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Unit 4 Distribution Management

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UNIT 4

DISTRIBUTION MANAGEMENT

Role of Distribution in Marketing mix:

The continuous strengthening of the role of distribution in the modern


economy is driven by both the increase and diversification of supply and demand of
goods and the increasing consumer’s demand across the quality and efficiency
required for their manufacture. The growth and diversification also determines an
increase in the distances between the points of production and those of consumption
and of the volume of activities involved in moving products in space. As a specialized
activity, distribution comes to overcome the difficulties that arise for manufacturers
due to the influences mentioned above.

Definition of Marketing Channels

Marketing Channels can be defined as the set of people, activities, and the
intermediary organizations that play a crucial role in transferring the ownership of
the goods from the point of production or manufacturing to the point of consumption.
Basically, they are the various channels or platforms through which
the products reach to the consumers or the end-users. They are also known as
the distribution channels. 

4 types of Marketing Channels :

1) Manufacturer to Consumer

This is one of the most simple and effortless types of the Marketing Channels as the
goods produced reach to the consumers directly from the house of manufacturer. It
works as cost-effective and profitable for both the parties involved as there is no
further involvement of the middlemen such as retailer, wholesalers, and agents that
charge their commission increasing the overall price of the products.

Example of this marketing channel : There are many bakeries and handmade


chocolatier brands that directly sell their confections to their customers through their
shop, eating joint, or home delivery through the orders placed on the website or
social media handles of the bakery owners or chocolatiers.

2) Manufacturer to Retailer to Consumer

This type of Marketing Channels is one of the highly adopted and preferred channels
in the industry. The manufacturers who specialize in the manufacturing of the
shopping goods such as shoes, furniture, and fashion apparels amongst others opt
for this Marketing Channel.
3) Manufacturer to Wholesaler to Consumer

This category of Marketing Channel is usually adopted by the consumers who are
looking out for bulk purchases of the specific items and procuring the same from the
wholesaler works out quite easy and cost effective for them owing to the economies
of scale factor plus no involvement of other intermediaries. The wholesaler reduces
the cost to the consumer such as service cost or sales force cost making the items
available to the consumer at cheaper rates.

Example of this marketing channel : Shopping from the factory outlets of the
brand or warehouse clubs where the consumer has to sign for the membership with
the wholesaler in order to buy the products at cheaper rates.

4) Manufacturer to Agent to Wholesaler to Retailer to Consumer

This type of Marketing Channel involves more than one middlemen or intermediary
making the goods reach to the consumers. The agents or the middlemen helps and
assists with the sale of the goods and charge their commission from the
manufacturer. They are quite helpful when the goods need to reach the consumers
in a short span of time.

Functions of Distribution Channels

In order to understand the importance of distribution channels, you need to


understand that it doesn’t just bridge the gap between the producer of a product and
its user.

Distribution channels provide time, place, and ownership utility. They make the
product available when, where, and in which quantities the customer wants. But
other than these transactional functions, marketing channels are also
responsible to carry out the following functions:

 Logistics and Physical Distribution: Marketing channels are responsible for


assembly, storage, sorting, and transportation of goods from manufacturers to
customers.
 Facilitation: Channels of distribution even provide pre-sale and post-
purchase services like financing, maintenance, information dissemination and
channel coordination.
 Creating Efficiencies: This is done in two ways: bulk breaking and creating
assortments. Wholesalers and retailers purchase large quantities of goods
from manufacturers but break the bulk by selling few at a time to many other
channels or customers. They also offer different types of products at a single
place which is a huge benefit to customers as they don’t have to visit different
retailers for different products.
 Sharing Risks: Since most of the channels buy the products beforehand,
they also share the risk with the manufacturers and do everything possible to
sell it.
 Marketing: Distribution channels are also called marketing channels because
they are among the core touch points where many marketing strategies are
executed. They are in direct contact with the end customers and help the
manufacturers in propagating the brand message and product benefits and
other benefits to the customers.

Channel Planning:

Channel planning has grown both more complex and more important, presenting a
tricky challenge for marketers who need to reach the right people, at the right time.
The secret to effective channel planning lies in mapping out the consumer
journey and responding to the touchpoints that convert. Optimizing your channel
planning in this way starts with some simple steps.

1. Identify your key personas

Start by knowing exactly who you’re targeting.Create a handful of customer


personas that bring these characters to life, drawing on key information such as age,
gender, career and family to get a better understanding of who these people are.

2. Pinpoint the touchpoints that matter

To create a plan that delivers, you need to understand how, when and where your
customers are likely to interact with your brand.

