Distribution

Distribution:
Distribution Management is the management of all activities which

facilitates movement & co- ordination of demand & supply in
creation of time & place utility of goods & services.
Deals with the place part of the marketing mix. Helps gain sustainable
competitive advantage as the same is increasingly getting difficult through
product, price or promotion strategy.
Distribution Channels:
A distribution channel is a group of people & firms involved in the transfer of
title or ownership as the product moves from the producer to the end user. It
is the path or route along which goods move from producers or
manufacturers to ultimate consumers or industrial users. In other words, it is
a distribution network through which producer puts his products in the
market and passes it to the actual users. This channel consists of:
Producers, Consumers or Users and the various middlemen like
Wholesalers, Selling agents and Retailers(dealers) who intervene
between the producers and consumers. Therefore, the channel serves
to bridge the gap between the point of production and the point of
consumption thereby creating time, place and possession utilities.
The AMA defines the same as A structure of intra company
organization units & extra company agents, dealers, wholesalers &
retailers through which a commodity, product or service gets
marketed. They are the sets of interdependent organizations involved in the
process of making a product or service available for use or consumption.
Distribution channels can be broadly classified

into:
Producer-Customer
This is the simplest and shortest channel in which no middlemen is

involved and producers directly sell their products to the consumers. It
is fast and economical channel of distribution. Under it, the producer or
entrepreneur performs all the marketing activities himself and has full
control over distribution. A producer may sell directly to consumers
through door-to-door salesmen, direct mail or through his own retail
stores. Big firms adopt this channel to cut distribution costs and to sell
industrial products of high value. Small producers and producers of
perishable commodities also sell directly to local consumers.
Producer-Retailer-Customer
This channel of distribution involves only one middlemen called
'retailer'. Under it, the producer sells his product to big retailers (or
retailers who buy goods in large quantities) who in turn sell to the
ultimate consumers.This channel relieves the manufacturer from
burden of selling the goods himself and at the same time gives him
control over the process of distribution. This is often suited for
distribution of consumer durables and products of high value.
Producer-Wholesaler-Retailer-Customer
This is the most common and traditional channel of distribution. Under
it, two middlemen i.e. wholesalers and retailers are involved. Here, the
producer sells his product to wholesalers, who in turn sell it to retailers.
And retailers finally sell the product to the ultimate consumers. This
channel is suitable for the producers having limited finance, narrow
product line and who needed expert services and promotional support
of wholesalers. This is mostly used for the products with widely
scattered market.
Producer-Agent-Wholesaler-Retailer-Customer
This is the longest channel of distribution in which three middlemen

are involved. This is used when the producer wants to be fully relieved
of the problem of distribution and thus hands over his entire output to
the selling agents. The agents distribute the product among a few
wholesalers. Each wholesaler distribute the product among a number
of retailers who finally sell it to the ultimate consumers. This channel is
suitable for wider distribution of various industrial products.
Why are distribution channels needed?
In the past all distribution related operations were undertaken by the

company itself.
Soon they realized that the intermediaries could do the job better at a
much lower cost!
The intermediaries became a link between the manufacturer & its

customers.
Facilitate smooth flow and create time, place and possession utilities
Provide contact, experience, specialization and scales of operation
Discrepancies in marketplace
The distribution channel takes care of 4 discrepancies in the market place:
Spatial discrepancy : the difference between the location of a

producer and the location of widely scattered markets
Temporal discrepancy : A situation that occurs when a product is
produced but a customer is not ready to buy it
Breaking of the bulk
To provide assortment
Patterns of Distribution
Determines the intensity of the distribution
Intensity decides the service level provided
Types of distribution intensity:
1. Intensive distribution: Make sure that the product is made

available in as many outlets as possible. A form of distribution aimed at
having a product available in every outlet where target customers
might want to buy it. Strategy is to make sure that the product is
available in as many outlets as possible.
Preferred for consumer, pharmaceutical products and automobile
spares.
Distribution through every reasonable outlet available FMCG
2. Selective distribution: Only few select outlets will be permitted

to sell companys products. A form of distribution achieved by
screening dealers to eliminate all but a few in any single area. A few
select outlets will be permitted to keep the products. Outlets selected
in line with the image the company wants to project. It keeps
distribution costs lower
Preferred for high value products. E.g.: Tanishque jewelry
Multiple, but not all outlets in the market pharma, frozen food
3. Exclusive distribution: All the more selective, only one outlet in

the market may sell the companys product. A form of distribution that
establishes one or a few dealers within a given area. Highly selective
choice of outlets may be even one outlet in an entire market. Could
include outlets set up by companies Titan, Bata
May be only one outlet in a market, producer wants a close watch and
control on the distribution of his products - car dealers.
Types of channel members:
Distributors, dealers, stockists & agents

They are required to invest in products i.e. buy from company, are on
commission basis, may or may not get credit from the company. Name
denotes the extent of re-distribution done by them. Distributors invest in the
products buy products from the company. Distributors cover the markets as
per a beat plan. All others merely finance the business. Distributors could be
exclusive for a company while agents bring buyer and seller together.
Wholesalers
They deal in large volumes, as margin is quite low, operate out of the main
markets in the city, deals with large no. of companies products & packs.
They operate out of the main markets, deal with a number of company products
of their choice.
Are not on contract with any company. They sell to other wholesalers,
retailers and institutions.
Retailers:
They have final contact with consumers. They operate out of their shops and
sell a large assortment and variety of goods. Located closest to consumers.
Retailers buy from company, distributors or wholesalers. They have the
highest margins in the network and also provide personalised services to
their customers.
CFA s & CSAs:

