribution is that manufacturers typically lack retailing expertise. Manufacturers with a good product to offer the market may not be good at marketing it. By using other distribution channels to distribute their product, they are able to make use of the expertise of dedicated retailers and wholesalers. Not only that, the time that a manufacturer spends in retailing activities is time that might be better spent on production-related activities.

Channels of Distribution
A channel of distribution or trade channel is defined as the path or route along which goods move from producers or manufacturers to ultimate consumers or industrial users. In other words, it is a distribution network through which producer puts his products in the market and passes it to the actual users. This channel consists of :- producers, consumers or users and the various middlemen like wholesalers,selling agents and retailers(dealers) who intervene between the producers and consumers. Therefore,the channel serves to bridge the gap between the point of production and the point of consumption thereby creating time, place and possession utilities. A channel of distribution consists of three types of flows:-

Downward flow of goods from producers to consumers

Upward flow of cash payments for goods from consumers to producers

Flow of marketing information in both downward and upward direction i.e. Flow of information on new products, new uses of existing products,etc from producers to consumers. And flow of information in the form of feedback on the wants,suggestions,complaints,etc from consumers/users to producers.

An entrepreneur has a number of alternative channels available to him for distributing his products. These channels vary in the number and types of middlemen involved. Some channels are short and directly link producers with customers. Whereas other channels are long and indirectly link the two through one or more middlemen. These channels of distribution are broadly divided into four types:-

Producer-Customer:- This is the simplest and shortest channel in which no middlemen is involved and producers directly sell their products to the consumers. It is fast and economical channel of distribution. Under it, the producer or entrepreneur performs all the marketing activities himself and has full control over distribution. A producer may sell directly to consumers through door-to-door salesmen, direct mail or through his own retail stores. Big firms adopt this channel to cut distribution costs and to sell industrial products of high value. Small producers and producers of perishable commodities also sell directly to local consumers.

Producer-Retailer-Customer:- This channel of distribution involves only one middlemen called 'retailer'. Under it, the producer sells his product to big retailers (or retailers who buy goods in large quantities) who in turn sell to the ultimate consumers.This channel relieves the manufacturer from burden of selling the goods himself and at the same time gives him control over the process of distribution. This is often suited for distribution of consumer durables and products of high value.

Producer-Wholesaler-Retailer-Customer:- This is the most common and traditional channel of distribution. Under it, two middlemen i.e. wholesalers and retailers are involved. Here, the producer sells his product to wholesalers, who in turn sell it to retailers. And retailers finally sell the product to the ultimate consumers. This channel is suitable for the producers having limited finance, narrow product line and who needed expert services and promotional support of wholesalers. This is mostly used for the products with widely scattered market.

Producer-Agent-Wholesaler-Retailer-Customer:- This is the longest channel of distribution in which three middlemen are involved. This is used when the producer wants to be fully relieved of the problem of distribution and thus hands over his entire output to the selling agents. The agents distribute the product among a few wholesalers. Each wholesaler distribute the product among a number of retailers who finally sell it to the ultimate consumers. This channel is suitable for wider distribution of various industrial products.

An entrepreneur has to choose a suitable channel of distribution for his product such that the channel chosen is flexible,effective and consistent with the declared marketing policies and programmes of the firm. While selecting a distribution channel, the entrepreneur should compare the costs,sales volume and profits expected from alternative channels of distribution and take into account the following factors:-

Product Consideration:- The type and the nature of products manufactured is one of the important elements in choosing the distribution channel. The major product related factors are:-

Products of low unit value and of common use are generally sold through middlemen. Whereas,expensive consumer goods and industrial products are sold directly by the producer himself. Perishable products; products subjected to frequent changes in fashion or style as well as heavy and bulky products follow relatively shorter routes and are generally distributed directly to minimise costs. Industrial products requiring demonstration, installation and aftersale service are often sold directly to the consumers. While the consumer products of technical nature are generally sold through retailers. An entrepreneur producing a wide range of products may find it economical to set up his own retail outlets and sell directly to the consumers. On the other hand, firms producing a narrow range of products may their products distribute through wholesalers and retailers. A new product needs greater promotional efforts in the initial stages and hence few middlemen may be required.

