Distribution Channels

Marketing Mix II - Course Information

• The course uses continuous evaluation through quizzes, class tests, presentations, projects, role play, creative writing, and assignments.
• Internal assessments consisting of (10m, 5m, 5m) are worth 20 marks.
• The external examination paper will be worth 30 marks.
  • Question 1 is a case study analysis worth 10 marks.
  • Questions 2 and 3 require answering one option out of two (A or B) and are each worth 10 marks.
• Module 1 covers Place/Physical Distribution, including channels of distribution and their management.
• Module 2 focuses on Promotion Mix, including promotional strategies and the factors affecting the promotion mix.

The 4Ps of Marketing Mix

• The 4Ps are product, price, place, and promotion.
• The product refers to goods, services, or ideas being sold, focusing on features, design, quality, branding, and lifecycle, including packaging and after-sales services.
• Price is the amount a customer pays, and strategies include cost-based, value-based, competitive, or psychological pricing, influencing customer perception of value.
• Place refers to distribution channels used to deliver the product, including physical stores and online platforms, and includes strategies for logistics, inventory management, and supply chain efficiency.
• Promotion encompasses communication methods to inform and persuade customers, including advertising, sales promotions, public relations, and digital marketing, with the aim to create awareness and drive demand.

Module 1: Place/Physical Distribution

• The "place" element aims to ensure products or services are available to customers in the right locations, at the right times, and in the most convenient ways.
• It involves decisions about distribution channels, physical locations, online platforms, logistics, and supply chain management.
• The goal is to bridge the gap between production and consumption, enhancing customer satisfaction and maximizing sales opportunities.

Channels of Distribution

• Channels consist of a network of intermediaries, such as wholesalers, retailers, and agents, who facilitate the movement, storage, and sale of products.
• Distribution channels are essential for ensuring that products reach the right customers at the right time and place, bridging the gap between supply and demand.

Types of Distribution Channels

• Direct Channel (Zero-Level Channel):
  • Eliminates intermediaries, allowing producers to sell directly to consumers.
  • It allows for direct communication between producer and consumer.
  • Often best for customized or specialized goods.
  • Reduces costs associated with intermediaries but increases responsibility for producers.
  • Includes E-commerce platforms, company-owned outlets, and farmers selling produce at local markets.
• Indirect Channel:
  • Intermediaries such as wholesalers, distributors, and retailers are involved.
  • One Level Channel: Producer → Retailer → Consumer; This is suitable for products with shorter shelf life. An example is high-end electronics.
  • Two Level Channel is Producer → Wholesaler → Retailer → Consumer; common for fast-moving consumer goods (FMCGs) like packaged foods or toiletries.
  • Three Level Channel is Producer → Distributor → Wholesaler → Retailer → Consumer; uses are for large-scale distribution of products like pharmaceuticals and FMCGs.
• Dual Distribution:
  • Involves a combination of direct and indirect channels.
  • Producers use multiple pathways simultaneously to reach consumers.
  • Allows for market expansion and balances costs.
  • Examples of retailers sell through websites and retail such as Nike.
• Reverse Channels:
  • Focuses on the return flow of goods from consumers to producers.
  • Plays a role in sustainability and waste management.
  • Includes systems for collecting used products, such as electronics.
  • Examples, programs that recycle electronics, clothing brands offering take-back programs for apparel companies.

Factors Affecting Channel Selection (Product-Related)

• Nature of the Product:
  • Perishable goods require shorter channels that give quick delivery.
  • Durable goods can use longer channels with intermediaries.
• Product Complexity:
  • Complex products often require direct channels for better customer support.
  • Standardized products can use indirect channels.
• Unit Value:
  • High-value products often use direct distribution to maintain exclusivity.
  • Low-value, high-volume products benefit from indirect channels.
• Bulk and Weight:
  • Heavy or bulky items may require shorter channels to reduce transportation costs.

Factors Affecting Channel Selection (Market-Related)

• Target Customer Base:
  • A widely dispersed customer base requires multiple intermediaries.
  • A niche market is best served with direct channels.
• Consumer Buying Behavior:
  • Customers preferring personalized service often require direct channels.
  • Impulse purchase products benefit from retail outlets.
• Size of the Market:
  • Large or international markets require longer channels.
  • Local markets can be served with shorter channels.
• Order Size:
  • Large, bulk orders favor direct channels to minimize costs.
  • Small orders often rely on indirect channels for efficiency.

Factors Affecting Channel Selection (Company-Related)

• Financial Strength:
  • Companies with strong financial resources can maintain direct channels.
  • Financially constrained businesses depend on intermediaries to reduce costs.
• Managerial Expertise:
  • Firms with skilled managers can handle direct distribution effectively.
  • Lack of expertise might necessitate reliance on intermediaries.
• Product Line:
  • Companies offering a wide range of products may need diverse channels.
• Brand Image:
  • High-end brands may prefer exclusive channels to maintain their premium image.

Factors Affecting Channel Selection (Intermediary & Environmental)

• Intermediary-Related:
  • Availability of Intermediaries: The presence of reliable wholesalers, distributors, and retailers influences channel selection.
  • Cost of Intermediaries: High commission or margin demands may push companies to choose direct channels.
  • Competence and Reputation: Competent intermediaries enhance market penetration.
  • Control and Collaboration: Companies seeking greater control over the customer experience may limit intermediary involvement.
• Environmental Factors:
  • Economic Conditions: Cost-effective channels become more favorable during economic downturns.
  • Legal and Regulatory Framework: Government policies, import/export regulations, and competition laws can influence channel design.
  • Technological Advances: E-commerce and digital marketing have popularized direct online channels. -Social and Cultural Factors: Local consumer preferences and values dictate choice of distribution methods.

