CHAPTER 5 Part III

CHAPTER 7.
DISTRIBUTION STRATEGY
Content
7.0 Aims and Objectives
7.1 Introduction
7.2 The need for Marketing Intermediaries
7.3 Channel of Distribution
7.4 Selecting Channel of Distribution
7.0 AIMS AND OBJECTIVES
It is to be recalled from unit one that channels of distribution provide the ultimate consumer or
organizational buyer with time, place and possession utility. Thus an efficient channel is one that
deliver the product when and where it is wanted at a minimum total cost. This unit is concerned
with the development and management of channels of distribution.
By the time you finish this unit, you should be able to:
 discus the needs for a distribution channel;
 identity the conventional distribution channels for consumer and organizational product;
 Identity the general and specific considerations in channel selection.
7.1 INTRODUCTION
Channel of distribution decisions involve numerous interrelated variables that must be integrated
into the total marketing mix. Because of the time and money required to set up an efficient
channel, and since channels are often hard to change once they are setup these decision are
critical to the success of the firm.
7.2 THE NEED FOR MARKETING INTERMEDIARIES
A channel of distribution is the combination of institution through which a seller markets

products to the user or ultimate consumer. The need for other institutions or intermediaries in the
delivery of goods is sometimes questioned, particularly since the profits they make are viewed as
adding to the cost of the product. However, this reasoning is not logical, since producers use
marketing intermediaries because the intermediary can perform functions more cheaply and
more efficiently than the producer can.
7.3 CHANNEL OF DISTRIBUTIONS
As previously noted, a channel of distribution is the combination of institutions through which a

seller markets product to the user or ultimate consumer. Some of these links assume the risks of
ownership; others do not. Some perform marketing functions while other performs non-
marketing or facilitating functions, such as transportation. The conventional channel of
distribution pattern for consumer goods market is shown below.
Fig 7.1 Conventional Channels for Distribution of Consumer Goods
Manufacturer Consumers
Manufacturer Retailer Consumers
Manufacturer Wholesaler Retailers Consumer
Manufacturer Agent Retailer Consumer
Manufacturer Agent Wholesaler Retailer Consumer
Some manufacturers use a direct channel, selling directly to a market. Using a direct channel,
called direct marketing increased in popularity as marketers found that products could be sold
directly using a variety of media. These media include direct mail, telemarketing, direct-action
advertising, on-line selling and direct selling through demonstrations at home or work place.
In other cases, one or more intermediaries may be used in the distribution process. A common
channel for consumer goods is one in which the manufacturer sells through wholesalers and
retailers. Small manufacturers may also use agents, since they don’t have sufficient capital for
their own sales forces.
The final channel in the above figure is used primarily when small wholesalers and retailers are
involved.
In contrast to consumer products, organizational goods have a conventional channel of

distribution. The conventional distribution channels of organizational goods are shown below:
Manufacturer Organizational user

Manufacturer Organizational distribution Organizational user
Manufacturer Agent Organizational users
Manufacturer Agent Organizational distribution Organizational user
Figure 7.2 Conventional distribution channels for organization products.
The direct channel is often used in the distribution of organizational goods. The reason for this
steams from the structure of most organizational markets, which often have relatively few but
extremely large customers. Also, many organizational products such as computers, need a great
deal of presale and post-sale service. Distributions are used in organizational markets when the
number of buyers is large and the size of the buying firm is small. As in the consumer good,
agents are used in organizational markets in case where manufactures don’t wish to have their
own sales force. Such arrangement can be used by small manufacturers or when the market is
geographically dispersed.
7.4 SELECTING CHANNELS OF DISTRIBUTION
Given the numerous types of channel intermediaries and functions that must be performed, the
task of selling and designing a channel of distribution may at first appears to be over whelming.
However in many industries, channel of distributions have developed over many years and have
become somewhat traditional. This is not to say that a traditional channel is always the most
efficient that there are no opportunities for new creativity, but the fact that such a channel is
widely accepted in the industry suggests it is highly efficient.
There are general and specific consideration in channel selection.

Some of the general considerations are;
a) Customer characteristics which includes number of customers, geographic dispersion,
purchasing patterns of consumers and use of new channels
b) Product characteristics like unit value of the product, its pershiability, bulkiness and
degree of standardization.
c) Competitor characteristics like their numbers, relative market share, distribution channels
and strategy, size of product mix and product lines and overall marketing strategy of
competitors.
d) Company characteristics includes relative size and market share, financial condition, size
of its product lines, marketing objectives and past channel experience.
e) Environmental characteristics such as economic condition, legal regulation and
restrictions, political issues and technological changes.
It should be noted that for a particular product any one of these characteristics greatly influences
choice of channels. For instance, highly perishable products generally require direct channels, or
a firm with little financial strength may require intermediaries to perform all the marketing
functions.
The above characteristics play an important part in framing the channel selection decision Based
on them, the choice of channels can be further refined in terms of distribution coverage required,
degree of control desired, total distribution cost and channel flexibility which are specific
considerations in channel selection.
 Distribution Coverage Required – Because of the characteristics of the product, the

environment needed to sell the product and the needs and expectations of the potential
buyers, products will vary in the intensity of distribution coverage they require.
 Degree of control desired – In selecting channels of distribution, the seller must make
decisions concerning the degree of control desired over the marketing of the firm’s product.
Some manufacturer prefers to keep as much control over the policies surrounding their
product as possible. Ordinarily, the degree of control is achieved by the sellers through a
direct channel.
 Total distribution cost – The total distribution cost concept has developed out of the more
general topic of systems theory. The concept suggests that a channel of distribution should
be viewed as a total system composed on interdependent subsystems and the objective of
the channel (system) manager should be to increase total system performance.
In terms of distribution cost, it generally is assumed that the total system should be designed to
minimize cost, other thing being equal.
 Channel flexibility –This is the ability of the manufactures to adapt to changing conditions
7.5 SUMMARY
Distribution strategy is a systematic decision making pertaining to the physical movement and
transfer of ownership of a product or service from producer to consumer. A channel of
distribution contains the institution or people involved with the movement and exchange of
product or services. Channel members are the institutions or peoples in the process. Distribution
affects the firm’s marketing program, it is difficult to alter, influences costs, and must relate to
the size and nature of the consumer market.
There are two basic types of distribution channel. The direct channel requires the manufacturer
to perform all distribution functions. The indirect channel apportion among the manufacturer,
and independent middle men. In comparing the two methods, the firm must balance cost and
ability against control and total sales.
In the selection of a channel, the company should consider consumer, itself, the product,
competition and distribution alternatives.
The channel of distribution for industrial product tends not to use retailers but tends to be direct,
involve few transactions and large orders, requires.

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CHAPTER 7.

7.0 AIMS AND OBJECTIVES

A channel of distribution is the combination of institution through which a seller markets

7.3 CHANNEL OF DISTRIBUTIONS

As previously noted, a channel of distribution is the combination of institutions through which a

In contrast to consumer products, organizational goods have a conventional channel of

Manufacturer Organizational user

Figure 7.2 Conventional distribution channels for organization products.

7.4 SELECTING CHANNELS OF DISTRIBUTION

There are general and specific consideration in channel selection.

 Distribution Coverage Required – Because of the characteristics of the product, the

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