The Distribution Channel

THE DISTRIBUTION
CHANNEL
The Distribution Channel
Frequently there may be a chain of

intermediaries, each passing the
product down the chain to the next
organization, before it finally
reaches the consumer or end-user.
• What kind of distribution
setup should we have?
• Should the product go
through retailers?
• How much levels of marketing
channels be used?
THE DISTRIBUTION
CHANNEL
The Distribution Channel
Frequently there may be a chain of

intermediaries, each passing the
product down the chain to the next
organization, before it finally reaches
the consumer or end-user. This
process is known as the 'distribution
chain' or, rather more exotically, as
the 'channel’.
Each of the elements in these
chains will have their own specific
needs; which the producer must
take into account, along with those
of the all-important end-user.
CHANNEL MEMBERS
Distribution channels can have a
number of `levels'. Kotler defined
the simplest level, that of direct
contact with no intermediaries
involved, as the `zero-level'
channel.
`zero-level' channel
Manufacturer End User
Example: High Tech Product

The next level, the `one-level'
channel, features just one
intermediary; in consumer goods
a retailer, for industrial goods a
distributor.
`one-level' channel
Manufacturer
Retailer/Distributor
End Consumer
Multi-level Channel
Example: Consumer Products

Consider two important
factors in distribution
• Cost
• Coverage of the Market
CHANNEL
STRUCTURE
CONVENTIONAL OR
FREE-FLOW
Conventional or free-flow
This is the usual, widely
recognized, channel with a
range of `middle-men' passing
the goods on to the end-user.
Single transaction - A
temporary `channel' may be set up.
This does not share many
characteristics with other channel
transactions, each one being unique.
Vertical marketing
system (VMS)
• Vertical marketing system (VMS)
In this form, the elements of
distribution are integrated.
THE INTERNAL
MARKET
Many of the marketing principles and
techniques which are applied to the
external customers of an organization
can be just as effectively applied to
each subsidiary's, or each
department's, 'internal' customers.
• External Customer
( People who are outside the
organization)
• Internal Customer
(People who are within the
organization)
We distinct Internal and
External customer to
establish “transfer price”.
• Sale Price is that which we
recover from end consumer.
• Transfer Price is a price
which we establish to
recover from the person who
is not buying for
consumption but for re-sale
purpose.
CHANNEL DECISIONS
• Overall strategy
• Channel strategy
• Product (or service)
• Consumer location
CHANNEL
MANAGEMENT
A Marketing Manager can
not succeed until he/she
learns to manage a
distribution channel.
The channel decision is
very important. In theory at
least, there is a form of
trade-off: the cost of using
intermediaries to achieve
wider distribution.
The channel decision is very
important. In theory at least, there is
a form of trade-off: the cost of using
intermediaries to achieve wider
distribution is supposedly lower.
Indeed, most consumer goods
manufacturers could never justify the
cost of selling direct to their
consumers, except by mail order.
Cost and Coverage
should be well-balanced.
Many suppliers seem to assume that
once their product has been sold into the
channel, into the beginning of the
distribution chain, their job is finished. Yet
that distribution chain is merely assuming
a part of the supplier's responsibility; and,
if he has any aspirations to be market-
oriented, his job should really be
extended to managing, albeit very
indirectly, all the processes involved in
that chain, until the product or service
arrives with the end-user.
Important decisions on the part of
the supplier:
• Channel membership
• Channel motivation
• Monitoring and managing channels
Channel Membership
1. Intensive
Distribution
2. Selective
distribution
2.Selective distribution - This is
the normal pattern (in both
consumer and industrial markets)
where `suitable' resellers stock the
product.
3.Exclusive distribution - Only
specially selected resellers (typically
only one per geographical area) are
allowed to sell the `product'.
Channel Motivation
Monitoring and
Managing Channels

The Distribution Channel

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THE DISTRIBUTION

Frequently there may be a chain of

Frequently there may be a chain of

Manufacturer End User

Example: High Tech Product

Example: Consumer Products

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