Importance of Distribution in a Developing Country

• Enables balanced regional development, enhancing the standard of living across the country, using efficient resource allocation.
• Connects producers with consumers, stimulating economic activities and promoting market expansion via market connectivity.
• An effective distribution network supports agriculture and small-scale industries.
• Generating employment by creating numerous job opportunities for unskilled and semi-skilled workers.
• Supports small businesses and entrepreneurs by providing access to broader markets.
• Ensures the availability of essential goods and services and attracts domestic and foreign investments, improving quality of life.
• Prioritizing eco-friendly logistics, aligning with sustainability goals, and reducing carbon footprints.

Functions of Distribution Channels

• Facilitating the Exchange Process by acting as intermediaries and helping negotiate prices.
• Physical Distribution, ensuring efficient transportation and managing inventory.
• Breaking Bulk, purchasing goods in large quantities and selling them in smaller quantities to retailers.
• Providing Assortment by combining products from various producers to offer a wide selection.
• Market Information: Gathering and sharing insights about consumer preferences, market trends, and competitor activities
• Promotion: Assisting in marketing efforts to create demand for products
• Risk-Taking: Bearing risks related to product value decline, theft, obsolescence, and fluctuations in demand
• Financing: Provide credit, and invest in infrastructure
• After-Sales Service: Offering services through service centers, repairing and giving warranties
• Customer Support: Acting as the first point of contact for customers, addressing queries, and resolving complaints

Importance of Middlemen

• Middlemen help producers access wider markets and distribute products in areas producers may not have the infrastructure to reach directly.
• They reduce overall distribution costs, achieving economies of scale through bulk buying and efficient logistical operations.
• Middlemen lower the costs per unit of a product.
• Middlemen save time for both producers and consumers by handling the logistics and warehousing and ensuring products reach customers quickly.
• Specialization: They specialize in specific parts of the supply chain, such as logistics or wholesale which improves quality of distribution process.
• Market Information: They collect data on demand patterns and consumer preferences
• Value Addition: Middlemen add value by packaging, branding, or products in order to cater to local markets
• Convenience for Consumers: Retailers provide consumer ease of access to product through various outlets

Importance of Distribution Channel Management

• Maximizes Market Reach: By using a combination of intermediaries, distribution channel management can greatly increase customer reach.
• Lowers the cost of logistics which leads to an increase in profit
• Improves customer service by stocking products in areas where consumer demand is known, and repeat purchase of those products
• Proper inventory management as a result of well-managed distribution channel
• Competitive Advantage: Businesses can efficiently manage distribution channels to achieve faster delivery times and more accessible customer service.
• Risk Management: Reduces risks such as market volatility
• Market Insights and Feedback: Effective channel provide consumer feedback which allow for faster response to changing market
• Increases relationships throughout all channels of the supply chain
• Brand Visibility: Collaborating on the visibility of goods alongside the consumer and distributors
• Sustainability and Adaptation in distribution channels helps companies adapt to the growth of e-commerce

Different Types of Dealers

• Retail Dealers: Sell to end consumers in small quantities, focusing on creating a convenient shopping experience through physical stores or online platforms.
• Wholesale Dealers: Act as intermediaries between retailers and manufacturers, purchasing goods in bulk and offering lower prices per unit for distribution.
• Exclusive Dealers: Work solely with a particular brand, adhering to company guidelines consistently.
• Franchise Dealers: Operate as part of a larger brand under licensing agreements, replicating the parent company's products and services.
• General Dealers: Found in towns or rural areas, offering a broad variety of products and meeting diverse consumer needs.
• Specialized Dealers: Provide in-depth knowledge and tailored solutions, focusing on a specific category such as jewelry or automobiles.
• Stock Brokers or Investment Dealers: Intermediaries in financial markets.
• Online Dealers: Operate through e-commerce platforms giving a global reach
• Industrial Dealers: They can supply heavy machinery to businesses
• Vehicle Dealers; dealerships for the sale of automobile products

Criteria for Selecting Dealers

• Financial Stability must be ensured and maintained through consistent operations and management of inventory.
• Market Reputation must ensure trustworthiness and credibility.
• Sales Expertise should be available to assist customer and business practices
• A network of distribution which provides the best Geo Reach
• Infrastructure should consist of warehouses and facilities that help the distribution process
• Good management ability and great organization skills help increase the capability of Sales

Factors for Managing Dealers

• Clear Communication so that targets and marketing expectation can be achieved, through constant update of changing product pricing
• Training and Sales marketing techniques to grow the brand
• Performance monitoring of sales, marketing, and product quality in respective regions to identify room for growth
• Incentives and Rewards: Motivating dealers is key to ensuring growth of both company and market
• Conflict Resolution such as addressing the issues quickly helps maintain trust and avoids disruptions in operations.
• Stock and Inventory Management: Maintaining optimal inventory levels prevents stock outs or overstocking.
• Feedback Mechanism helps know how the sales of product is growing, and if there are issues we can tackle with a great response
• Customer Reltionship support, providing that first contact and being there as customer support

Explore distribution channels, including direct, indirect, and dual approaches. Understand channel structures, advantages, and suitability for different products. Learn the functions of distribution channels and their impact on businesses.