Unit 4 BBA 4

Types of distribution channels

• A distribution channel consist of the set of people and firms involved in the transfer of title to a product as the product moves from the producer to the ultimate consumer. A distribution channel always includes the producer and the final customer for the product as well as any middleman such as the Retailer or wholesalers. The various types of distribution channels are-

The distribution channel• A distribution channel is similar to, but different

than, a supply chain. The distribution channel is where the “deals” are made to buy and sell products. Sales, negotiations, and ordering are done by these companies, or departments within companies. Then the supply chain kicks in, to do the “physical” work of manufacturing, transporting, and storing the goods; and facilitating the sales with services like consumer research, extending credit, and providing other services related to making the products attractive to customers and encouraging their ultimate sale.

MANUFACTURER

DISTRIBUTOR

WHOLESALER

RETAILER

END-CONSUMER

Participants in distribution channel

Manufacturer

A manufacturer is a person or firm who produces goods for sale in the market to earn revenue and satisfy the demand of the consumers.

Participants in the distribution channel

Wholesalers Wholesalers are intermediaries or middlemen who buy products from manufacturers and resell them to the retailers. They take the same types of financial risks as retailers, since they purchase the products (thereby taking legal responsibility for them), keep them in inventory until they are resold to retailers, and may arrange for shipment to those retailers. Wholesalers can gather product from around a country or region, or can buy foreign product lines by be-coming importers


RetailersThe characteristic that sets a retailer apart from other members of its distribution channel is that the retailer is the party who ultimately sells the product to its end user or end consumers.


Agents and Brokers Agents (sometimes called brokers) are also intermediaries who work between suppliers and retailers (or in B2B channels), but their agreements are different, in that they do not take ownership of the products they sell. They are independent sales representatives who typically work on commission based. In B2B arrangements, this means they sell to distributors and end users.


End consumer

The end consumer is a person who buys goods for his personal consumption and not for any further selling.


• A distribution channel consist of the set of people and firms involved in the transfer of title to a product as the product moves from the producer to the ultimate consumer. A distribution channel always includes the producer and the final customer for the product as well as any middleman such as the Retailer or wholesalers. The various types of distribution channels are-


• Direct Marketing channelsA direct channel is the one which has no intermediary involved in the distribution. It implies the manufacturer selling directly to the consumers. It may be through personal selling, mail orders or through the retail stores. For example Bata Ltd. Has established its own retail stores.


• Indirect Marketing channels Here one or more than one middleman are involved in between the manufacturer and the consumer. The middleman purchases the product directly from the manufacturer or from the other middleman and sells it to the ultimate customer.

Types of distribution channels• Distribution channels can thus have a number of levels.

Kotler defined the simplest level, that of a direct contact with no intermediaries involved, as the 'zero-level' channel.

• The next level, the 'one-level' channel, features just one intermediary; in consumer goods a retailer, for industrial goods a distributor. In small markets (such as small countries) it is practical to reach the whole market using just one- and zero-level channels.

• In large markets (such as larger countries) a second level, a wholesaler for example, is now mainly used to extend distribution to the large number of small, neighborhood retailers or dealers.

Patterns of Distribution• This determines the intensity of desired distribution after a firm has

decided on the most appropriate channels of distribution.• Intensive distribution

– Make sure that the product is made available in as many outlets as possible.

• Selective distribution– Only a few select outlets will be permitted to keep the company

products. The outlets and location are carefully selected by the company in line with the image it wants to project about itself and its exclusive products.

• Exclusive distribution– Only one outlet in a market may keep the product– Company keeps a close watch and control on the distribution of

his products.

Discrepancies and Distribution Channels

• Distribution channel members take care of four discrepancies that exist in the market place

• Spatial discrepancy• Temporal discrepancy• Need for breaking the bulk• Need for assortment• Need for financial support

Spatial Discrepancy• Occurs due to the ‘space’ or distance between

the production point of a product or service and its consumption point.

• The product has to be ‘carried’ between the two points.

• It is best done by an intermediary whose job is transportation.

• Example FMCG products.

Temporal discrepancy• This refers to the time difference between the

production point and the time at which the product may get bought or consumed.

• All products meant for consumption in hundreds of locations can only be made in a limited number of production points.

• This means that the products have to be made and stored at many locations closer to the points of consumption.

• Example Cars.

Need for breaking the bulk

• To minimise the production costs, products have to be made in large quantities.

• However, consumption of these products is in smaller quantities.

• There is, therefore, a need to break the bulk into consumable quantities.

• Example Toothpaste

Need for assortment• The same company may produce one set of

products in one plant and another set of products in another plant located far away.

• At the consumer level, when they visit their favourite retailer, they expect all the products of the company to be available. This aggregation of arranging for the entire assortment is done by the channel members.

Need for financial support

• In India are reluctant to sell on credit or give limited credit to their distributors.

• The market demands a lot more credit.• The channel partner takes on this

responsibility and is partially compensated for this cost in the margin or mark-up which the company provides him.

• Example – credits, and discounts.

How does Distribution Management add value?

• Add value to the selling function by providing time, place and possession utility of the consumer.

• Time utility is making product when a consumer wants it.• Place utility is making the product available where he wants it.• Possession utility is provided when the consumer can buy the

product and the ownership gets transferred to him at a time and place convenient to him or her.

• Intermediaries can improve the efficiency of the exchange process.

• Channel intermediaries adjust the discrepancy of assortment through the performance of the sorting process.

Role of Distribution Channels

• To adjust the discrepancy of assortment through the process of sorting, accumulation, allocation and assorting.

• To minimize the distribution costs through routinising and standardizing transactions to make exchange more efficient and effective.

• To facilitate the searching process of both buyers and sellers by structuring the information essential to both the parties.

• To provide a place for both the parties to meet each other and reducing uncertainty.

Unit 4 BBA 4

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