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Distribution Channel
Goods are produced by a manufacturer for the user or the ultimate customer. The customer is the
ultimate target for a marketer. The customer purchases goods only when it is available in the
market. The availability of
Producers
Intermediari
es
Consumer
Distribution Channel is a set of independent organizations that help make a product or service
available for use or consumption by the consumer or business user. Distribution channels are
also called marketing channels because they are not only concerned with the physical
distribution goods but also with their promotion, selling and marketing.
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a.
Number of contacts
M*C = 3*3 = 9
M= manufacturer
b. number of contacts
M+C = 3+3= 6
D= Distributor
C= customer
1. Information:
Gathering and distributing marketing research and intelligence information about actors
and forces in the marketing environment needed foe planning and aiding exchange.
2. Promotion:
Developing and spreading persuasive communications about an offer.
3. Contact:
Finding and communicating with prospective buyers.
4. Matching:
Shaping and fitting the offer to the buyers needs, including activities such as
manufacturing, grading, assembling and packaging.
5. Negotiation:
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Reaching an agreement on price and other terms of the offer so that ownership or
possession can be transferred.
6. Physical Distribution:
Transporting and storing goods.
7. Financing:
Acquiring and using funds to cover the costs of the channel work.
8. Risk taking:
Assuming the risks of carrying out the channel work.
A large number of middlemen are available through which a product can be distributed. Each
middlemen involves some cost which enters into the price of the product thet the ultimate
consumer has to bear. If a wrong choice of distribution channel is made, it will lead to increase in
the distribution cost which will lead to either lowering down of profits or increasing the cost of
the product to the customer.
Choice of
Distribution
Channel
Product
Price
Promotion
Profitability/cost
to the customer
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Market Considerations
Product Consideration
Company Consideration
Middlemen Consideration
A.
Market Consideration:
The nature of market is the key factor influencing the choice of channels of
distribution.
The following features of the market should analyzed to determine the channels.
1. Consumer or industrial market:
If the product is for industrial market or industrial users, i.e channel of
distribution will be a short one. Since industrial users purchase in large quantities,
they can purchase directly from the producers or manufacturers, i.e. there is no
need of retailers. The manufacturer can establish contacts with the industrial users
by sending his agents. But in case of product for the consumer retailer may have
to be included in the channel of distribution.
2. Number of potential customers:
A large potential market is likely to put weigh in favour of the use of middlemen.
If the number of customers is relatively small, the manufacturer may be able to
sell directly by using his own sales force as customer handling would not be
difficult.
3. Size of the order:
Direct selling is convenient and economical where customers place order in big
lots as in case of industrial goods. But where the product is sold in small
quantities, middlemen are used to distribute such products.
4. Buying habits of customer:
The customer buying habits like
the time he is willing to spend
the preference for personal attention and
BBA 205
Prepared by :
Marketing Management
Asha Chauhan
UNIT III
BBA 205
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Marketing Management
Asha Chauhan
UNIT III
BBA 205
Prepared by :
Marketing Management
Asha Chauhan
UNIT III
4. Services provided to the cannels: a manufacturer can find good retailers only
if the marketing department undertakes sufficient advertising. Some
manufacturer of technical products undertake to provide after sale service .
such manufacturer can also reputed retailers for selling its products.
5. Desire for control of channels: a manufacturer who wants to control the
distribution of his product will select a short channel of distribution. He may
do so even though the distribution cost is hirer if he feels that the marketing
department can give aggressive promotion to the product.
D. Middlemen Consideration
1. Availability of desired middlemen: a manufacturer will rely on the middlemen if
they operate according to his desire. The marketer may not entrust product to a
middlemen who is carrying competitive products. In such a case, it may prefer to
open branches to sell products directly.
2. Financial ability: a large manufacturer will generally select those middlemen
who are financially strong, can provide credit facilities to the customers, and pay
their bills to the manufacturer regularly and promptly.
3. Sales potential : a manufacturer will general select a channel offering the greatest
potential sales volume over the long-run though it is very difficult to access which
channel will generate the largest sales volume.
4. Cost: the manufacturer also consider the cost of selling through alternative
channels. it does not mean that a middlemen charging high cost would be
excluded from consideration. A manufacturer may select6 even a high cost
charging middlemen who provides man services to the customers which are not
provided by other middlemen. This would provide added value to the customer.
5. Competition and legal constraints: many times the manufacturer are compelled
to use the same channels of distribution which are been used by the competitor.
Government regulations also affect the choice of middlemen.
For instance, a pharmaceutical company can market its product through licensed
chemists only.
