1. Distribution Channels reach Customers
Bharathidasan Institute of Management
Channels
and
Physical
Distribution
© 2006 YLK

2. Bharathidasan Institute of Management
Think about it!
What consumer trends have
contributed to an increased
emphasis on physical
distribution as an element of
Place?
© 2006 YLK

3. Bharathidasan Institute of Management
• Primary purpose: creation of
time and place utility
• Extremely complex process,
often the only element of
marketing where cost savings
still possible
• Channel selection is a dynamic
part of marketing planning
© 2006 YLK

4. Bharathidasan Institute of Management
•Channel needs to be managed
to work
•Composed of individuals and
groups with unique traits that
may conflict, may need to be
motivated
© 2006 YLK

5. Bharathidasan Institute of Management
Manufacturers
Selling Directly
40 Contact Lines
Retailers
Manufacturers
Selling Through One Wholesaler
Wholesaler
Retailers 14 Contact Lines
Manufacturers
Selling Through Two Wholesalers
Wholesalers
28 Contact Lines
Retailers
© 2006 YLK

6. Bharathidasan Institute of Management
• Exchange: sale of the product to
various members of the distribution
channel
• Physical distribution: moves
products through the exchange
channel, simultaneously with title
and ownership
• Key role: satisfying customer’s and
achieving profit for the firm
• Customer satisfaction: maximizing
time and place utility to the
organization’s suppliers,
intermediate and final customers
© 2006 YLK

7. Bharathidasan Institute of Management
• Barter to industrial specialization in
goods products to service products
• Marketing channel: sets of
interdependent organizations involved
in the process of making a
product/service available for
use/consumption; providing a payment
mechanism for the provider
• Institutions: some under producer’s
control, some not; but all must be
recognized, selected, integrated into
efficient arrangement
• Process: continuous management,
monitoring, reappraisal
• Objectives: make an acceptable profit
© 2006 YLK

8. Bharathidasan Institute of Management
• Multiple linkages that tie
channel members and
other agencies together
• Product
• Negotiation
• Ownership
• Information
• Promotion
© 2006 YLK

9. Bharathidasan Institute of Management
© 2006 YLK

10. Bharathidasan Institute of Management
Movement of the physical
product from the manufacturer
through all the parties who take
physical possession of the
product until it reaches the
ultimate consumer
© 2006 YLK

11. Bharathidasan Institute of Management
Institutions
associated with the
actual exchange
process
© 2006 YLK

12. Bharathidasan Institute of Management
Shows the
movement of
title through
the channel
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13. Bharathidasan Institute of Management
Identifies the
individuals who
participate in the
flow of information
either up or down
the channel.
© 2006 YLK

14. Bharathidasan Institute of Management
As technologies advance,
information channels will
offer more precise
delivery of a message. Can
you identify an emerging
information distribution
channel?
© 2006 YLK

15. Bharathidasan Institute of Management
Flow of persuasive
communication in the
form of advertising,
personal selling, sales
promotion and public
relations
© 2006 YLK

16. Bharathidasan Institute of Management
• Producer of the product –
craftsman, manufacturer,
farmer or other extractive
industry producer
• User of the product –
individual, household,
business buyer,
institution, government
• Certain middlemen at the
wholesale or retail level
© 2006 YLK

17. Bharathidasan Institute of Management
• Transactional: buying,
selling, risk assumption
• Logistical: assembly,
storage, sorting,
transportation
• Facilitating: post-purchase
service and maintenance,
financing, information
dissemination, channel
coordination or leadership
© 2006 YLK

18. Bharathidasan Institute of Management
• While channel institutions can be eliminated or substituted, the
functions of those institutions cannot be eliminated
• All institutional members are part of many channel
transactions at any given point in time
• Satisfaction of transactions is based on routinization benefits
• When available middlemen are incompetent, unavailable or
the producer feels he can perform the task better, the best
channel arrangement is direct, from the producer to the
ultimate user
• Service marketers face the problem of delivering their product
in the form, at the place and time their customer demands,
solutions: banks- ATMs
© 2006 YLK

19. Bharathidasan Institute of Management
• Analyze the customer
• Establish objectives
• Specify distribution tasks
• Evaluate and select channel
alternatives
• Evaluating channel member
performance
• Correct or modify
© 2006 YLK

