For manufacturers, it is very important to create a mix of distribution channels that allow for ease of availability for the consumer, i.e., a good marketing mix. Based on the diversity and scope of a manufacturing business or any other business that can be found in the distribution process, the respective business needs to settle on a channel or channels that allow for good sales generation and ease of access for consumers.

1. DISTRIBUTION CHANNEL

2. INTRODUCTION
For manufacturers, it is very important to create a mix of
distribution channels that allow for ease of availability for the
consumer, i.e., a good marketing mix. Based on the diversity
and scope of a manufacturing business or any other business
that can be found in the distribution process, the respective
business needs to settle on a channel or channels that allow for
good sales generation and ease of access for consumers.

3. Distribution Channel – Meaning and
Definitions
According to W.J. Stanton, “Channel of distribution or trade channel for a product is
the route taken by the title of the goods as they move from the producer to the
ultimate consumers or industrial user.” A channel of distribution or trade channel is
the path or route along which goods move from producers to ultimate consumers or
industrial users. It is the distribution network through which a producer puts his
products in the hands of actual users.
It is the pipeline through which products flow during their journey to the market. A
trade or marketing channel consists of the producer, consumers or users and the
various middlemen who intervene between the two. The channel serves as a
connecting link between the producer and consumers. By bridging the gap between
the point of production and the point of consumption, a channel creates time, place
and possession utilities.

4. A channel of distribution represents three types of flows:
(a) Goods flow downwards from producer to consumers;
(b) Cash flows upwards from consumers to producer as
payment for goods; and
(c) Marketing information flows in both directions.

5. Marketing Intermediaries
Producers normally use a number of marketing intermediaries
for taking their products to users. Marketing intermediaries
bear a variety of names such as – sole selling agents, marketers,
wholesalers, distributors, stockist, retailers, franchised dealers,
authorized representatives, brokers / commission agents and
jobbers. All such intermediaries constitute the distribution
channel. The depots / showrooms and other direct outlets of
producers also form part of distribution channel.

6. Distribution Channel – Characteristics and Role
1. Place Utility – As they help in moving the goods from one place to another;
2. Time Utility – As they bring goods to the consumers when needed;
3. Convenience Value – As they bring goods to the consumers in convenient shape, unit, size, style and
package;
4. Possession Value – As they make it possible for the consumers to obtain goods with ownership title;
5. Marketing Tools – As they serve as vehicles for viewing the marketing organization in its external
aspects and for bridging the physical and non-physical gaps which exist in moving goods from the
producers to the consumers; and
6. Supply-Demand Linkage – As they bridge the gap between the producers and consumers by resolving
spatial (geographical distance) and temporal (relating to time) discrepancies in supply and demand.

7. Role of Distribution Channels:
1. Confers distribution efficiency to the manufactures.
2. Channels supply products in required assortments, (combination of products of
different manufactures) and help in assembling also.
3. Channels provide salesmanship (word of mouth) by being physically close to
customers
4. Helps merchandising the products at retail shop by display, selling effort,
awareness etc.
5. Helps in implementing price mechanism (setting price level from both sides)
making a bridge between user and manufacturer.

8. 6. Physical distribution and financial functions
7. After sale and presale services
8. Help in sub distribution
9. Selling to sub distributors etc.
10. Helps in stock holding
11. Financing the stock, risk bearing, warehousing, storage of products etc.

9. Distribution Channel – Top 2 Functions
(A) Functions that Help to Complete Transactions:
1. Information – Gathering and distributing Marketing Research and intelligence information about
factors and forces in the marketing environments needed for planning and aiding exchange.
2. Promotion – Developing and spreading persuasive communications about an offer.
3. Contact – Finding and communicating with prospective buyers.
4. Matching – Shaping and fitting the offer to the buyers needs including activities such as
manufacturing, grading, assembling and packaging.
5. Negotiation – Reaching an agreement on price and other terms of the offer so that ownership or
possession can be transferred.

10. (B) Functions that Help to Fulfill the Completed Transactions:
1. Physical distribution – Transporting and storing goods.
2. Financing – Acquiring and using funds to cover the costs of the channel work.
3. Risk bearing – Assuming the risks of carrying out the channel work.
All the function has three things in common:
(a) They use up scarce resources.
(b) They can often be performed better through specialization.
(c) They can often be shifted among channel members.

11. Distribution Channel – Selecting, Motivating and Evaluating the
Channel Members
The selection decision should examine the following characteristics in the intermediary:
(i) Number of years in the business
(ii) Other product lines carried
(iii) Growth record
(iv) Profit record
(v) Cooperativeness
(vi) Reputation
(vii) Size and quality of sales force
(viii) Quality of other lines carried
(ix) Stores’ customers
(x) Location
(xi) Future growth potential
(xii) Contacts and relationship with customers
(xiii) Estimated cost and financial capability
(xiv) Profit contribution
(xv) Management ability.

