Article on Role of Distribution

Distribution – its role in Modern Marketing

Written by: Shilpa Kamath. A.
Lecturer, Management & Commerce, SMU DDE

 Free Home Delivery within 3 Kms. of the restaurant

 Furniture Delivery charges extra
 Buy online, Receive within One week at your doorstep
 Delivery within 30 minutes

All the above claims state that the product you liked, selected, ordered and bought is delivered to you at the
address you mention mostly your home. So, is this called Distribution of goods and services?

As a matter of fact, Distribution is making products available to consumers wherever they are or at the
specific consumption points or selling points. Therefore, the above statements are valid when we talk about
Distribution.

You will be interested to find out what aspects of Distribution are included
in this article. Following aspects will be briefly covered:

a) Distribution – one of the P‟s in the Marketing Mix

b) Distribution channel – members involved and their roles
c) Distribution strategies
d) Challenges & new trends in Distribution

Distribution – one of the P’s in the Marketing Mix

Marketing Mix or the 4 P‟s of Marketing Mix consisting of Product, Price,

Place and Promotion which are the basic core areas around which most of the Marketing strategies
revolve. There is continuous inter-link between these four elements. “Place” also called as “Distribution”
refers to the physical transfer of goods accompanied by related services and the involvement of several
parties in the distribution activities.

The business houses producing goods & services or the manufacturer of a product cannot do everything
for the consumers neither can consumers rely only on the producer to meet all their requirements or
demands. That‟s because of the following reasons:

 A Company manufacturing products for the consumer market will have its manufacturing units or
factories located at specific points. They will have to transfer or move the finished goods to such
places where they are stored or stocked to meet the market demands as and when they arise. This
need creates the job for the transporters, logistics, warehouses, stock or inventory control,
insurance schemes and others. Usually, the company assigns contracts to such agencies or service
providers or sometimes, the company itself will be involved in attending to such activities.
 A business enterprise if it‟s a small or medium based manufacturing unit, it cannot involve itself in
distribution functions as it will require more funds, people, time, efforts and timely execution of
plans. Naturally, they will seek assistance from the logistics experts, warehousing agencies,
stockists for undertaking distribution activities for their products.
 Even if a Company is able to meet with the requirements of Distribution activities, they may still
assign the distribution tasks to external parties who specialise in their field. Then, the company can

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concentrate its efforts on other business issues such as production, quality maintenance in products
or services, promotion and such other functions.
 When the company knows that its products are demanded in several places or even around the
world, it will have to seek help of these external parties who will assist in making the company‟s
products available at the nook and corners of the world. In case of International Marketing, it
becomes necessary that company has contacts with the marketing intermediaries who belong to
other countries.
 In the case of industrial goods and in B2B marketing, there are distribution activities but the
business term used for Distribution is more related with forming Supply chains or networks. The
raw-materials needed for production and other items required for business operations are delivered
through the supply chains. Businesses engage in Organisational buying procedures and methods
through which best suppliers are selected. So, suppliers too engage in distributing goods to the
business enterprises and these aspects are Supply Chain Management‟s key areas of focus.
 As for consumers, they will buy or seek products that are near to them and is conveniently made
available for them. Therefore, consumption points particularly retail stores, supermarkets, local
grocery shops have to be regularly supplied with products that are demanded most. For example,
fast moving consumer goods such as toothpastes or soaps must be kept in stock so that whenever
any consumer asks for it, it must be immediately available to them.
 Most consumers prefer certain brands and they are aware about the company producing them. But,
they can‟t go to the company to buy products. Branded products will be made available by the
company either in the Company‟s showrooms or exclusive stores or through franchisees or by the
marketing intermediaries.
 Since markets are spread far and wide, companies have to either involve themselves in distributing
the products produced by them or must take the assistance from the marketing intermediaries and
the service providers to distribute their products. Regular demand & consumption of products will
have to be backed up by consistent & continuous supply of products also. Therefore, Distribution
can be said as a constant system that ensures steady flow of products to lessen the gap between
demand and supply as well as balances the demand & supply of products.

Distribution Channel – members involved and their roles

A Marketing channel or distribution channel can be defined as “a system of relationships existing among
businesses that participate in the process of buying and selling products and services”.i

In other words, Distribution channel indicates the path through which goods or products move from
producer to ultimate consumer. It consists of the involvement of different people, co-ordination of several
activities and other facilitating services that enable the flow of products from manufacturing points to
consumption points.

The people involved in the Distribution channel are termed as marketing intermediaries (older term being
marketing middlemen) or Channel members or the Channel intermediaries or simply called as Distributors.

The complex roles of intermediaries may include taking physical ownership of products, collecting payment,
and offering after-sales services. These activities do involve certain risk factors like protecting the stock
from fire or robbery and also a great deal of responsibility such as ensuring that goods reach its destination
in time. That‟s why Producers or the manufacturers must consider the needs and demands of channel
members as well as those of end consumers.