20. Bharathidasan Institute of Management
• Whom to sell the merchandise
immediately?
• Who is the ultimate buyer and
user?
• Discover buying specifications of
the ultimate user e.g., comparison
of prices, willingness to bear with
inconvenience
• Helps to decide on the type of
wholesaler or retailer through
which a product should be sold
• Discover buying specifications of
resellers
© 2006 YLK

21. Bharathidasan Institute of Management
• Growth in sales: reach new markets,
and/or increase sales in existing one
• Maintenance or improvement of
market share: educate or assist
members in their efforts to increase the
amount of product they handle
• Achieve a pattern of distribution:
structure to achieve certain time, place,
form, information utilities
• Create an efficient channel: improve
performance by modifying flow
mechanisms
© 2006 YLK

22. Bharathidasan Institute of Management
• Fully identify tasks, define how
tasks can change with situation,
assign costs
• Provide delivery within a specific
period of time
• Offer adequate storage space
• Provide credit to other
intermediaries
• Facilitate a product return
network
• Provide readily available
inventory (quantity, type)
• Provide for absorption of size and
grade obsolescence
© 2006 YLK

23. Bharathidasan Institute of Management
Bases:
• Number of levels: two to
several
• Intensity of the levels:
actual number of
components
• Types of intermediaries at
each level
• Application of selection
criterion to channel
alternatives
© 2006 YLK

24. Bharathidasan Institute of Management
Number of Levels
Zero-level
One-level Retailer
Producer Consumer
Two-level Wholesaler Retailer
Three-level Agent Wholesaler Retailer
© 2006 YLK

25. Bharathidasan Institute of Management
• Exclusive: single/few outlets; high dealer loyalty, sales
support; greater control; limits potential sales volume;
success dependent on the ability of single intermediary e.g.,
Pantaloon
• Intensive: maximum number of intermediaries; increased
sales, recognition, impulse purchasing; low price, margin,
small order sizes; difficult to stimulate and control large
number of intermediaries e.g., Candies
• Selective: intermediary strategy, outlets number dependent
on market potential, density of population, dispersion of
sales, competitor’s policies; some strengths and weaknesses
of the other two; difficult to determine optimal number of
intermediaries e.g., Baskin Robbins
© 2006 YLK

26. Bharathidasan Institute of Management
• Selecting the channel
members
• Training the channel
members
• Motivating the Channel
Members
• Evaluating the channel
members
• Modifying channel
arrangements
© 2006 YLK

27. Bharathidasan Institute of Management
• Passive to active; very negative, based on
fear and punishment, to very positive,
based on encouragement and reward
• Manufacturer: if control of the product
(merchandising, repair) is critical and if
the design and redesign of the channel is
best done by the manufacturer
• Wholesaler: where the manufacturers
and retailers have remained small in size,
large in number, relatively scattered
geographically, are weak in finance,
marketing expertise
• Retailer: when product development and
demand stimulation are relatively
unimportant, personal attention to the
customer is important
© 2006 YLK

28. Bharathidasan Institute of Management
• Role: clearly defining role/tasks
prescriptions of various participants
and communicating them in order to
achieve desired results
• Communication: sending and
receiving information relevant to
operation; detect behavioral
problems that inhibit effective flow
of information and resolve them
• Conflict: personal and direct; often
confrontational; manage by
establishing mechanisms to detect,
appraise the effect of and resolve
conflict
• Power: willingness to use force in a
relationship; means of
influencing/controlling behavior of
the other party
© 2006 YLK

29. Bharathidasan Institute of Management
• Sales popular criteria: current
vs. historical; comparison with
other members; comparison of
member’s sales with
predetermined quotas
• Maintenance of adequate
inventory
• Selling capabilities
• Attitudes of intermediaries
toward product
• Competition from other
intermediary, from other
product line carried by
manufacturer’s own channel
members
© 2006 YLK

30. Bharathidasan Institute of Management
• Conventional
channels
• Vertical Marketing
systems
• Horizontal channel
systems
© 2006 YLK

31. Bharathidasan Institute of Management
• Group of independent
businesses, each
motivated by profit,
having little concern about
any other member of the
distribution sequence
• No all-inclusive goals
• Assignment of tasks and
evaluation process are
totally informal; can
create deficiencies
© 2006 YLK