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LEVELS OF CHANNELS
Companies can design their distribution channels to make products and services available to
customers in different ways. Each layer of marketing intermediaries that performs some work in
bringing the product and its ownership closer to the final buyer is a channel level. Because the
producer and the final consumer both perform some work, they are part of every channel.
The number of intermediary levels indicate the length of a channel.
There are two type of Marketing Channel Systems:
1. Vertical Marketing System (VMS)
2. Horizontal Marketing system (HMS)
R
Producers
Retailer
Its simply a
channel in
which members
at different
levels (hence,
vertical) work
together in a
unified way
(hence system)
to accomplish
the work of the
channel
Wholesaler
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consum
er
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These channels contains one or more intermediaries. The business marketer can use its
own sales force to sell directly to business customers. Or it can sell to various types of
intermediaries, who in turn sell to these customers. Consumers with even more levels can
sometime be found, but less often.
From the producers point of view, a great levels of numbers means less control and great
channel complexity, moreover, all of the institutions in the channels are connected by
several types of flow. These include the physical flow of product, the flow of ownership,
the payment flow, the information flow, and the promotion flow. These flows can make
even channels with only one or few levels very complex.
Indirect marketing channel may further classified in the following categories:
1. One Level Channel
In this type channel there is only one intermediary between producer and consumer.
This intermediary may be retailer or a distributor.
The number of intermediary levels indicate the length of a channel.
Producer
Retailer
1 level
Consumer
If the intermediary is a distributor, this type of channel is used for specialty products like
washing machines, refrigerators or industrial products.
Producer
Distributor
Consumer
10
1 level
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2. Two-Level Channel
This type of channel has two intermediaries, namely, wholesaler/distributor and retailer.
Producer
Wholesaler/Distributor
2 Levels
Retailer
Consumer
3. Three- Level Channel
This type of channel has three intermediaries, namely distributor, wholesaler and
retailer. This pattern is also used for convenience products.
Producer
Distributor
Wholesaler
3 Levels
Retailer
Consumer
4. Four-Level Channel
This type of channel has four intermediaries , namely, Agent, Distributor, Wholesaler and
Retailer. This is somehow similar to the previous two. This type of channel is used for consumer
durable products also.
Producer
Agents
Distributor
4 Levels
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Wholesaler
Retailer
Consumer
Producer
Producer
Producer
Wholesaler
Consumer
Retailer
Retailer
Consumer
Consumer
Producer
Producer
Producer
Manufacturers
Representatives or
Sales branch
Business
Business Distributor
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Distributor
Business
Customer
Business customer
Business customer
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Do consumers want to buy from nearby locations or are they willing to travel to more
Providing higher levels of service results in higher costs for the channel and higher prices for
consumers. The company must balance consumer needs not only against the feasibility and costs
of meeting these needs but also against customer price preference.
functions it can handle itself and which it must give to intermediaries. Companies selling
perishable products may require more direct marketing to avoid delays and too much handling.
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UNIT III
When the company has defined its channel objectives, it should next identify its major channel
alternatives in terms of types of intermediaries, the number of intermediaries, and the
responsibilities of each channel member.
Types of intermediaries
A firm should identify the types of channel members available to carry out is channel work. Most
companies face many channel member choices. For example, initially Dell sold directly to final
consumers and buyers only through phones and internet marketing channel. It also sold directly
to large corporate, institutional, and government buyers using its direct sales force. However to
reach more consumers and to match competitors such as HP, Dell now sells indirectly through
retailers such as E-Zone, Big Bazaar, and Walmart. It also sells indirectly through value added
resellers, independent distributor and dealers who develop computer systems and applications
tailored to the special needs of small and medium-sized business customers.
Number of Marketing Intermediaries:
Companies must also determine the number of channel members to use at each level.
Three strategies are available :
1. Intensive distribution
2. Exclusive distribution
3. Selective distribution
Producers of convenience products and common raw materials typically seek
intensive distribution. a strategy in which they stock their products in as many outlets
as possible. These products must be available where and when consumers want them
for ex: toothpaste, paan masala, cigrattees, candy and other similar items.
Ex: HUL, coco-cola, Nestle
Exclusive distribution: in which the producer gives only a limited numbers dealers
the exclusive right to distribute its products in their territories. ED id the distribution
of luxury automobiles and prestige womens clothing.
For example: Rolex watches are typically sold by only a handful of authorized
dealers in any given market are.