“Marketing Channel Management” refers to the choice and control of these intermediaries like for instance,
the ability of the manufacturer to exert influence over retailers or not adhering to all the terms and
conditions imposed by certain channel members. The term “Trade Marketing” refers to the exchange
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process that involves the producer (who supplies or hands over the goods) and intermediary (who takes
over the possession of goods for the purpose of resale to the next level of intermediary).

For a marketer, Distribution is not just physical delivery of goods as it includes –

 Selection of appropriate channels – direct or indirect

 Decisions regarding type and nature of channel to be used – single channel or multiple channel
 Decisions regarding how to make channels available and the relevant terms and conditions –
whether to adhere to all the terms and conditions as put by the channel members or whether to
enter into consignments or contractual agreements with them
 Product related factors – whether to employ same channel for all products or to
have different channels for certain products
 Building a network of channels so that in case of critical situations or
unexpected circumstances there is always an alternative way of making
products reach at its destination points.
 Building mutual and long-term relationships with channel members – either to
take them as Channel Partners or to consider them in CRM process.
 Other decisions such as investments, funding the channel members, size of the channel, degree of
ownership, insuring of goods and such aspects.
 Distribution channels should be treated as strategic assets that add value to the Organisation.
 Distribution network is also connected with the company‟s SCM and CRM activities.
 Distribution activity carries along with it the other 3 P‟s of the marketing mix as well.

The Channel Members and their Roles -

Channel members involved in different Distribution channels are as follows:

Direct channel

Direct channel

Direct channel

(Source: cas.uah.edu/wrenb/mkt301/ch15/ch15.ppt)
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Apart from the traditional channels, there are modern ways in which Distribution of goods takes place. They
are as follows:

 Vertical Integration – refers to such a distribution system where different levels in the channel are
brought together under single ownership so that it is easier to control operations. At the same time,
costs are more for the company since they have to provide necessary support to the channel
members but then there will be high revenues as well as he is not required to provide profit margins
to the otherwise distributors. Vertical distribution systems maximise experience and expertise of
channel members at the same time reduce channel conflicts.
Vertical integration can be of two types – backward integration and Forward integration.

Backward integration is a type of vertical integration where channels are such that from raw-
materials to finished goods – everything is available in the same channel. It directly links the source
and the production. For example, cotton dress manufacturers may have cotton producers in their
own channel and whenever there is demand at production centres, it will be immediately delivered.
Forward integration is a type of vertical integration where channels are themselves engaged in
delivering finished or semi-finished products. Companies need not depend entirely on their
production centres. For example, cotton producers can themselves produce cotton cloth or fabrics.

High
Owned channels (also called as corporate High
vertical systems)
Backward
Forward
Integration
Integration
Franchise or administered
vertical systems Control

Costs Contractual
agreements
& Independent Low

Low distributors

Franchising – In a franchise system of distribution, the franchisor/seller or the company provides an

intermediary (franchisee) specific services (such as staff training or merchandising) and rights to
market the products within a given territory. In return, franchisee agrees to follow certain procedures
and not to buy from unauthorized sellers. This support by the franchisor is usually provided in
exchange for a specified fee or royalties from sales generated at the franchisee point.
For example, Mc‟ Donald‟s indulges in franchising.
 Dealerships & Exclusive showrooms – This kind of system is observed in highly expensive
products such as jewellery, diamonds, premium segment luxury cars, highly valued global brands
and top class products. They will have a separate retail stores and exclusive showroom or outlet to
distribute, promote and sell their products. For example, Rolls Royce has exclusive dealerships all
over the world.
 Institutional set ups – Distributive activities done at convenient and strategic locations such as the
airports, railway stations, tourist spots, movie theatres, shopping malls will yield quick results. For
example, vending machines at movies will adhere to both the needs of consumers – product is
made available, if in demand product will be accessed and used.

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 Media channels – Media channels are also a very much involved in distributing products. In case of
film industry, media channels will make themselves channel partners or media partners through
which films are advertised, promoted and even showcased.
 Internet medium – As a communication medium, Internet, e-mails or even social networking sites
extends the profiling and interactivity features of direct mail. By identifying an accurate customer
database, companies can send low-cost messages to customers, create rapid internal
communication between value chain members, intermediaries and employees.
 Customers or Consumers – Sometimes, customers can themselves become channel partners or
mediums through which companies can distribute as well as sell their products.
For example, global cosmetic products such as that of Avon or Revlon or Maybelline are involving
customers and consumers into distributing or selling their products to other consumers. The earlier
customers either gain discounts on their purchases or get some commission from the sale they
made.

