Distribution Channel Distribution role within a marketing mix is getting the product to Target Market Distribution role within a marketing mix is getting the product to Target Market A middlemen is a business that renders services related directly to sale/purchase of a product as it moves from producer to consumer. A middlemen is a business that renders services related directly to sale/purchase of a product as it moves from producer to consumer. Normally middlemen are classified on the basis of whether they own /take title of products being distributed or not. Normally middlemen are classified on the basis of whether they own /take title of products being distributed or not. Merchant middlemen take title of product ( Wholesalers & retailers ) Merchant middlemen take title of product ( Wholesalers & retailers ) Agent middlemen never actually own the product but do arrange the transfer of title. Real estate brokers, manufacturers agents,travel agents. Agent middlemen never actually own the product but do arrange the transfer of title. Real estate brokers, manufacturers agents,travel agents.

Factors affecting choice of channel

Market Considerations Type of Market. Type of Market. Reaching ultimate consumers & business users may be different depending upon their individual characteristics. Wholesaler may be for business & retailer for ultimate consumer. Reaching ultimate consumers & business users may be different depending upon their individual characteristics. Wholesaler may be for business & retailer for ultimate consumer. Number of potential customers: Number of potential customers: For few customers company sales might be used, may be for business users. More middlemen to reach big number of customers. Geographic concentration of Market: Geographic concentration of Market: Direct sale or lesser no. of middlemen for concentrated market Direct sale or lesser no. of middlemen for concentrated market More channels for dispersed customer base. More channels for dispersed customer base. Order Size: Order Size: Direct sales to super markets to serve big orders & wholesalers to sell to grocery stores Direct sales to super markets to serve big orders & wholesalers to sell to grocery stores

Product considerations Unit Value: Company can afford to sell caterpillar or nuclear reactor directly to customer than to reach household to sell ball point. Perishability: Quicker pershability requires direct or minimum distribution channel. Technical nature of product: Technically complexed product may require company sales force to explain product features & use to business users.

Middlemen Considerations Services provided by middlemen: Services provided by middlemen: Each producer should select middlemen offering services which producer either can’t provide or can’t economically perform. Like promotion & explaining product features to customers. Availability of desired middlemen: Producer’s desired middlemen may not be available so may choose middlemen having distributed focus among different competing brands. Producer’s desired middlemen may not be available so may choose middlemen having distributed focus among different competing brands. Producer & Middlemen Policies: Producer & Middlemen Policies: A middlemen may accept products of a brand only after assurance that the same brand will not be given to other middlemen A middlemen may accept products of a brand only after assurance that the same brand will not be given to other middlemen Credit dealing may also be a matter of choice. Credit dealing may also be a matter of choice.

Company Considerations Desire for Channel control: Desire for Channel control: Some producers use lesser channel levels to have more control over product performance in the market. Some producers use lesser channel levels to have more control over product performance in the market. Ability of Management: Ability of Management: Some producers lacking marketing expertise may completely rely on middlemen for distribution & promotion of their products. Financial resources: A company with adequate finances may afford direct distribution channel.

Selecting type of Channel

Distribution of Consumer Goods Producer ______Consumer Producer ______Consumer Producer______Retailers_______Consumers Producer______Retailers_______Consumers Producer___Distributor Wholesalers____Retailers_____Consumers Producer___Distributor Wholesalers____Retailers_____Consumers

Distribution of Business Goods Producer_____User ( For very highly priced goods ) Producer_____User ( For very highly priced goods ) Producer_________Industrial distributor _________User Producer_________Industrial distributor _________User For small accessory equipment Printer cartridges For small accessory equipment Printer cartridges

Distribution of Services Producer_____Consumer ( Haircut, weight losing councelling ). Producer_____Consumer ( Haircut, weight losing councelling ). Producer_______Agent_________Consumer Producer_______Agent_________Consumer (Advertising / Entertainment ) (Advertising / Entertainment ) A producer may use multiple channels to reach different market segments A producer may use multiple channels to reach different market segments