Market Consideration:- Another important factor influencing the choice of distribution channel is the nature of the target market. Some of the important features in this respect are:-

If the market for the product is meant for industrial users, the channel of distribution will not need any middlemen because they buy the product in large quantities. short one and may as they buy in a large quantity. While in the case of the goods meant for domestic consumers, middlemen may have to be involved. If the number of prospective customers is small or the market for the product is geographically located in a limited area, direct selling is more suitable. While in case of a large number of potential customers, use of middlemen becomes necessary. If the customers place order for the product in big lots, direct selling is preferred. But,if the product is sold in small quantities, middlemen are used to distribute such products.

Other Considerations:- There are several other factors that an entrepreneur must take into account while choosing a distribution channel. Some of these are as follows:-

A new business firm may need to involve one or more middlemen in order to promote its product, while a well established firm with a good market standing may sell its product directly to the consumers. A small firm which cannot invest in setting up its own distribution network has to depend on middlemen for selling its product. On the other hand, a large firm can establish its own retail outlets. The distribution costs of each channel is also an important factor because it affects the price of the final product. Generally,a less expensive channel is preferred. But sometimes, a channel which is more convenient to the customers is preferred even if it is more expensive. If the demand for the product is high,more number of channels may be used to profitably distribute the product to maximum number of customers. But, if the demand is low only a few channels would be sufficient. The nature and the type of the middlemen required by the firm and its availability also affects the choice of the distribution channel. A company prefers a middlemen who can maximise the volume of sales of their product and also offers other services like storage, promotion as well as aftersale services. When the desired type of middlemen are not available, the manufacturer will have to establish his own distribution network.

All these factors or considerations affecting the choice of a distribution channel are inter-related and interdependent. Hence, an entrepreneur must choose the most efficient and cost effective channel of distribution by taking into account all these factors as a whole in the light of the prevailing economic conditions. Such a decision is very important for a business to sustain long term profitability.

Distribution Objectives
Objectives: A firms distribution objectives will ultimately be highly relatedsome will enhance each other while others will compete. For example, as we have discussed, more exclusive and higher service distribution will generally entail less intensity and lesser reach. Cost has to be traded off against speed of delivery and intensity (it is much more expensive to have a product available in convenience stores than in supermarkets, for example). Narrow vs. wide reach: The extent to which a firm should seek narrow (exclusive) vs. wide (intense) distribution depends on a number of factors. One issue is the consumers likelihood of switching and willingness to search. For example, most consumers will switch soft drink brands rather than walking from a vending machine to a convenience store several blocks away, so intensity of distribution is essential here. However, for sewing machines, consumers will expect to travel at

least to a department or discount store, and premium brands may have more credibility if they are carried only in full service specialty stores. Retailers involved in a more exclusive distribution arrangement are likely to be more loyali.e., they will tend to

Recommend the product to the customer and thus sell large quantities; Carry larger inventories and selections; Provide more services