12. Motivating Channel Members:
• Motivation of channel members is essential to achieving the producers channel objectives. Once
selected, channel members must be continuously motivated to do their best. The company must sell
not only through the intermediaries but to them.
• At times companies offer positive motivators like higher margins, special deals, premiums,
cooperative advertising allowances, display allowances, sales contest etc.
• At other times negative motivators are used such as threatening to reduce margins, to slow down
deliveries, or to end relationship.
• Effective communication and information flow in both directions are necessary if the channel is to
function properly.
• Most companies try to forge long term partnership with their distributors to create a marketing
system that meets the need of both the manufacturer and the distributor. They jointly plan
merchandising goals and strategies, inventory levels, advertising and promotion plans etc.
• The company must ensure a participative relationship for a mutually beneficial relationship to exist.

13. Evaluating Channel Members:
The producer must regularly check the channel member’s performance against
standards like:
(i) Sales quotas
(ii) Average inventory levels
(iii) Customer delivery time
(iv) Treatment of damaged and lost goods
(v) Cooperation in company promotion and training program
(vi) Services to customers.

14. Distribution Channel – Steps Involved in Designing a Channel
System
(i) Analyzing Consumer Service Needs: The marketer must first analyze and
understand customer needs from the distribution channel. Sometime the customer
is willing to travel long distances to buy a product, sometimes they prefer local
shopping, some products are bought in person and others may be ordered on
phone.
(ii) Formulating Channel Objectives: Objectives firms commonly seek from channels
would include:
(a) Effective coverage of the target market
(b) Efficient and cost effective distribution
(c) Ensuring that customers incur minimum exertion in procuring the product.
(d) Helping the firm to carry on marketing activities uninterrupted, confident that
the channels will take care of sales
(e) Partnering the firm in financing and sub distribution of tasks.

15. (iii) Analyzing the Product and Linking the Channel Design to the Product Characteristics:
The firm must analyze the kind of product being offered and accordingly choose an appropriate
channel. Different products must be sold through different channels, e.g. industrial products should
have a channel different from that for consumer goods.
Product type would also influence the choice of channel e.g. for garments etc. franchise type of
intermediary may be most appropriate but for soap etc. wholesaler retailer system works best.
(iv) Evaluation of the Distribution Environment:
Vital features of distribution environment must be analyzed and ensured that the proposed channel is
compatible with them. Distribution environment includes the trade related legal environment as well.
(v) Evaluation of Competitors Channel Designs:
The positive and negative aspects of competitors channel design must be analyzed.

16. (vi) Matching the Channel Design to Company Resources:
Companies with limited resources may have to settle for a more conventional
channel, firms with small volume of business may find an own channel
uneconomical. They are better off by depending on conventional hired channels.
Firms with larger resources have more options and can go for varied channels.
(vii) Identifying Major Channel Alternatives:
The firm must identify its major alternatives in terms of:
a. Types of intermediaries
b. Number of intermediaries
c. Responsibilities of each channel member.

17. Distribution Strategy
The first strategic decision is whether the distribution is to be:
i. Intensive (with mass distribution into all outlets as in the case of confectionery).
ii. Selecting (with carefully chosen distributors e.g., specialty goods such as – car repair kits);
iii. Exclusive (with distribution restricted to up market outlets, as in the case of Gucci clothes).
Two common strategies are Vertical Marketing Systems and Horizontal Marketing Systems:
1. Vertical Marketing Systems:
Vertical Marketing Systems involve suppliers and intermediaries working closely together instead
of against each other. They plan production and delivery schedules quality levels, promotions and
sometimes prices. Resources, like information, equipment and expertise, are shared. The system is
usually managed by a dominant member, or ‘channel captain’. VMS is more flexible than vertical
integration where the manufacturer actually owns the distribution channel.

18. 2. Horizontal Marketing Systems:
Horizontal Marketing Systems occur where organizations operating on the same channel level (e.g., two
or two retailers) cooperate. They then share their distribution expertise and distribution channels. This can
up the time taken to penetrate the market. There is room for creative alliances here.
Activities Involved in the Distribution Channel
i. Ordering
ii. Handling and shipping
iii. Storage
iv. Display
v. Promotion Selling
vi. Information feedback.

19. Distribution Channel – Criteria for Selecting Members
within a Channel
1. Market Coverage
2. Sales Forecast
3. Cost
4. Other Resources
5. Profitability
6. Control
7. Motivation
8. Reputation
9. Competition
10.Contracts
The bottom line is – Can the agent or distributor be motivated, controlled and trusted? Motivated to sell
your product among a range of others? Controlled to feedback results or change strategy if requested.
And trusted to act as a reliable ambassador of your product?

20. Types of Distribution Channels – 3 Major Types:
1. Direct Channels: ( Zero-Level Channel )
The producer can sell directly to his customers without the help of middlemen, such as wholesalers of
retailers:
(i) By opening retails shop;
(ii) Through travelling salesmen;
(iii) Through mail order business.
These channels take the shortest route to the consumer. Certain goods, like the industrial machinery,
are directly sold to the consumers. Costly goods like computers and luxury automobiles, are also
directly sold. Some manufacturers open their own retail shops in many localities and sell goods
to consumers. The best example is that of the Bata Shoe Company Shops. The manufacturers also try
to sell through their own mail order departments.
All these indicate that producers are now taking steps to approach the consumers directly. Though
is possible for some types of goods, the fact remains that the services of intermediaries, such as
wholesalers and retailers, are often essential in the distribution of goods to consumers.