32. Bharathidasan Institute of Management
• Solution to problems of
conventional networks
• When a member (usually
the manufacturer)
assumes a leadership role
and attempts to
coordinate the efforts of
the channel so that
mutually beneficial goals
like better profits, product
exposure, can be attained
© 2006 YLK

33. Bharathidasan Institute of Management
Conventional Channel Functions Vertical Marketing System Functions
• Design
• Make
• Brand • Design
Manufacturer
Manufacturer • Price • Make
• Promote • Brand
• Sell
• Price
• Promote
• Buy
• Stock • Buy
• Promote • Stock
Wholesaler Wholesaler
• Display • Display
• Sell • Sell
• Deliver • Deliver
• Finance
• Finance
• Buy
Retailer • Stock
• Promote Retailer
• Display
• Sell
• Deliver
• Finance
Consumer Consumer
© 2006 YLK

34. Bharathidasan Institute of Management
• Administered: informally guided by goals and
programs developed by one or a limited number of
firms in the existing channel; channel captain:
administrative skills and power of one individual may
be the driving force of the channel e.g., Xerox;
problems of polarization
• Contractual: members formalize relationship;
provides additional control; spells out marketing
functions
• Corporate: members on different levels are owned
and operated by one organization; forward (own
various intermediaries ) or backward (retailer who
takes over wholesaling and manufacturing )
integration
© 2006 YLK

35. Bharathidasan Institute of Management
• When two or more companies
do not have the capital,
technical or production know-
how to effectively market their
products alone
• Establish temporary or quasi-
permanent relationship in
order to work with each other
to create the channel
mechanism needed to reach
their target markets
© 2006 YLK

36. Bharathidasan Institute of Management
• Members and non-members
• Members perform negotiation functions, participate in
negotiation and/or ownership; non-members do not
• Producer and manufacturer
• Retailing: department stores, chain stores, supermarkets,
discount houses, warehouse retailing, franchises, planned
shopping centers/malls
• Non-store
• Retailing: home-selling, automated vending, mail order,
online marketing, catalog marketing, kiosks
• Wholesaling: independent, part of vertical marketing
system
© 2006 YLK

37. Bharathidasan Institute of Management
• Firms extract, grow or
make products; vary in
size from one-person
operation to those that
employ several thousands
people, generate billions
in sales
• Channel members can be
useful in designing,
packaging, pricing,
promoting of the product
through the most effective
channels
© 2006 YLK

38. Bharathidasan Institute of Management
• All activities needed to
market consumer goods,
services to the ultimate
consumer who are
motivated to buy for
individual/family needs
Sales are also made
through means other
than stores
© 2006 YLK

39. Bharathidasan Institute of Management
• Department stores: wide
product mixes e.g., hardware,
clothing, each product in
different sections in the store
• Chain stores: large size
enable buying of a wide
variety of items in large
quantity discounts; prices
lower than small competitors;
convenient locations;
increased market share
© 2006 YLK

40. Bharathidasan Institute of Management
• Large, self-service stores with
central checkout facilities;
extensive line of food items,
often nonfood products
• Mass-merchandising, low-
cost distribution methods
• Availability of large
assortments of a variety of
goods like food, household
cleaning, maintenance
products at a minimal price
© 2006 YLK

41. Bharathidasan Institute of Management
• Cut-rate retailers e.g., Walmart
• Emphasis on price as the main
sales appeal
• Merchandise assortments are
broad including hard and soft
goods, but limited to most
popular items, colors and sizes
• Large self-service operations
with long hours, free parking,
relatively simple fixtures
© 2006 YLK

42. Bharathidasan Institute of Management
Warehouse:
Franchise:
• Relatively new type
• Catalog showrooms • Response to
largest type e.g., competition from large
Costco chain stores
• Only sell the products
of the franchiser
• Operate the business
to some extent as the
manufacturer wishes
• e.g., dealer of Ford
© 2006 YLK

43. Bharathidasan Institute of Management
• Wide assortment of products, many alternatives in
one location
• Regional : larger centers that have one or more major
department stores as major tenants
• Community: moderately sized with junior
department stores
• Neighborhood: small with the key store a
supermarket
© 2006 YLK