Thus, for example, Compaq in its early history instituted a policy that all computers must be purchased through a dealer. On the surface, Compaq passed up the opportunity to sell large numbers of computers directly to large firms without sharing the profits with dealers. On the other hand, dealers were more likely to recommend Compaq since they knew that consumers would be buying these from dealers. When customers came in asking for IBMs, the dealers were more likely to indicate that if they really wanted those, they could have them But first, lets show you how you will get much better value with a Compaq. Distribution opportunities: Distribution provides a number of opportunities for the marketer that may normally be associated with other elements of the marketing mix. For example, for a cost, the firm can promote its objective by such activities as in-store demonstrations/samples and special placement (for which the retailer is often paid). Placement is also an opportunity for promotion e.g., airlines know that they, as prestige accounts, can get verygood deals from soft drink makers who are eager to have their products offered on the airlines. Similarly, it may be useful to give away, or sell at low prices, certain premiums (e.g., T-shirts or cups with the corporate logo.) It may even be possible to have advertisements printed on the retailers bags (e.g., Got milk?) Other opportunities involve parallel distribution (e.g., having products sold both through conventional channels and through the Internet or factory outlet stores). Partnerships and joint promotions may involve distribution (e.g., Burger King sells clearly branded Hershey pies). Deciding on a strategy. In view of the need for markets to be balanced, the same distribution strategy is unlikely to be successful for each firm. The question, then, is exactly which strategy should one use? It may not be obvious whether higher margins in a selective distribution setting will compensate for smaller unit sales. Here, various research tools are useful. In focus groups, it is possible to assess what consumers are looking for an which attributes are more important. Scanner data, indicating how frequently various products are purchased and items whose sales correlate with each other may suggest the best placement strategies. It may also, to the extent ethically possible, be useful to observe consumers in the field using products and making purchase decisions. Here, one can observe factors such as (1) how much time is devoted to selecting a product in a given category, (2) how many products are compared, (3) what different kinds of products are

compared or are substitutes (e.g., frozen yogurt vs. cookies in a mall), (4) what are complementing products that may cue the purchase of others if placed nearby. Channel membersboth wholesalers and retailersmay have valuable information, but their comments should be viewed with suspicion as they have their own agendas and may distort information.
Advantages of a Distribution Channel When a customer is considering buying a product he tries to access its value by looking at various factors which surround it. Factors like its delivery, availability etc which are directly influenced by channel members. Similarly, a marketer too while choosing his distribution members must access what value is this member adding to the product. He must compare the benefits received to the amount paid for using the services of this intermediary. These benefits can be the following:

Cost Saving The members of distribution channel are specialized in what they do and perform at much lower costs than companies trying to run the entire distribution channel all by itself.

Time Saving Along with costs, time of delivery is also reduced due to efficiency and experience of the channel members. For example if a grocery store were to receive direct delivery of goods from every manufacturer the result would have been a chaos. Everyday hundreds of trucks would line up outside the store to deliver products. The store may not have enough space for storing all their products and this would add to the chaos. If a grocery wholesaler is included in the distribution chain then the problem is almost solved. This wholesaler will have a warehouse where he can store bulk shipments. The grocery store now receives deliveries from the wholesaler in amounts required and at a suitable time and often in a single truck. In this way cost as well as time is saved.

Customer Convenience Including members in the distribution chain provides customer with a lot of convenience in their shopping. If every manufacturer owned its own grocery store then customers would have to visit multiple grocery stores to complete their shopping list. This would be extremely time-consuming as well as taxing for the customer. Thus channel distribution provides accumulating and assorting services, which means they purchase from many suppliers the various goods that a customer may demand. Secondly, channel distribution is time saving as the customers can find all that they need in one retail store and the retailer

Customers can buy in small quantities Retailers buy in bulk quantities from the manufacturer or wholesaler. This is more cost effective than buying in small quantities. However they resell in smaller quantities to their customers. This phenomenon of breaking bulk quantities and selling them in smaller quantities is known as bulk breaking. The customers therefore have the benefit of buying in smaller quantities and they also get a share of the profit the retailer makes when he buys in bulk from the supplier.

Resellers help in boosting sales Resellers often use persuasive techniques to persuade customers into buying a product thereby increasing sales for that product. They often make use of various promotional offers and special product displays to entice customers into buying certain products.

Customers receive financial support Resellers offer financial programs to their customers which makes payment easier for the customer. Customers can buy on credit, buy using a payment plan etc.

Resellers provide valuable information

Manufacturers who include resellers for selling their products rely on them to provide information which will help in improving the product or in increasing its sale. High-level channel members often provide sales data. On all other occasions the manufacturer can always rely on the reseller to provide him with customer feedback. Disadvantages of including intermediaries in the distribution channel

Revenue loss The manufacturer sells his product to the intermediaries at costs lower than the price at which these middlemen sell to the final customers. Therefore the manufacturer goes for a loss in revenue. The intermediaries would never offer their services to the manufacturer unless they made a profit out of selling his products. They are either made a direct payment by the manufacturer, for instance shipping costs or as in the case of retailers by selling the product at costs higher than the price at which the product was bought from the manufacturer (also known as markup). The manufacturer could have sold at this final price and made a greater profit if he had been managing the distribution all by himself.

