Channels of Distribution

After reading this article you will learn about:- 1. Meaning of Channels of Distribution in Marketing 2. Channel Choice in Marketing.

Meaning of Channels of Distribution in Marketing:

We can define formally the distribution channel as the set of marketing institutions participating in the marketing activities involved in the movement or the flow of goods, or services from the primary producer to the ultimate consumer.

Marketing institutions considered as channel components are:

1. All kinds of merchant middlemen, such as wholesalers and retailers.

2. All kinds of agent middlemen, such as commission agents, factors, brokers, warehouse keepers and so on.

3. All other facilitating agencies, such as common carriers, banks, advertising agencies and so on.

The route or channel includes both the manufacturer and the ultimate consumer as well as all intermediaries. These components are linked in the channel system by one or more of the marketing flows, such as transfer of title or ownership, physical movement of merchandise, transmission of marketing information and the flow of money in the form of payment of prices and other dues.

The channel members right from the producer up to the consumer are inter related and we have total distribution system which is responsible for distribution of goods or services in order to satisfy consumer needs or desires.

Channel Choice of Marketing:

The problem of selecting the most suitable channel of distribution for a product is complex. The most fundamental factor for channel choice and channel management is economic criteria, viz., cost and profit criteria. Profit organisations are primarily interested in cost minimisation in distribution and assurance of reasonable profit margin.

However, channel decisions are not made entirely on the basis of rational economic analysis. We have to consider a number of factors each as the nature of the product, trends, competition outlook, pricing policies, typical consumer needs, as well as needs of the manufacturer himself.

The following are other critical factors:

i. Product:

(a) If a commodity is perishable or fragile, a producer prefers few and controlled levels of distribution. For perishable goods speedy, movement needs shorter channel to route of distribution,

(b) For durable and standardised goods longer and diversified channel may be necessary,

(c) For custom-made product direct distribution to consumer or industrial user may be desirable,

(d) Systems approach needs package deal and shorter channel serves the purpose,

(e) For technical product requiring specialised selling and serving talents, we have the shortest channel,

(f) Products of high unit value are sold directly by travelling sales force and not through middlemen.

ii. Consumer Characteristics:

(a) For consumer market, retailer is essential, whereas in industrial market, we can eliminate retailer,

(b) If the market size is large, we have many channels, whereas in a small market, direct selling may be profitable,

(c) For highly concentrated markets, direct selling is enough, but for widely scattered and diffused markets, we must have many channels,

(d) Size and average frequency of customer’s orders also influence the channel decision. In the sale of food products, we need both wholesaler and retailer.

Market means people with money and willing to purchase want satisfying goods. Age, income group, sex, vocation, religion of customers will have to be studied to secure adequate information of market segments or target markets. Buying habits of customers and dealers will also influence our channel choice.

Consumer and dealer analysis will give us data on the number, type, location, buying habits of consumers and dealers. Channel choice needs this information. For example, desire for credit, preference for one-stop shopping, demand for personal services, amount of time and effort the customer is willing to spend — all are important factors in channel choice.

If ultimate buyers are numerous, the order is small, order frequency is great and buyers insist on the right to choose from a wide variety of brands/goods, we must have three or even more levels of distribution.

Market considerations also govern mass distribution (through multiple channels) or selective/exclusive distribution through few or even one dealer. When service after sale is required, e.g., T.V. sets, Refrigerators, etc., selective distribution is profitable.

iii. Middlemen:

(a) Middlemen who can provide wanted marketing services will be given first preference. Of course, they must be available,

(b) The selected middlemen must offer maximum cooperation particularly in promotional services. They must accept marketing policies and programmes of the manufacturers and actively help them in their implementation,

(c) The channel generating the largest sales volume at lower unit cost will be given top priority. This will minimise distribution cost.

iv. Company:

(a) The company’s size determines the size of the market, the size of its larger accounts and its ability of get middlemen’s co-operation. A big firm may have shorter channel,

(b) The company’s product mix influences the pattern of channels. The broader the product line, shorter will be the channel. If the product mix has greater depth or specialisation, the company can favour selective or exclusive dealerships,

(c) A company with substantial financial resources need not rely too much on the middlemen and can afford to reduce the levels of distribution. A weaker company has to depend on middlemen to secure financial and warehousing reliefs,

(d) New companies rely heavily on middleman due to lack of experience and ability of management,

(e) A company desiring to exercise greater control over channel will prefer a shorter channel as it will facilitate better co-ordination, communication and control,

(f) Heavy advertising and sale promotion can motivate middleman to handle display and join enthusiastically in the promotion campaign and co-operative publicity.

In such cases even a longer chain of distribution can be profitable. Thus, quantity and quality of marketing services provided by the company can influence the channel choice directly.

v. Marketing Environment:

Marketing environment can also influence the channel decision. During recession or depression shorter and cheaper channel is always preferable. In times of prosperity, we; have a wider choice of channel alternatives.

Technological inventions also have impact on distribution. The distribution of perishable goods even in distant markets became a reality due to cold storage facilities, in transport and warehousing. Hence, this led to expanded role of intermediaries to the distribution of perishable goods.

vi. Competitors:

Marketers closely watch the channels used by rivals. Many a time, similar channels may be desirable to bring about distribution of your products also. However, sometimes marketers deliberately avoid customary channels (dominated by rivals) and adopt different channel strategy. For instance, you may bypass retail store channel (usually used by rivals), and adopt door-to-door sales (where there is no competition).