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UNIT III
Between intensive and exclusive distribution lies selective distribution: the use of
more than one, but fewer than all, of the intermediaries who are willing to carry a
companys products. Most television, furniture and home appliance brands are
distributed in this manner. For example, whirlpool and general electric sell their major
appliances through dealer networks and selected large retailers
Responsibilities of Channel Members
The producers and intermediaries need to agree on the terms and responsibilities of each
channel member. They should agree on price policies, conditions of the sale, territorial rights,
and specific services to be performed by each party. The producer should establish a list price
and a fair set of discounts for intermediaries.
For example, Mc Donalds provides franchisees with promotional support, a record
keeping system, and general management assistance. In turn franchisees must meet company
standards for physical facilities and food quality, cooperate with new promotion programs,
provide requested information, and buy specified food products.
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UNIT III
Once the company has reviewed its channel alternatives and decided on the best channel design,
it must implement and manage the chosen channel.
Marketing channel management deals with selecting, managing and motivating the individual
channel member and evaluating their performance over time.
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UNIT III
Company wants to evaluate each channel members years in business, other lines carried, growth,
and profit record, cooperativeness and reputation.
If the intermediaries are sales agents, the company will want to evaluate the number , size and
quality of salesforce if the intermediary is a retail store that wants exclusive or selective
distribution the company will want to evaluate the storess customers , locations and future
growth potential.
delivery system that meets the needs of both company and its marketing partners.
In managing its channels , a company must convince distributors that they can succeed better by
working together. For example; Procter and Gamble, works closely with Big Bazaar and Wal
mart to create superior value for final consumers. The two jointly plan merchandising goals and
strategies, inventory levels and advertising and promotion programs.
Just as they use CRM (Customer relationship management ) software systems to help manage
relationships with important customers, companies can now use PRM SCM Supplier chain
management software to recruit, train, organize, manage, motivate, and evaluating relationships
with channels partners.
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UNIT III
Retailers are always searching for new marketing strategies to attract and hold customers.
Retailers face major marketing decision about segmentation and targeting, store differentiation
and positioning, and the retail marketing mix.
Retail Strategy
Retail Marketing
Mix
Retail
segmentation
and targeting
Product and
service
assortment
Retail prices
Store
differentiation
and positioning
Promotion
Distribution
(location)
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UNIT III
RETAIL STRATEGY
Segmentation:
Targeting:
Targeting means selecting one or more than one segment from total market to provide
goods and services.
Adidas: target women segment in India for product.
Motorola: Now there is no existence of Motorola in industry but when Motorola entered
they initially concentrated on one segment i.e Business market
But after certain period they picked multiple segments into its target market
1. Mass market: so that Motorola will reach to every common person.
2. Business market
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3. Tech savy up market(multimedia enabled offers) like Razr V3, designer set for the up
market and tech savvy customer price Rs 31995 at the starting level.
Positioning:
Successful retailers define their target markets well and position themselves strongly.
Positioning consists of arranging for a market offering to occupy a clear, distinctive and desirable
place relative to competing products in the minds of target customers.
Objectives of Positioning:
1. To create a distinctive place of a product or service in the minds of potential customers.
2. To convey attractiveness of the product or the service to the target market.
3. Place an intangible service within a more tangible frame of reference.
4. Help influence both service development and redesign of existing service.
5. Follow consideration of the competitors possible moves and responses so that
appropriate action can be taken as.
6. To give the target markets the reason of buying your services and then design the whole
strategy.
7. To provide guidelines for the development of marketing mix with each element being
consistent with the positioning.
For example, Big Bazaar promises the lowest possible prices to its customers through its
tagline isse sasta aur kahan?
Dominos Pizza, positioned themselves as product will reach within 30 minutes at
customer place.
RETAIL MARKETING MIX
Product assortment and Service decision:
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UNIT III
Product assortment: retailers should differentiate the retailer while matching target
shoppers expectations.
I Strategy: is to offer no other competitors carries such as store brands or national brands
on which it hold its exclusively. Example, Rolex watches
II Strategy: in order to differentiate, a retailer can obtain exclusive rights to carry a well
known designers labels alongwith its own private label lines.
Example: shopper stop carry national brand like Peter England, Van Heusen, Arrow and
also carrying private label brands like Stop and Kashish.
Service Mix: it can help to set one retailer apart from another .
Example, some retailers invite customers to ask questions or consult service
representatives in person or via phone or keyboard. Retailers can provide toll free number or
membership cards. For example Retailers like Westside and pantaloons are providing
membership cards
Home Depot offers a diverse mix of services to do-it-yourself
Store atmosphere: it is an important element in reseller product. The retailer wants to
create a unique store experience on that suits the target market and moves customers to buy.
For example: Apple store design is clean, simple. The store invites shoppers to stay a
while use the equipment and seek up all the exciting new technology.
Todays successful retailer carefully consider every aspect of the consumer store
experience, down to music, lightning and even the smells.