Loss of Communication Control Along with loss over the revenue the manufacturer also loses control over what message is being conveyed to the final customers. The reseller may engage in personal selling in order to increase the product sale and communicate about the product to his customers. He might exaggerate about the benefits of the product this may lead to miscommunication problems with end users. The marketer may provide training to the salespersons of retail outlets but on the whole he has no control on the final message conveyed.

Loss of Product Importance The importance given to a manufacturers product by the members of the distribution channel is not under the manufacturers control. In various cases like transportation delays the product loses its importance in the channel and the sales suffer. Similarly a competitors product may enjoy greater importance as the channel members might be getting a higher promotional incentive.

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Distribution channels move products and services from businesses to consumers and to other businesses. Also known as marketing channels, channels of distribution consist of a set of interdependent organizationssuch as wholesalers, retailers, and sales agentsinvolved in making a product or service available for use or consumption. Distribution channels are just one component of the overall concept of distribution networks, which are the real, tangible systems of interconnected sources and destinations through which products pass on their way to final consumers. As Howard J. Weiss and Mark E. Gershon noted in Production and Operations Management, a basic distribution network consists of two parts: 1) a set of locations that store, ship, or receive materials (such as factories, warehouses, retail outlets); and 2) a set of routes (land, sea, air, satellite, cable, Internet) that connect these locations. Distribution networks may be classified as either simple or complex. A simple distribution network is one that consists of only a single source of supply, a single source of demand, or both, along with fixed transportation routes connecting that source with other parts of the network. In a simple distribution network, the major decisions for managers to make include when and how much to order and ship, based on internal purchasing and inventory considerations. In short, distribution describes all the logistics involved in delivering a company's products or services to the right place, at the right time, for the lowest cost. In the unending efforts to realize these goals, the channels of distribution selected by a business play a vital role in this process. Well-chosen channels constitute a significant competitive advantage, while poorly conceived or chosen channels can doom even a superior product or service to failure in the market.

MULTIPLE CHANNELS OF DISTRIBUTION

For many products and services, their manufacturers or providers use multiple channels of distribution. A personal computer, for example, might be bought directly from the manufacturer, either over the telephone, direct mail, or the Internet, or through several kinds of retailers, including independent computer stores, franchised computer stores, and department stores. In addition, large and small businesses may make their purchases through other outlets. Channel structures range from two to five levels. The simplest is a two-level structure in which goods and services move directly from the manufacturer or provider to the

consumer. Two-level structures occur in some industries where consumers are able to order products directly from the manufacturer and the manufacturer fulfills those orders through its own physical distribution system. In a three-level channel structure retailers serve as intermediaries between consumers and manufacturers. Retailers order products directly from the manufacturer, then sell those products directly to the consumer. A fourth level is added when manufacturers sell to wholesalers rather than to retailers. In a four-level structure, retailers order goods from wholesalers rather than manufacturers. Finally, a manufacturer's agent can serve as an intermediary between the manufacturer and its wholesalers, creating a five-level channel structure consisting of the manufacturer, agent, wholesale, retail, and consumer levels. A five-level channel structure might also consist of the manufacturer, wholesale, jobber, retail, and consumer levels, whereby jobbers service smaller retailers not covered by the large wholesalers in the industry.