The role of the marketing intermediaries and the tasks they carry out are as given below:

 Supplying & exchanging Information

 Transferring title & ownership of goods
 Breaking Bulk, assortment & unit packaging
 Carrying out promotion & advertising
 Dealing in negotiations
 Store planning & layout
 Dealer shows & events
 Accounting & financing services
Value-additions
 Data processing & information handling
 Private labeling & merchandising
 Inventory control & stock insurance
 Sales force training
 Consulting services
 Meeting specific delivery requirements
 Handling complaints of consumers
 Other tasks

 Maintaining good Customer relationship

 After-sales services & assistance
 Forms & printing assistance
 Point-of-sales & sales promotion
 Keeping checks on fast moving Stock Keeping Units (SKU)
 Warehousing & stocking functions
 Risk-taking
 Transportation & logistics Functional tasks
 Quality checking & maintenance
 Supply chain effectiveness & achieving efficiency
 Procuring of personnel & staff
 Outsourcing functions
 Production involvement & joint product development
 Technological support functions
 Treatment of unsold & damaged stock
 Other functions

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The main role of the distributors is to be the LINK between Producers and the consumers. From the above,
it is quite clear that tasks and functions performed by the channel members are in nothing but the
distribution activities that take place on a regular basis in the distribution channel.

Distribution strategies

Distribution strategies can be anything that ensures right and efficient ways of handling goods and services
in the distribution channel either by the producer or the distributors.

From the Organisational view-point, distribution strategies can include the following:

a) Channel Selection strategies - which is based on -

 End-user’s expectations/demand/preferences/needs & wants – according to the

consumer‟s requirement, products have to be supplied or delivered to them so that they have
the goods in possession at the right time, in the right place in right condition/quantity, with
the right price and which satisfies them.
For example: A particular consumer segment may prefer to have a free carry bag along with
a specific brand of perfumes. So, it becomes necessary that the carry bags are also given
along in the distribution channel.
 Producer objectives – it is dependent on the Organisation‟s distribution objectives, abilities
and capacity also as to how much they can invest in channels and how they want their
distribution system to be. Organisation‟s resources and its priorities related with distribution
of products is considerable aspect in selecting a channel. Another important issue is
regarding degree of Control an organisation wishes to have over its channels or the channel
members.
For example: A company‟s sales force is quite efficient in selling as well as delivering goods
at the consumer‟s place. So, this company need not rely more on having a lengthy or
multiple distribution channel that involves many distributors.
 Product attributes/features – the nature of the products manufactured by the company is
also a key aspect in channel selection. If the product is perishable in nature then it will
require a short and quick delivery system but if products are durable in nature, it is again
dependent on the size, packaging, flexibility and such other product features in order to
distribute or deliver them to their destinations.
For example: Milk is a highly perishable product consumed on a daily basis. That‟s why milk
delivery vans start directly from the milk dairies or factories and are not even stopped during
a curfew or similar situation.
In the case of Industrial products where heavy equipments or machinery is required to be
delivered, it will have to done in systematic manner.
 Competitive factors – the distribution channel adopted by competitors engaged in similar
product categories may be taken note of by the company. The same channel if feasible
could be used or assistance from other channel members involved in similar distribution
systems can be employed by the company.
For example: A company manufacturing a Soft-drink may take hint from its rival soft drink
and adopt distribution strategies such as providing company-owned chilled vending
machines at convenient locations like shopping malls or inside office buildings.
 Available channels – Before deciding upon a particular distribution channel, company must
first find out about existing channels and distribution methods. Then, it must analyse its
strengths and weaknesses based on which it will decide whether to go for newer channels or
use the available ones.
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For example: Company has found that retailers are abundant in a particular city but there is
less number of wholesales. So, either company can decide to use the Retailer channel to
reach consumers or they may include agents also in the channel.
 Alternative channels – It is essential to find out other alternative channels for distributing
products because existing channels may either lose out on efficiency or may prove to be
costlier.
For example: Companies can always use their website and seek order placements or sell
directly to the consumers through the internet medium by making such arrangements for
online payments and such other aspects.
 Multiple channels (also called as Hybrid channels) – A network of different channels is
advisable for a company whose products are highly demanded in the market. Also, a
company is only one side of the distribution channel. If some channel members do not
accept to assist company‟s distribution activities, then company cannot force them. It is like a
mutually beneficial relationship.
For example: A particular group of wholesalers may not agree to stock the company‟s
products in their godown. But company needs to stock it somewhere. So, either they can
rent some place to stock goods or could take assistance from warehousing agencies to
provide space.