Bright light create excitement
Softer light create mellow mood.
Price decision: a retailer price policy must fit its target market and positioning, product
and service assortment and competition. All retailers would like to charge high markups and
achieving high volume BUT the two seldom go together.
Most retailers seek either high markups on lower volume (most speciality stores )
OR low markups on higher volume (like discount stores).
Promotion Decision: retailers use any or all of the promotion tools, advertisements,
Personal selling, sales promotion, public relation, direct marketing.
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UNIT III
Retailing
Retailing includes all the activities involved in selling products or services directly to final
consumers for their personal , non-business use. These products and services are sold in smaller
quantities and with high frequency.
Many organization like manufacturer, retailers and wholesalers do retailing but most retailing is
done by retailers.
Types of Retailers:
It can be classified on several characteristics:
1. Amount of service they offer
2. Breadth and depth of their product lines
3. The relative prices they charge
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UNIT III
A. AMOUNT OF SERVICE
Different types of customers and products require different amounts of service. Retailer
may offer one of three service levels:
1. Self-service retailers: serve customers who are willing to perform their own locatecompare-select process to save time or money. Self service is the basis of all
discount operations and is typically used by retailers convenience goods and
nationally branded, fast moving shopping goods (such as wal-mart or big bazaar).
2. Limited-service retailers: like, shoppers stop in india, provide more sales assistance
because they carry shopping goods about which customers need information. Their
increased operating costs result in higher prices.
3. Full-service retailers: such as speciality stores(eg, croma and e-zone) and full class
department stores such Chenone, salespeople assist customers in every phase of the
shopping process. These stores carry more specialty goods for for which customers
need or want assistance or advice. They provide more services resulting in much
higher operating costs, which are passed along to customers as higher prices.
B. PRODUCT LINE: retailers can be classified by the length and breadth of their product
assortments:
1. Specialty stores:
These stores carry narrow product lines deep assortments within those lines example,
Bata, Titan etc. the increasing use of market segmentation, market targeting, and product
specialization has resulted in a greater need for stores that focus on specific products and
segments,.
2. Supermarket/hypermarket:
These are large scale retailing of wide variety of consumers products under one roof.:
They carry different choice of brands with ample amount of stock and self-service etc.
Supermarket specialize in article of daily consumption like, groceries, vegetable, fruits,
dairy products and households items. consumers have free access enabling them pick
products from the shelves.
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UNIT III
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BBA 205
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UNIT III
rent, heavily traveled districts. Todays discounters have improved their store
environments and increased their services , example wal-mart, big bazaar.
2. Off-Price Retailers:
Off price retailers moved in to fill the ultralow-price, high-volume gap.
Ordinary discounters buy at regular wholesale prices and accept lower margins to
keep prices down. In contrast, off price retailers buy at less than regular wholesale
prices and charge consumers less than retailers.
Off price retailers can be found in all aras, from food, clothing, and electronics etc.
example, Factory outlets, these are manufactured and operated stored by firms such as
Nike, Reebok
D. ORGANISATIONAL APPROACH
Although many retail stores are independently owned, other than band together under
some form of corporate or contractual organization.
Types of Retail Organisation:
1. Chain stores:
Such as Bata and ChenOne (department store in Pakistan) are two or more outlets
that are commonly owned controlled. They have many advantages over independents.
Their size allows them to buy in large quantities at lower prices and gain promotional
economics.they can hire specialists to deal with areas such as pricing, promotion,
merchandise, inventory control and sales forecasting.
2. Retailer corporative:
A group of independent retailers that band together to set up a jointly owned, cetral
wholesale operation and conduct joint merchandising and promotion effects. These
organizations give independents the buying and promotion economies they need to
meet the prices of corporate chains.
3. Franchise:
Franchise systems are normally based on some unique product or service, on a
method of doing bus. Or on the trade name, goodwill or patent that the franchisor has
developed. Franchise are mostly in fast food and restaurants , hotels, health, and
fitness cetres and real estate.
Example: Mc-Donals, Pizza hut, 7 eleven.
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Marketing Management
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UNIT III
4. Merchandising conglomerate:
Are corporations that combine several different retailing forms under central
ownership. An example of Future Group, which operates Big Bazaar (a
hypermarket selling merchandise at low prices), Pantaloons(trendy private label
mens and woen apparel) and E-zone (consumer electronic products).such retailing ,
similar to a multibranding strategy, provides superior management sytems and
economics that benefit all the separate retail operations.
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UNIT III
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UNIT III
BBA 205
Prepared by :
Marketing Management
Asha Chauhan
UNIT III
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