BENEFITS OF INTERMEDIARIES
If selling directly from the manufacturer to the consumer were always the most efficient methodology for doing business, the need for channels of distribution would be obviated. Intermediaries, however, provide several benefits to both manufacturers and consumers: improved efficiency, a better assortment of products, routinization of transactions, and easier searching for goods as well as customers. The improved efficiency that results from adding intermediaries in the channels of distribution can easily be grasped with the help of a few examples. Take five manufacturers and 20 retailers, for instance. If each manufacturer sells directly to each retailer, there are 100 contact linesone line from each manufacturer to each retailer. The complexity of this distribution arrangement can be reduced by adding wholesalers as intermediaries between manufacturers and retailers. If a single wholesaler serves as the intermediary, the number of contacts is reduced from 100 to 25: five contact lines between the manufacturers and the wholesaler, and 20 contact lines between the wholesaler and the retailers. Reducing the number of necessary contacts brings more efficiency into the distribution system by eliminating duplicate efforts in ordering, processing, shipping, etc. In terms of efficiency there is an effect of diminishing returns as more intermediaries are added to the channels of distribution. If, in the example above, there were three

wholesalers instead of only one, the number of essential contacts increases to 75: 15 contacts between five manufacturers and three wholesalers, plus 60 contacts between three wholesalers and 20 retailers. Of course this example assumes that each retailer would order from each wholesaler and that each manufacturer would supply each wholesaler. In fact geographic and other constraints typically eliminate some lines of contact, making the channels of distribution more efficient. Intermediaries provide a second benefit by bridging the gap between the assortment of goods and services generated by producers and those in demand from consumers. Manufacturers typically produce large quantities of a few similar products, while consumers want small quantities of many different products. In order to smooth the flow of goods and services, intermediaries perform such functions as sorting, accumulation, allocation, and creating assortments. In sorting, intermediaries take a supply of different items and sort them into similar groupings, as exemplified by graded agricultural products. Accumulation means that intermediaries bring together items from a number of different sources to create a larger supply for their customers. Intermediaries allocate products by breaking down a homogeneous supply into smaller units for resale. Finally, they build up an assortment of products to give their customers a wider selection. A third benefit provided by intermediaries is that they help reduce the cost of distribution by making transactions routine. Exchange relationships can be standardized in terms of lot size, frequency of delivery and payment, and communications. Seller and buyer no longer have to bargain over every transaction. As transactions become more routine, the costs associated with those transactions are reduced. The use of intermediaries also aids the search processes of both buyers and sellers. Producers are searching to determine their customers' needs, while customers are searching for certain products and services. A degree of uncertainty in both search processes can be reduced by using channels of distribution. For example, consumers are more likely to find what they are looking for when they shop at wholesale or retail institutions organized by separate lines of trade, such as grocery, hardware, and clothing stores. In addition, producers can make some of their commonly used products more widely available by placing them in many different retail outlets, so that consumers are more likely to find them at the right time.

WHAT FLOWS THROUGH THE CHANNELS

Members of channels of distribution typically buy, sell, and transfer title to goods. There are, however, many other flows between channel members in addition to physical possession and ownership of goods. These include promotion flows, negotiation flows, financing, assuming risk, ordering, and payment. In some cases the flow is in one direction, from the manufacturer to the consumer. Physical possession, ownership, and promotion flow in one direction through the channels of distribution from the manufacturer to the consumer. In other cases there is a twoway flow. Negotiation, financing, and the assumption of risk flow in both directions between the manufacturer and the consumer. Ordering and payment are channel flows that go in one direction from the consumer to the manufacturer. There are also a number of support functions that help channel members perform their distribution tasks. Transportation, storage, insurance, financing, and advertising are tasks that can be performed by facilitating agencies that may or may not be considered part of the marketing channel. From a channel management point of view, it may be more effective to consider only those institutions and agencies that are involved in the transfer of title as channel members. The other agencies involved in supporting tasks can then be described as an ancillary or support structure. The rationale for separating these two types of organizations is that they each require different types of management decisions and have different levels of involvement in channel membership. Effective management of the channels of distribution involves forging better relationships among channel members. With respect to the task of distribution, all of the channel members are interdependent. Relationships between channel members can be influenced by how the channels are structured. Improved performance of the overall distribution system is achieved through managing such variables as channel structure and channel flows.

