Reading Summary Group-10 | Section B

Designing Channels of Distribution

Distribution is a process of delivering products from producer to ultimate consumers using

various channels. Selecting the nature and number of channels is very important for
producers to achieve efficient distribution which results in competitive advantage. Designing
a distribution system is an important strategic decision and often option of a multistage
distribution process seems reasonable.

Designing and implementing distribution channels affects the different aspects of business-
segmentation, reaching out to customers, revenue streams and profitability. Channel
decisions take longer time to implement since adding or removing a channel cannot do
quickly. Therefore, knowing different types of channel and then selecting optimum channel
according to their functions is very important.

Optimal Distribution System- Marketing managers often struggle to balance control and
coverage in selecting distribution channels which assure sufficient market coverage
1) Intensive distribution- It is the strategy of producers to have high visibility and
availability for frequently purchased and low-priced products so that customers can find and
buy them easily with little effort. It gives wide coverage but maintaining control for the
producers becomes very difficult. Too much distribution creates problems for resellers also as
it lowers margins, therefore manufacturers prefer focused and motivated resellers.
2) Exclusive distribution- In this model, product availability is reduced to exclusive stores
or a particular location. Producers give exclusive rights to channel partners in the exchange of
certain business decisions. Its benefits are greater control over resellers, elimination of
competitors, lower transaction costs, and more commitment from resellers. Also, dedicated
resellers reduce costs and utilize the channel optimally making customers the priority.
3) Selective distribution- It is a combination of two distribution mentioned above where the
product is less wildly distributed than intensive but more available compared to exclusive
distribution. The objective is to gain wide coverage by maintaining some control over factors
affecting sales and distribution of products. Depending on product and consumer
characteristics some producers use more selective (intensive) while some use less selective
strategies (exclusive) in effort to employ the channels appealing to most customers.

Still, many manufactures prefer wide coverage to increase their sales but it increases the
competition among resellers resulting in low margins, low prices to consumers, and high
sales. Producers prefer exclusivity while resellers prefer a large portfolio of competing
Reading Summary Group-10 | Section B

products. So, both parties engage in negotiations and decisions to form a optimum system but
it is also constrained by customer needs.

A distribution channel comprised of a series of steps which can be compared to fundamental

concepts of Marketing Management like- STP (Segmentation, Targeting, Positioning). They
are designed through the backward integration process starting from the consumers till the
manufactures; here customers are the point of origin.

Segmenting: It objective to identify various needs states of different consumers segment and
figuring out how a distribution channel be designed or configured to fulfill those need states.

Targeting: It is about finalizing which segments to cater to and which not to, this should be
done in a way that minimizes the overlaps of individual channel constituents interest, we
don’t them to compete for same incentives, which would make the distribution system
inefficient.

Factors causing changes in Channel Designs:

Emergence of Significant Intense Price Corporate Shift of Consumer

New Products Market decline Competition Mergers to Online
Markets

The recent trends that can be observed in the distribution channels are self-servicing by the
customers, Strategic sourcing by the retailers, Fee-based services from distributors, higher
spend on technology. The distributor margin is the price difference between the price
received from the retailers and the price that is paid to the upstream wholesaler or the
manufacturer. Along with the margins the distributers also get various incentives from the
manufacturers in return for early invoice payments, achieving preset targets for net sales in
terms of both volume and revenue, for bulk buying or for performing promotional activities
for the manufacturers.

The reputation or the strength of the Brand Image of a brand that a given distributer is
associated with also affects the design and implementation of their distribution strategy.
Being associated with a respected brand gives an opportunity for the distributor to get
involved in a highly intensive distribution network. The big corporates like considers the
selection of distributors as strategic decisions considering the fact that these distributors add
many value-added services to product in a manner that they become the part of the product
offering itself.