Multi-Channel System of Product Distribution Adopted by Firms | Marketing

In this article we will discuss about:- 1. Growth of Multi-Channel System of Distribution 2. Channel Conflict in Multi-Channel System of Distribution 3. Channel Conflict Resolution 4. Strategy.

Growth of Multi-Channel System of Distribution:

The growth of multi-channel system of distribution is one of the noteworthy features of the marketing system. In the distant past there was no multi-channel system because the manufacturer always believed the wholesaler who believed the retailer, and the goods moved from channel to another smoothly. But, today, the environment has changed.

Before we discuss about the ‘multiple-channels’ of distribution stra­tegy/policy adopted by a firm and the possibilities of conflicts among than, we should know about the various channels of distribution existing as a part of the normal trading operations.  

This is illustrated by a chart below:

 

Multi-channel process’ of distribution is also known as ‘dual distribution’ because the manufacturer sells to wholesaler and retailer at the same time, or he sells to wholesaler and sells directly to the con­sumers through his showroom as the firms like Bombay Dyeing Co., or Bata Shoe Co., or Mafatlal Go. have been doing in India for some time past. This multiple channels of distribution are also found in other countries.

A question arises why a multi-channels distribution system is adopted.

The arguments in favour of this system are:

(i) Wholesalers exploit the consumers by not performing their functions efficiently,

(ii) They do not give the marketing information necessary for the manufacturer,

(iii) They do not supply the technical information necessary for the custo­mers and often mislead them,

(iv) They do not pay adequate attention to the manufacturer’s goods and instead promote the sales of the competitor’s goods, and

(v) They do not take pains in promoting new products of the manufacturer as- a result of which prospective customers remain ignorant of such goods. These drawbacks found in following a single-channel system have prompted many reputed firm to adept multiple channels of distribution.

Channel Conflict in Multi-Channel System of Distribution :

The channel conflict, is the autocue of the above reasons. It is the conflict between the manufacturer and the channel which is sought to be eliminated. The wholesaler is unhappy and irritated when he is eliminated and the manufacturer sells directly as well as to the retailers.

H.M.T. watches are sold through the retailers as well as through its own showrooms. Similarly, conflicts arise between the wholesaler or retailer because a wholesaler may sell directly to the end-users as veil as to the retailers’. This is quite common in textile industries in India. Dinesh and Digjam wholesale stores sell to the end users as well as to the retailers.

The channel conflict in a multi-channel system of distribution arises when:

(1) Goods are made to order;

(2) Installation or after sales service is necessary;

(3) House-to-house selling is more effective;

(4) Wholesalers and retailers do not have common objectives with the manufacturer;

(5) Same product has to be sold to different types of customers, e.g. selling industrial goods through agents and company showrooms;

(6) The manufacturer desires to increase profits; and

(7) Wholesalers do not cooperate with the manufacturer or are ineffi­cient; etc.

Channel conflict may arise in two ways, vertical and horizontal. Verti­cal channel conflict, arises when a manufacturer sells directly to consumers as well as to the retailers. Horizontal channel conflict arises when there is unhealthy competition among the members of the same channel. For example, retail shops which try to attract customers by various tricks and thus hurt other retailers.

Channel Conflict Resolution in Multi-Channel System of Distribution :

Multiple channels will continue in future and hence, the battle will also continue. Such conflict will not step because it is inherent in the marketing system. For the purpose of minimising conflicts, many leading companies impart training to the dealers and their salesman.

They also assist in display of products, adver­tising materials, assortment of goods and so on. Also they give extra dis­count facilities to motivate them. Above all, they are committed to long- term relations with dealers rather than being concerned with only today and tomorrow. The dealers, in turn, must actively support the manufacturer’s programmes and be committed to strategic issues and strategic thinking.

The usual conflict that is inherent between the concerned parties can be resolved by better understanding and cooperation. If the wholesalers and retailers operate their business efficiently and cooperate with the manufacturer, much of the conflict can be avoided.

Strategy of the Channels of Distribution:

A manufacturing company should developments strategy of the channels of distribution having regard to:

(1) Marketing strategy;

(2) Competition;

(3) Nature of product;

(4) Nature of customer/market;

(5) Competitor’s’ strategy;

(6) Character of environment;

(7) Characteristics of middlemen and

(8) Control over outlets.

The channel strategy should be extensive as well as intensive. Exten­sive channel strategy involves selling through maximum number of channels in order to facilitate mass marketing and is usually useful for mass consumption goods. Intensive channel strategy is useful when the maximum number of outlets both at the wholesale and retail levels are nece­ssary for mass marketing.

In the final analysis, multiple channel strategy is inherent in the present marketing and economic system.

In the development of channel stra­tegy that will resolve or at-least reduce conflicts are:

(i) To give higher discounts to the middlemen,

(ii) To arrange for training of salesmen,

(iii) To arrange for dealers’ conference or seminar,

(iv) To distribute goad advertising materials, and

(v) To advise about inventory, window-display and demonstration, etc.