Designing & Selecting

Distribution Channels

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Importance of Distribution
Channels
One of the most important decisions
linked with marketing management
Pricing : depends on whether the
company chooses mass merchandisers
or high quality specialty stores
Firms Sales force & advertising
decisions : how much persuasion training
, motivation & support the dealers need

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 Importance of Distribution Channels

Marketing
Mix

Product Pricing Promotion Distribution

Strategy Strategy Strategy Strategy

Channel Logistics
Strategy Management
Component Component

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Innovative channel options

Examples of innovative channel options

Dell
Amway..
GE :sophisticated computerized order
processing & delivery system for dealers

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Definition

Distribution Channel
A set of interdependent organizations
involved in the process of making a
product or service available for use or
consumption by the consumer or
business user

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Distribution Channel functions
Information gathering & distribution : regarding
competitors activities, own product performance,
changing consumer tastes & preferences etc.
Promotion :developing & spreading persuasive
communications about an offer
Contact : with prospective buyers
Matching : the offer to fit buyers needs
Negotiation : reaching an agreement on price & other
terms of the offer
Physical distribution
After sales Service, Installation service, delivery service
Financing
Risk taking

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Number of Channel Levels

Channel Level - Meaning

A layer of intermediaries that performs
some work in bringing the product and
its ownership closer to the final buyer

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Customer marketing channels

Manufacturer Consumer

Manufacturer Retailer Consumer

Manufacturer Wholesaler Retailer Consumer

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Channel behavior & organization

Channel conflict
Disagreement among marketing channel
members on the goals & roles who
should do what & for what rewards
When appointing new dealers
Supplying directly to large retail formats
Using website to reach out to customers

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Solutions to resolve conflicts

Vertical Marketing Systems (VMS)

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

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Solutions to resolve conflicts

Corporate VMS
A vertical marketing system that
combines successive stages of
production, & distribution under single
ownership...
Leadership is established thru common
ownership

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Solutions to resolve conflicts

Contractual VMS
A vertical marketing system in which
independent firms at different levels of
production & distribution join together
thru contracts to obtain more economies
or sales

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Horizontal Marketing
Arrangement in which two or more companies
at one level join together to follow a new
marketing opportunity..
Example :
ICICI allowing use of ATM to BOM & vice versa
Coca Cola & Pringles potato crisps created linked
distribution systems to address markets globally.
Seiko watch distribution partner is Schick razors
giving tough competition to Gillette in Japan

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Hybrid Marketing Channel
Multi channel distribution system in which a
single firm sets up two or more marketing
channels to reach one or more customer
segments..
Example ; IBM sells thru
distributors,
value added resellers ,
specialty computer stores ,
large retailers,
telemarketing &
its ShopIBM Web site

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 Hybrid Marketing Channel

Catalogs, telephone, internet Consumer

segment 1

Consumer
Retailers segment 2
PRODUCER
Business
Distributors Dealers segment 1

Business
Sales force segment 2

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Channel Design decisions

Analyzing Consumer Service Needs

Locational advantage
Personal buying experience
Mail order system
Internet
Breadth of assortment or prefer
specialization
Add on services : Delivery, credit,
installation, repairs
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Setting Channel Objectives &
Constraints
Channel objectives are stated in terms of
desired service levels for the target market.
Channel cost
Nature of products ;Perishable, durable,
industrial
Marketing intermediary type
Competitors..
Environment ; economic, legal constraints

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Identifying Major Alternatives

Types of Intermediaries
Company Sales Force
Manufacturers agents..
Industrial distributors

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Identifying Major Alternatives

No. of Marketing Intermediaries

Intensive distribution : Stocking in as
many outlets as possible
Exclusive distribution ..
Selective distribution

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Evaluating the Major Alternatives

Each alternative must be evaluated against all the

following three criteria
Economic Criteria : Like profitability, through put /
productivity
Control Issues : Some channels over a period of time
tend to get more & more control over marketing of the
product- companies prefer to keep as much control as
possible
Adaptive criteria ; Channels tend to become less flexible
for changes in line with the changing marketing
environment therefore companies get into long term
commitments to keep flexibility alive.
________

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 Questions

Explain why companies use distribution

channels & discuss the functions that
these channels perform.
Identify major channel alternatives open
to a company
Which distribution strategy intensive ,
selective or exclusive is used for the
following products & why ? (a) Titan
watches (b) Maruti Cars (c) Cadbury
chocolates
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