3. Determine the optimum channels

Your persona research will play a key role in telling you which channels to
target.This means identifying the channels your target consumers are most likely to
use – from TV, brand websites and apps to social media platforms and review sites.

4. Develop the right content

Now you have the data to define your customers in as much detail as possible, you
can develop the best content for the right medium.

steps involved in designing a marketing channel:


Analysis :

A channel design starts with analysing the market requirements. Basis the
customer, product category, and marketing environment, the organisation has to
follow the matching channel strategy – Exclusive distribution, Intensive distribution
and Selective distribution. The availability of the intermediary also influences the
selection of the channel member. The intermediary that the organisation wishes to
sell through should be available in the target market. In their absence, the
organisation will have to opt for an intermediary that is available to them. Or the
organisation will have to invest to open their own stores, opt for direct selling, etc.
Sometimes the intermediary is unwilling to distribute the organisations products. In
such cases the firm should be ready to involve channel alternatives.

Evaluation :

The evaluation process involves study of costs involved, time constraints


relevant to channel development, availability of channel members, political and legal
constraints, functions and control of the channel members. This process is very
critical and requires expert planning. For example, in intensive distribution at retail
outlets, the costs may go up but there is also a great possibility of high sales
turnover. In contrast, in the presence of a broker, the organisation will need to invest
in promotion activities to create awareness of the product. Personal selling gives the
organisation control on its selling efforts.

Channel selection:

An organisation can select one or more channel alternatives. The firm can do
market testing and experiment with the channel alternatives. Two factors that affect
the final selection are – the reach of the intermediaries to the customers in the target
market and economic viability in the channel.

Channel Management Decisions: Top 5 Steps

Step 1. Selecting Channel Members:

The first priority for any company is choosing the right channel members. As the
business is dependent upon the marketing channel partners, it becomes crucial for
the success of any company to select the best channel partner. All the companies
whether it’s a product manufacturing company like Colgate or Onida or a service
company like IMS or Career Launcher, needs a good channel partner to succeed.

Step  2. Training Channel Partners:

Once the channel partner is selected, they need to be trained as they are the face of
the company. All the companies have intensive training programmes for its dealers
to tell them about their sales and service capabilities, product knowledge, expected
service quality and operational procedures to follow. For example, LG Electronics
India regularly trains its sub-dealers, direct dealers and service franchisees.

Step  3. Motivating Channel Members:

As the channel members are as important as your customers, a company needs to


make them happy. Just like anybody, channel members are also needs to be
motivated. On the one hand, the company tries to train them for their better
performance and on the other hand, the company provides them incentives, higher
margins, premiums, display allowances, advertising allowances and special deals.

Step  4. Evaluating Channel Members:


Channel members are evaluated on the basis of their sales, inventory level, service
support, delivery time performance, complaint redressal, promotional program
implementation and training performance.

If the performance of the channel member is satisfactory, then it is rewarded for its
efforts and if the performance falls below mark, it is advised to make necessary
changes in the processes. In case of channel members, where the problems are
beyond rectification, they are removed and the company appoints a new channel
member.

Step 5. Modifying Channel Arrangements:

With the changing times, the company needs to modify its channel arrangements.
The product line can expand, the consumers buying pattern can change, the new
competition can come up, a new distribution channel can emerge or the demand of
the product can change by getting into the later stages of product life cycle. All these
factors can lead the company to change its channel arrangement.

Channel Intermediaries:

Wholesaling & Retailing

Wholesaling is the buying/handling of products and services and their


subsequent resale to institutional users and in some cases to final consumers.
Wholesaling assumes many functions in a distribution channel, particularly those in
the sorting process. Manufacturers and service providers sometimes act as their own
wholesalers.

Importance of Wholesaling:

Wholesaling is a significant aspect of distribution because of its impact on the


economy, its functions in the distribution channel and its relationship with suppliers
and customers. In USA, wholesalers generate almost one-fifth of their total revenues
from foreign markets.

Revenues are high since wholesaling involves substantial purchases by institutional


consumers. There are larger numbers of retailers because they serve individual,
disposed final consumers, and wholesalers handle fewer, larger and more
concentrated customers.

From cost prospective, wholesalers have a great impact on prices. Operating costs
for wholesalers include inventory charges, sales force salaries, rent charges and
costs of advertising etc. Wholesaler costs and profits depend on inventory turnover,
money value of products the functions performed and efficiency etc.
Functions of Wholesaling:

Wholesalers carry out tasks ranging from distribution to risk taking.

Following functions are performed by wholesalers:

(i) Enable manufacturers and service providers to distribute locally without making

customer contacts.