C&FA: carrying and forwarding agent and C&SA: carrying and selling agent
both are on contract with a company. Both are transporters who work
between the company and its distributors. Collect products from the
company, store in a central location, break bulk and despatch to distributors

against indents. C&SA also sells the goods on behalf of the company but
remits proceeds after sale.
C&FA and C&SA also known as facilitators. Basically transporters who act
as a mid way point between the company & its distributors. CSA s act as
CFAs but also sell goods in the market & remit the value of goods sold to the
company
Functions performed by the intermediaries
Facilitation of search
Addresses the uncertainty part at both the consumers & manufacturers

end.
At times also enables sales of less known brands
Sort, Accumulate, Allocate& Assort the right kind of goods
Producers typically produces a large number of variety of goods, whereas

consumers only require limited quantity of wide variety of goods!
Routinisation of transactions
Helps in reducing the cost of distribution & increase the efficiency.
Enables flow of information to both the buyers & the sellers to help
them manage their business better
Reduction in the number of contact points
Awareness of the environment in which they operate
Channel Formats
Channel formats have been categorized into 4 types depending upon who
drives the channel. They are:
Producer driven
Seller driven
Service driven
Others
Producer driven
Manufacturer tries to reach the product directly to his customer eg
Company owned retail outlets, Licensed outlets, CSAs, franchisees.
Seller driven
Manufacturer uses the wholesalers & retailers to reach the end user eg
departmental stores, discount stores, specialty stores, supermarkets etc
Service Driven
CFAs, CSAs, transporters who facilitate distribution
Other formats
Multi level marketing system Amway, Tupperware, Co-operative societies,

catalogue shopping etc
Channel Levels
The number of channel members decides the level of channel in operation.
Zero level channel denotes direct distribution set up.

One level channel consists of one intermediary only. ( retailer)
Two level channel would have two intermediaries ( distributors then
retailers)
Prominent channel systems
1) Vertical Marketing system (VMS) :

Various parties like producers, wholesalers and retailers act as a unified system to
avoid conflicts. This system Improves operating efficiency and marketing
effectiveness. There are 3 types of VMS:
i.
ii.
iii.
Corporate
Administered
Contractual
Corporate VMS
Combines successive stages of production and distribution under single ownership
Examples :
Bata, Bombay Dyeing, Raymond

Sears, Goodyear
Suppliers of food items could be also their own supplying firms - like Nilgiris
Administered VMS
Co-ordinates distribution activities

Gains market power by dominating a channel
Usually true of dominant brands like GE, Kodak, Pepsi, Gillette, Coke and HLL
in certain locations
Command high level of co-operation in shelf space, displays, pricing policies
and promotion strategies
Contractual VMS
Independent producers, wholesalers and retailers operate on a contract

Could take the forms of:
Wholesaler sponsored voluntary chains
Retailer co-operatives
Manufacturer sponsored retail or wholesale franchise
Franchise organizations
Service firm sponsored retail franchise
2) Horizontal marketing system ( HMS)
Two or more unrelated companies join together to pool resources and exploit
an emerging market opportunity
In-store banking in hotels, big stores
Retail outlets in petrol bunks
Coffee Day outlets in airports
3) Multi- channel marketing system
Used in situations where :

Same product but different market segments
Unrelated products in same market detergents and ice creams (HLL)
Size of buyers varies
Geographic concentration of potential consumers varies
Reach is difficult

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Distribution:

Distribution Management is the management of all activities which

Distribution channels can be broadly classified

This is the simplest and shortest channel in which no middlemen is

This is the longest channel of distribution in which three middlemen

Why are distribution channels needed?

In the past all distribution related operations were undertaken by the

The intermediaries became a link between the manufacturer & its

Provide contact, experience, specialization and scales of operation

Spatial discrepancy : the difference between the location of a

1. Intensive distribution: Make sure that the product is made

2. Selective distribution: Only few select outlets will be permitted

3. Exclusive distribution: All the more selective, only one outlet in

Types of channel members:

Distributors, dealers, stockists & agents

CFA s & CSAs:

company, store in a central location, break bulk and despatch to distributors

Functions performed by the intermediaries

Addresses the uncertainty part at both the consumers & manufacturers

Sort, Accumulate, Allocate& Assort the right kind of goods

Producers typically produces a large number of variety of goods, whereas

Helps in reducing the cost of distribution & increase the efficiency.

Reduction in the number of contact points

Awareness of the environment in which they operate

Multi level marketing system Amway, Tupperware, Co-operative societies,

Zero level channel denotes direct distribution set up.

Prominent channel systems

1) Vertical Marketing system (VMS) :

Bata, Bombay Dyeing, Raymond

Co-ordinates distribution activities

Independent producers, wholesalers and retailers operate on a contract

2) Horizontal marketing system ( HMS)

3) Multi- channel marketing system

Used in situations where :

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