44. Bharathidasan Institute of Management
•Local clusters: shopping
districts grown over time
around key intersections,
courthouses
•String street locations:
along major traffic routes
•Isolated locations:
freestanding sites not
necessarily in heavy traffic
areas; use promotion to attract
shoppers
© 2006 YLK

45. Bharathidasan Institute of Management
• In-home selling:
pre-select prospects,
cold calls e.g., Avon
• Demonstration
party: one customer
acts as host and
invites friends e.g.,
Tupperware
© 2006 YLK

46. Bharathidasan Institute of Management
• Mail order: product
description through flyer,
catalog convenience, larger
geographic coverage, limited
service
• Catalog: companies mail one
or more product catalogs to
select addresses that have a
high likelihood of placing an
order
• Kiosks: “customer-order
placing machines” located at
airports, stores
© 2006 YLK

47. Bharathidasan Institute of Management
Coin-operated, self-
service machines,
variety of products,
services at
convenient locations
e.g., banking
transactions
© 2006 YLK

48. Bharathidasan Institute of Management
• Commercial online channels: both
retailer and consumer need computer
and modem; companies set up online
information and marketing services that
can be assessed by those who have
signed up and paid a monthly fee
• Internet: global web that allows
instantaneous and decentralized global
communication; users can send e-mails,
exchange views, shop for products,
access real-time news; marketers can
use e-mails, participate in forums,
newsgroups, bulletin boards, place ads
online, create electronic storefront
© 2006 YLK

49. Bharathidasan Institute of Management
Think about it!
• Retailers are developing a web
presence, and moving from a
“brick-and-mortar” to a “click-
and-mortar” business model.
• Can you identify any potential
problems for these companies?
Can you identify any unique
marketing opportunities
that such a change would
offer these companies?
© 2006 YLK

50. Bharathidasan Institute of Management
• All activities required to
market goods, services to
businesses, institutions,
industrial users
motivated to buy for
resale or to produce and
market other goods,
services e.g., a bank
buying computer for data
processing
© 2006 YLK

51. Bharathidasan Institute of Management
• Warehousing: receiving, storing, packaging
• Inventory control and order processing: track
physical inventory, manage its composition and level,
process transactions
• Transportation: arranging physical movement of
goods
• Information: supplying information about markets to
producers and about products and suppliers to buyers
• Selling: personal contact with buyers
• Planning, financing, developing marketing mix
© 2006 YLK

52. Bharathidasan Institute of Management
• Full-service merchandise: general, limited-line
• Limited service merchant: cash and carry, rack
jobbers, drop shippers, mail orders
• Agents and brokers: agents – buying agents, selling
agents, commission merchants, manufacturer’s
agents; brokers – real estate, food, other products
• Manufacturer’s sales
• Facilitator: warehouses, finance companies,
transportation companies, trade marts
© 2006 YLK

53. Bharathidasan Institute of Management
• Take title to the
merchandise; assume
the risk involved in an
independent operation;
buy and resell
products; offer a
complete range of
services
• Same as full but offer a
limited range of
services
© 2006 YLK

54. Bharathidasan Institute of Management
• Do not take title to the
merchandise; bring buyers and
sellers together; negotiate the
terms of the transactions
• Agents merchants represent
either the buyer or seller,
usually on a permanent basis
• Brokers bring parties together
on a temporary basis
© 2006 YLK

55. Bharathidasan Institute of Management
• Owned directly by the manufacturers;
performs wholesaling functions for the
manufacturer
• Perform some specialized functions such as
financing or warehousing; to facilitate the
wholesale transactions; may be independent or
owned by producer or buyer
© 2006 YLK

56. Bharathidasan Institute of Management
• Provide the bridge between
production activities and
markets that are spatially and
temporally separated
• Process of strategically
managing the movement and
storage of materials, parts,
finished inventory from
suppliers, between enterprise
facilities, and to customers
• Valuable marketing tool to
stimulate consumer demand
© 2006 YLK

57. Bharathidasan Institute of Management
• Defining the physical
distribution (P.D.) standards
that channel members want
• Making sure the proposed P.D.
program designed by an
organization meets the standard
of channel members
• Selling channel members on
P.D. programs
• Monitoring the results of P.D.
once it has been implemented
© 2006 YLK