Intensity of Distribution Intensive Distribution : Intensive Distribution : For convenience goods, making available at every retail store For convenience goods, making available at every retail store Selective : Selective : Selling to Few Middle men: Selling to Few Middle men: May be due to better control over middlemen May be due to better control over middlemen Exclusive: Exclusive: Selling through one distributor Selling through one distributor

Channel Management Decisions Selecting Channel Members Selecting Channel Members Producers vary in their ability to attract qualified marketing intermediaries. Producers vary in their ability to attract qualified marketing intermediaries. Motivating Channel Members. Motivating Channel Members. The company must not sell through the intermediaries, but to them. The company must not sell through the intermediaries, but to them. Positive motivators may include higher margins, cooperative adv. Allowance e.t.c. Positive motivators may include higher margins, cooperative adv. Allowance e.t.c. In case of-non-compliance, threat to reduce margins & delay in delivery may be used. In case of-non-compliance, threat to reduce margins & delay in delivery may be used.

Channel Management Decisions Evaluating Channel Members. Evaluating Channel Members. The producer should monitor performance of intermediaries against sales quota, average inventory level, customer delivery time, treatment of damaged & lost goods, cooperation in company promotion e.t.c The producer should monitor performance of intermediaries against sales quota, average inventory level, customer delivery time, treatment of damaged & lost goods, cooperation in company promotion e.t.c

Horizontal Conflict Wholesaler with Wholesaler or Retailer with Retailer Wholesaler with Wholesaler or Retailer with Retailer Vertical Conflict Vertical Conflict Producer with Wholesaler Producer with Wholesaler Producer with Retailer Producer with Retailer

Conventional Marketing System It consists of one or more independent producer, wholesalers and retailers. It consists of one or more independent producer, wholesalers and retailers. Each is separate business seeking to maximize its own profits, even at the expense of profit for the system as a whole. Each is separate business seeking to maximize its own profits, even at the expense of profit for the system as a whole. No channel member has much control over the other members. No channel member has much control over the other members.

Vertical Marketing System (VMS) In contrast to conventional distribution channel, it consists of producers, wholesalers & retailers acting as a unified system. In contrast to conventional distribution channel, it consists of producers, wholesalers & retailers acting as a unified system. How? How? One channel member owns the other or has contracts with them or has so much power that they all cooperate. One channel member owns the other or has contracts with them or has so much power that they all cooperate.

Types of VMS Corporate VMS Coordination & conflict management are attained through common ownership at different levels of channels. Corporate VMS Coordination & conflict management are attained through common ownership at different levels of channels. Example:Owned by company Example:Owned by company Contractual VMS: Contractual VMS: it consists of independent organizations at different levels of production & distribution, which join together through contracts to obtain economies or sales impact than each would do individually. it consists of independent organizations at different levels of production & distribution, which join together through contracts to obtain economies or sales impact than each would do individually. Coordination & conflict management are attained through legal agreements Coordination & conflict management are attained through legal agreements Example : Franchise ( three types ) Example : Franchise ( three types )

Types of Franchise Manufactured sponsored retailer franchise system. ( Automobile ) Manufactured sponsored retailer franchise system. ( Automobile ) Manufactured sponsored wholesaler franchise system.. ( Pepsi / Coca Cola ) Manufactured sponsored wholesaler franchise system.. ( Pepsi / Coca Cola ) Service firm sponsored franchise (Mcdonald’s ) Service firm sponsored franchise (Mcdonald’s )

Types of VMS Administered VMS: Administered VMS: It coordinates successive stages of production & distribution not through common ownership or contractual ties, but through the size & power of the parties. It coordinates successive stages of production & distribution not through common ownership or contractual ties, but through the size & power of the parties. Manufacturers of top brands can obtain such cooperation Manufacturers of top brands can obtain such cooperation