12-1

Overview
of
Distribution
Channels, their
role and functions
 12-2

Marketing & Distribution

• The forth P of marketing called Place includes company

activities that make the product available to target
consumers.
• In other words, it seeks distribution of the product.
• The distribution is secured through the channels or
marketing intermediaries.
 12-3

Distribution Channel Management-

an introduction
• Distribution channels are the most visible aspect of any
company’s marketing efforts.
• A recent estimate puts the number of retail outlets in India
at 5 million.
• The distribution function is currently undergoing
tremendous changes in terms of both its span and
productivity.
• The Internet has enabled the manufactures to perform
several distribution –related activities without the need for
employing intermediaries.
• As a result, questions are being asked about the very
relevance of intermediaries in performing distribution-
related activities.

•
 12-4

Distribution Channels

• A set of interdependent organizations

(intermediaries) involved in the process of
making a product or service available for use
or consumption by the consumer or business
user. Stern & El Ansary
• If the process of ‘exchange’ is the essence of
marketing, then channels, by facilitating the
process of exchange, perform a critical role in
overall marketing function.
 12-5

Reason for using distribution channel

• The basic question is why does producers give some

selling job to intermediaries when doing so means giving
up extra margin & some control over how and to whom the
products are sold.
• The reason behind it is that the use of intermediaries
results from their greater efficiency in making goods
available to target markets.
• Through their contacts, experience, specialisation and
scale of operations, intermediaries usually offer the firm
more than it can achieve on its own.
• Intermediaries are necessary in order to bridge the
discrepancy between the assortment of goods and
services generated by the producer and the assortment
demanded by the consumer.
 12-6

Need for distribution channels

• Pitt et all argue that intermediaries essentially exist to

perform three functions:
• To adjust the discrepancy of assortment through the
process of sorting, accumulation, allocation and assorting
• To minimise the distribution costs through routinizing and
standardising transactions which makes the exchange
more effective and efficient.
• They facilitate the searching process of both buyers and
sellers by structuring the information network essential to
both the parties as well as providing a place and
opportunity for both parties to meet each other, and reduce
uncertainty.
 12-7

• Discrepancy results because manufacturers produce a

large quantity of a limited variety of goods, whereas
consumers usually desire only a limited quantity of a wide
variety of goods.
 12-8

Role of Intermediaries

• Greater efficiency in making goods

available to target markets.
• Intermediaries provide
–Contacts
–Experience
–Specialization
–Scale of operation
• Match supply and demand.
 12-9

• Marketing / Distribution Channels create

• - Time
- Place
- Possession/ownership utility

• Delivered at the right time - time utility

• Delivered to the right place - place utility
• With appropriate legal requirements - possession /
ownership utility
 12-10

Channel Member Functions

• Gather information
• Develop and disseminate persuasive communications
• Reach agreements on price and terms
• Acquire funds to finance inventories
• Assume risks
• Provide for storage
• Provide for buyers’ payment of their bills
• Oversee actual transfer of ownership
 12-11

Channel Functions

•Information
•Promotion
•Contact
•Matching
•Negotiation
•Physical Distribution
•Financing
•Risk taking
 12-12

Designing a Marketing Channel System

• Analyze customer needs

• Establish channel objectives
• Identify major channel alternatives
• Evaluate major channel alternatives
 12-13

Channel Levels

•Manufacturer
•Wholesaler
•Retailer
•Consumer
 12-14

Discrepancies

• Discrepancy of Quantity
• Discrepancy of Assortment
 12-15

Discrepancies

• Discrepancy of Quantity
• the mfg. Makes much more than individual consumers
want to buy each time
• middlemen, wholesalers and retailers break this
amount down into smaller amounts for individual
consumers to buy
 12-16

Discrepancies

• Discrepancy of Quantity
• … the difference between the quantity of products it is
economical for an individual producer to make and the
quantity normally wanted by individual consumers or
users...
 12-17

Discrepancies

• Discrepancy of Assortment
• the difference between ALL the product lines a mfg.
Makes, and what the wholesaler wants to sell, and what
the consumer will buy
• middlemen, break this amount down into different
selections which the wholesalers want
 12-18

Discrepancies

• Discrepancy of Assortment
• the difference between ALL the product lines a mfg.
Makes, and what the wholesaler wants to sell, and what
the consumer will buy
• middlemen, break this amount down into different
selections which the wholesalers want
 12-19

Discrepancies

• middlemen, break this amount down into different

selections which the wholesalers want
• EG. KRAFT makes many many different types of salad
dressing
• A no-frills store just wants to sell 7 types cause its
customers don’t buy the fancy kinds
 12-20

• Accumulation - combining products from several different

producers. “… make it more convenient for companies to
buy and handle…”

• When farmers collect food, and sell them to buyers who

gather large amounts for shipping to processors

Breaking Bulk - take all the product and physically move it

into small containers so it can be shipped to wholesalers.
“… divide larger quantities into smaller quantities…”
 12-21

Sorting

• Separating products into grades and qualities desired by different

target markets.
• Eg. Food products, small onions, large onions,
• or white eggs, brown eggs
• or …
• Taking heterogeneous commodities and sorting them into
homogenous categories
• Eg. All apples into red apples and green apples
• The process that helps producers,
• who produce different amounts,
• and different types,
• organize their products
• into categories/assortments
• to make it easier for the consumer to buy.
 12-22

Sorting

• putting together a variety of products to give a target

market what it wants…”
• ie. In this video store, mostly Asian films
• ie. In this record store, mostly hip hop
• ie. In this jewelry store, mostly chains