(ii) Provide a trained sales force.

iii) Provide marketing and research supports for manufacturers, service providers

and retail or institutional consumers.

(iv) Purchase large quantities, thus reducing total physical distribution costs.

(v) Provide warehousing and delivery facilities.

(vi) Provide credit facilities for retail and institutional customers, whenever required.

(vii) Provide adjustments for defective merchandise.

(viii) Take risks by being responsible for theft, deterioration and obsolescence of
inventory. Wholesalers who take title of ownership of products and services usually

perform all the above tasks.

Relationship of suppliers and customers with wholesalers:

in this case the needs of the wholesaler are considered unimportant.


Types of Wholesaling:

Three broad categories of wholesaling are discussed below:

(i) Manufacturer Wholesaling:

In this case a firm has its own sales offices and wholesale activities are done at

these offices. Sales office may be conveniently located in a market place. This type

of arrangement is preferred when the manufacturer desires more control on

marketing and/or customers who may be few in number and each is a key account.

(ii) Merchant Wholesaling:

Merchant wholesalers buy, take title and take possession of products for further

resale. Merchant wholesalers may perform full range distribution tasks. They provide

credit, store and deliver products, after merchandising and promotion assistance,

have a personal sales force, offer research and training support and provide all

necessary information to customers and provide installation and after-sales services.

This class is very commonly prevalent in durable consumer goods, pharmaceuticals

and grocery items etc. Merchant wholesalers demand higher compensation for

performing large number of functions.

(iii) Agents and Brokers:

They perform various wholesale tasks, but do not take title of products, unlike

merchant wholesalers. Agents and brokers enable a manufacturer to expand sales

volume because of their special expertise and experience in the field.

Such agents and brokers may work for many firms and carry non competitive and

complementary products in exclusive territories. Agents have little say on marketing

and pricing. This class is prevalent in steel, cement, automobile and white goods.

Voltas Ltd. works as wholesale agent for many white goods manufacturers.

RETAILING:

Retail involves the sale of merchandise from a single point of purchase directly to a
customer who intends to use that product. The single point of purchase could be a
brick-and-mortar retail store, an Internet shopping website, a catalog, or even a
mobile phone. 

The retail transaction is at the end of the chain. Manufacturers sell large quantities of
products to retailers, and retailers attempt to sell those same quantities of products
to consumers.

How Does The Retail Supply Chain Work?

The retail supply chain consists of manufacturers, wholesalers, retailers, and the
consumer (end user). The wholesaler is directly connected to the manufacturer,
while the retailer is connected to the wholesaler, and not to the manufacturer. 

 Manufacturers: Produce the goods, using machines, raw materials, and


labor.
 Wholesalers: Purchase finished goods from the manufacturers and sell those
goods to retailers in large bulk quantities.
 Retailers: Sell the goods in small quantities to the end-user at a higher price,
theoretically at the MSRP (Manufacturers Suggested Retail Price).
 Consumer: End-user who buys the goods (or “shops”) from the retailer for
personal use.

Types of Retailers:

Here are some examples of the different types of retail stores where consumers can
purchase products for immediate use or consumption.

 Department Stores: Sell a wide range of merchandise that is arranged by


category into different sections of the physical retail space. Some department
store categories include shoes, clothing, beauty products, jewelry,
housewares, etc. Examples of department store retailers include Macy's,
Nordstrom, and JCPenney, to name just a few.
 Grocery Stores and Supermarkets: Sell all types of food and beverage
products, and sometimes also home products, clothing, and consumer
electronics as well. 
 Warehouse Retailers: Large no-frills warehouse-type facilities stocked with a
large variety of products packaged in large quantities and sold at lower-than-
retail prices.
 Specialty Retailers: Specialize in a specific category of products. Toys ‘R’
Us, Victoria's Secret, and Nike are examples of specialty retailers.
 Convenience Retailer: Usually part of a retail location which sells gasoline
primarily, but also sells a limited range of grocery merchandise and auto care
products at a premium "convenience" price from a brick-and-mortar store.
 Discount Retailer: Sell a wide variety of products are often private labeled or
generic brands at below-retail prices. Discount retailers like Family Dollar,
Dollar General, and Big Lots will often source closeout and discontinued
merchandise at lower-than-wholesale prices and pass the savings onto their
customers.
 Mobile Retailer: Uses a smartphone platform to process retail transactions
and then ships the products that were purchased directly to the customer.
 Internet Retailer: Sells from an Internet shopping website and ship the
purchases directly to customers at their homes or workplaces and without all
the expenses of a traditional brick-and-mortar retailer, usually sell
merchandise for a lower-than-retail price.

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