b) Channel Design strategies - will be influenced by -

 Channel Objectives – whatever objectives are set for the channel, it has to be based on
positioning strategies. The place element of the marketing mix must be consistent with the
remaining marketing tools to achieve competitive advantage. It will also help in maintaining
existing consumers as well as gain new markets.
For example: if product is positioned as a safe & eco-friendly product then distributors also
must be aware of this and maintain the product‟s image.
 Type of Distribution – The Company has to decide on the type of distribution desirable for
its products. It maybe intensive or selective distribution or even
exclusive stores for certain brands. As seen recently, company
also has to ensure that its products and brands are not
compromised at the supermarkets, departmental stores or in big
retail chains.
For example: Claims from off-price retailers like for instance Brand
Factory or Mega mart regarding “Low price” or “More Quantity” has
to be checked upon by the manufacturers.
 Distributor’s profit margins and charges – Company must be sure about what kind of
remuneration is to be offered to the channel members and what charges they can claim from
the company. Even profit margins must be clearly set before any transaction takes place.
For example: There was a conflict among Multiplex owners, film producers and distributors
regarding the revenue sharing ratio after the film releases and enters into 2 nd week and 3rd
week respectively.
 Channel conflict – sometimes strategies employed by companies can create unstable,
adversarial and pressure relationships between producers and intermediaries. Conflicts may
arise from inconsistencies, bias attitude towards some members, having too many
distributors or links in the supply chain, threat of new channels, competition from existing
channels and any other triggering issues. When conflicts arise in the channel and affect
smooth flow of goods, then companies have to resolve them through different mechanisms

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such as arriving at consensus, appreciating and meeting the channel member‟s

requirements and most of all fulfilling commitments or obligations.
For example: having a discount agent alongside an established dealership will ruin the
relations as well as hurt the brand image of the product.

c) Other strategies: Other strategies include -

 Logistics & transportation – as such it is considered as a distinctive area that

involves movement of stock, shipment, transporting stock from one place to
another and such other related activity based strategies.
For example: which is the optimal way to deliver flowers or when to use air
transport for distributing goods.
 Warehousing facilities – which facilitate the stocking of goods in specific
locations. It also gives protection and ensures safety of goods.
 Promotional strategies – A company is very likely to use the channel members
in promotion efforts also. A combination of promotional activities along with distribution
functions will help in reaching out to the markets with a strong message. It can be said that in
Distribution there is an element of promotion and vice-versa.
 Insurances – deciding factors to determine the type of insurance required, term period and
amount whether different types of insurances like marine, fire, godown is to be borne by the
channel members or the producer themselves.
 Overseas agents and distributors – in case of foreign markets and international players,
the assistance of overseas agents and distributors is very essential.
 Global networks – International marketing environment requires a global
network that can access most markets around the world.

Challenges and new trends in Distribution

A distribution channel not just delivers physically but also carries along the service component, Company‟s
reputation, brand value and an obligation to serve customers and consumers better. But, there are several
challenges and new happenings around distribution activity. Some of them are as follows:

a) Time, distance and knowledge gap – as the market demand is ever-increasing for majority of
products and services, there is always the need to be there at time, cover the distance and reduce
the lack of knowledge. Most of the time, distributors are unaware about the company‟s product
range or quality standards.
b) Information gap – very often the communication between consumers and distributors is minimal or
insufficient to be acted upon. At the same time, lack of frequent information flow between producer
and distributors is also a concern. But, with modern communication systems and tools, it is possible
to reduce this gap.
c) Outsourcing – Today it is common for companies to outsource basic and routine tasks to external
parties. But, even in that case, delivery of supplies or crucial resources from company‟s side and
completion of given tasks from outsourcing has to reach in time. There must be a system in place to
ensure that there is no delay.
d) Infomediary – Information is a key resource that will help any organisation. With the rapid usage of
Internet and different websites on it, customers seek online transactions to reduce time, money and
efforts. „Infomediaries‟ a new term for channel members who gather information about customers,
product offerings and then use it on customer‟s behalf to get a better deal from the provider. Still in
its developmental stage, Infomediaries are the information links in a distribution channel. In case of

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services also, counselling services, consulting and advisory groups act as infomediaries in the
service delivery process.
e) Online facilities and internet – E-shopping, Company‟s websites and several other websites on
the Internet are providing online services, online transactions and online
payment methods to customers. This has resulted into faster buying and
selling activities. But, all the same, it cannot replace home delivery which will
still involve people and the costs of labour plus transport. It must be ensured
that goods are delivered to customers at convenient time when someone is
there to receive the order. The challenge is also to provide alternative secure
storage arrangements for the products.

Conclusion: Distribution, its activities, strategies, channel and channel members, links with other areas
such as logistics or warehousing and the ultimate goal to reach consumers are an ongoing process that will
very rarely come to a standstill.

References:

Adrian Palmer - Introduction to Marketing – theory & practice, Indian edition

Dennis Adcock, Ray Bradfield, Al Halborg and Caroline Ross - Marketing Principles & Practices, 2nd edition

i
Bowersox and Cooper; Introduction to Marketing – theory & practice by Adrian Palmer