21. 2. Indirect Channel:
When a manufacturer employs one or more intermediaries to sell and distribute their product
to the customers it is called as indirect selling. In this, goods move from the point of
production to the point of consumption through a distribution network.
The various forms of indirect distribution networks are:
(a) One Level Channel:
This channel of distribution involves one intermediary to transfer goods from the manufacturer to the customer.
this, the title and risk transfers from manufacturers to retailers who in turn sell goods to customers. This
channel enables manufacturers to retain control and approach large number of potential customers.
Examples – Automobile manufacturers sell their cars through authorised dealers.
(b) Two Level Channel:
This channel of distribution involves two intermediaries to transfer goods from the manufacturer to the customer.
In this wholesalers and retailers act as a connecting link between manufacturers and consumers. This network
enables manufacturer to cover a large market area. It is a most adopted distribution channel for consumer
products.

22. (c) Three Level Channel:
This channel of distribution involves manufacturers using the services of agents or brokers to connect with
wholesalers and retailers. Manufacturers appoint agents in major areas who in turn connect them to wholesalers
and retailers. It is suitable for manufacturers of limited product line with customers spread over a wide
geographical area.
3. Hybrid Distribution Channel or Multi-Channel Distribution System:
Multi-channel marketing like these occurs when a single firm sets up two or more marketing
to reach one or more customer segments. The use of hybrid channel systems has increased greatly
recent years.
The producer sells directly to consumer segment 1 using direct mail catalogues and telemarketing,
and reaches consumer segment 2 through retailers. It sells indirectly to business segment 1 through
distributors and dealers, and to business segment 2 through its own salesforce.
Hybrid channels have advantages to offer to companies facing large and complex markets. With
new channel, the company expands its sales and market coverage and gains opportunities to tailor
products and services to the specific needs of diverse customer segments.

23. Distribution Channel – Factors Affecting the Choice of Channel of
Distribution
(i) Nature of Market:
There are many aspects of market which determine the choice of channel of distribution. Say
for example, where the number of buyer’s is limited, they are concentrated at few locations
and their individual purchases are large as is the case with industrial buyers, direct sale may
be the most preferred choice. But in case where number of buyers is large with small
individual purchase and they are scattered, then need may arise for use of middlemen.
(ii) Nature of Product:
Nature of the product considerably affects the choice of channel of distribution. In case the
product is of technical nature involving a good amount of pre-sale and after sale services, the
sale is generally done through retailers without involving the wholesalers. But in most of the
consumer goods having small value, bought frequently in small quantities, a long channel
involving agents, wholesalers and retailers is used as the goods need to be stored at
convenient locations. Items like toiletries, groceries, etc., fall in this category.

24. (iii) Nature of the Company:
A firm having enough financial resources can afford to its own a distribution force and retail outlet,
both. But most business firms prefer not to create their own distribution channel and concentrate on
manufacturing. The firms who wish to control the distribution network prefer a shorter channel.
(iv) Middlemen Consideration:
If right kind of middlemen having the necessary experience, contacts, financial strength and integrity
are available, their use is preferred as they can ensure success of newly introduced products. Cost
factors also have to be kept in view as all middlemen add their own margin of profit to the price of
the products. But from experience it is learnt that where the volume of Sales are adequate, the use
middlemen is often found economical and less cumbersome as against direct sale.

25. Distribution Channel – Managing Distribution Channels
Ensuring top performance from distributors day by day can be a significant challenge. Some of the issues are:
I. Intermediary Compliance:
The firm must ensure channel intermediaries stick to their agreements, implement its market strategies. When
suppliers compensate intermediaries with standard commissions for all products to all customers, they may
encounter compliance problems.
II. Power in Distribution Systems:
Power, conflict are endemic in distribution systems. Power — one channel member’s ability to get another member
to act as it wants. Typically, some channel members have more power than others; they also have different
objectives. When a supplier is more powerful, it can impose demands.
III. Conflict in Distribution Systems:
Distribution channel members often have multiple organizational relationships; hence, the potential for conflict is
high. Operational conflict occurs daily — shipments, invoice errors, unfulfilled promises, unacceptable product
quality.

26. Downstream Conflict:
i. End users/retailers go direct to suppliers — seek better prices, eliminate distributors.
ii. New megadealers/high-revenue retailers shift power from distributors/manufacturers.
iii. Distributors/buying groups disrupt channel relationships by offering private-label products.
iv. Independent buying groups increase buying power for member retailers.
Upstream Conflict:
i. Suppliers go direct to end users, eliminate distributor.
ii. Internet circumvents need for distributors; but may cause conflict/confusion for end users.
iii. Supplier adds new distributors to achieve better market penetration.