SELECTING CHANNELS FOR SMALL BUSINESSES

Given the importance of distribution channelsalong with the limited resources generally available to small businessesit is particularly important for entrepreneurs to make a careful assessment of their channel alternatives. In evaluating possible channels, it may be helpful first to analyze the distribution channels used by

competitors. This analysis may reveal that using the same channels would provide the best option, or it may show that choosing an alternative channel structure would give the small business a competitive advantage. Other factors to consider include the company's pricing strategy and internal resources. As a general rule, as the number of intermediaries included in a channel increase, producers lose a greater percentage of their control over the product and pay more to compensate each participating channel level. At the same time, however, more intermediaries can also provide greater market coverage. Among the many channels a small business owner can choose from are: direct sales (which provides the advantage of direct contact with the consumer); original equipment manufacturer (OEM) sales (in which a small business's product is sold to another company that incorporates it into a finished product); manufacturer's representatives (salespeople operating out of agencies that handle an assortment of complimentary products); wholesalers (which generally buy goods in large quantities, warehouse them, then break them down into smaller shipments for their customersusually retailers); brokers (who act as intermediaries between producers and wholesalers or retailers); retailers (which include independent stores as well as regional and national chains); and direct mail. Ideally, the distribution channels selected by a small business owner should be close to the desired market, able to provide necessary services to buyers, able to handle local advertising and promotion, experienced in selling compatible product lines, solid financially, cooperative, and reputable. Since many small businesses lack the resources to hire, train, and supervise their own sales forces, sales agents and brokers are a common distribution channel. Many small businesses consign their output to an agent, who might sell it to various wholesalers, one large distributor, or a number of retail outlets. In this way, an agent might provide the small business with access to channels it would not otherwise have had. Moreover, since most agents work on a commission basis, the cost of sales drops when the level of sales drops, which provides small businesses with some measure of protection against economic downturns. When selecting an agent, an entrepreneur should look for one who has experience with desired channels as well as with closely relatedbut not competitiveproducts.

Other channel alternatives can also offer benefits to small businesses. For example, by warehousing goods, wholesalers can reduce the amount of storage space needed by small manufacturers. They can also provide national distribution that might otherwise be out of reach for an entrepreneur. Selling directly to retailers can be a challenge for small business owners. Independent retailers tend to be the easiest market for entrepreneurs to penetrate. The merchandise buyers for independent retailers are most likely to get their supplies from local distributors, can order new items on the spot, and can make adjustments to inventory themselves. Likewise, buyers for small groups of retail stores also tend to hold decision-making power, and they are able to try out new items by writing small orders. However, these buyers are more likely to seek discounts, advertising allowances, and return guarantees. Medium-sized retail chains often do their buying through a central office. In order to convince the chain to carry a new product, an entrepreneur must usually make a formal sales presentation with brochures and samples. Once an item makes it onto the shelf, it is required to produce a certain amount of revenue to justify the space it occupies, or else it will be dropped in favor of a more profitable item. National retail chains, too, handle their merchandise buying out of centralized offices and are unlikely to see entrepreneurs making cold sales calls. Instead, they usually request a complete marketing program, with anticipated returns, before they will consider carrying a new product. Once an item becomes successful, however, these larger chains often establish direct computer links with producers for replenishment.
Advantages and Disadvantages of Different Distribution Modes

8.2.1 Supplying Goods Directly to Retailers Advantages:

Mainland retailers are developing in the direction of large-scale networks with multiple outlets. By supplying goods directly to these large retailers, especially retail chains, it is possible for the supplier to achieve the aim of expanding the coverage, increasing the exposure, capturing the market and boosting the brand-name of its merchandise within a relatively short time.

Disadvantages:

As retail outlets draw large numbers of consumers, retailers are in a leading and dominant position. Suppliers usually have to pay all kinds of charges of considerable amounts (e.g. advertising fee, promotion fee, entry fee and management fee etc) both before gaining market access and during the course of sale, which substantially raises their operating costs and squeezes their profit margins. Retailers (both foreign-invested and domestic) all sell on credit, with payments made at least 45-60 days, or even 90 days, after delivery. This increases the operating cost, tightens the cash flow and affects the fund control of suppliers. In the case of some enterprises which are burdened by cash and credit overdrafts, they stand great risks supplying to retailers they do not know all that well.

8.2.2 Appointing Agents/Distributors

Entering the market by appointing agents/distributors, especially large agents and distributors with extensive distribution networks, is a good option for small Hong Kong companies without a sound knowledge of the mainland market. Since large agents/distributors generally have long-term cooperation relationship with retailers, it is easier for new products to find their way into the market through agents/distributors. Compared with supplying goods directly to retailers, distributing goods through agents/distributors usually takes less time and covers a wider market reach. Riding on the high volume of other goods handled by the large agents/distributors, the entry fees and logistics expenses can be reduced. Dealing with only a few regional agents/distributors can give the supplier better control over its funds.

Disadvantages:

Since the supplier must allow its agents/distributors some profit margins, the price competitiveness of its products will inevitably be undermined. Since agents/distributors have a lot of products to handle, they will not be able to give as much attention to individual products as suppliers do. This may affect sales as well as the collection and handling of consumer feedback. Mainland agents/distributors have a relatively poor sense of service and the quality of their staff is uneven. This may also affect sales. Some mainland enterprises do not always abide by contract terms,

which may bring about credit risk. 8.2.3 Setting Up Own Retail Stores Advantages:

Dealing with end users directly facilitates the provision of more professional and customised services to customers and helps promote sales. It is conducive to discovering and grasping real market demand. Direct recovery of cash helps steer clear of credit risks and improves the effectiveness of fund utilisation. It is good for building and promoting brand image (such as through specialty stores), which will add to the value of both brands and products. Profit margin is relatively big.

Disadvantages:

Suitable locations are hard to find as competition intensifies. Stores have to be opened one by one, making it difficult for market coverage to grow quickly within a short time, which means that it takes a long time to break even. Good public relations are essential.

8.2.4 Online Direct Sales Advantages:

As urban residents are busy at work and their lifestyle is becoming more westernised, coupled with rapid technological advancement, the trend for online shopping is increasing. Not constrained by time and place, online shopping offers consumers in remote areas the convenience of ordering goods; this is particularly advantageous for suppliers without an extensive store network. Generally, prices of online goods are cheaper as operation cost is low due to the high degree of computerisation. Not constrained by shelf space, a wide range of goods (including some less popular goods and products not found in general retail stores) can be offered on the net. As websites can provide rich information on products and trends, a large community of online shoppers can be attracted.

Disadvantages:

Online sales cannot replace traditional sales channels as consumers still like to check out the physical product before making a purchase. For products offered on public B2C websites, since there are hundreds of choices for each kind of product, it is difficult for a product to stand out among the many similar products. As such, many B2C websites are not doing good business and their supporting logistics also have much room for improvement. To build one's own website, the inputs in logistics, technology, staff and advertising are substantial.

8.2.5 Franchise Operation Advantages:

The vast number of franchisees on the mainland facilitates the rapid opening of the market. Franchising facilitates the building of brand reputation within a relatively short time. The franchiser can make use of the social connections of mainland legal and natural persons, especially in unfamiliar places, the knowledge of local franchisees can be of great help. Small investment and quick returns.

Disadvantages:

High levels of management, brand popularity and reputation are required. Good logistics and services are required. Have to face the credit risks of franchisees; in the case where the conduct of the franchisees ruins the image of the franchiser, the franchiser may suffer damages.

8.2.6 Wholesale and Retail Marts Advantages:

Approval procedures for the registration of individually-owned businesses are simple. Suitable for small businesses as operating costs are low. Tax farming helps reduce tax burden. "Cash on delivery" facilitates quick capital returns.

Disadvantages:

Wholesale marts, especially those selling fast-moving consumer goods and mass merchandise, are facing tough times under the threat of warehouse-style stores and hypermarkets Mainland wholesale marts are a mixed bag selling goods of uneven quality. They strike people as being low end and low value. Thus, they are not suitable for mid- to high-end products or for building up brand names. Small transaction volume makes it difficult to substantially increase market coverage within a short time.