Channels of Distribution- Marketing

Channels of Distribution are the most powerful element among marketing mix elements. The main function of this element is to find out appropriate ways through which goods are made available to the market. It is a managerial function and hence proper decisions are to be taken in this matter.

When the product is finally ready for the market, it has to be determined what methods and routes will be used to bring the product to the market, i.e. to ultimate consumers and industrial users. This process involves establishing distribution and providing for physical handling a distribution. Distribution is concerned with various activities involved in the transfer of ownership from the producer to the consumer.

A channel of distribution for a product is the route taken by the goods as they move from the organisation to the ultimate consumer or user.

DEFINITION

Cundiff E.W. and Still R.S. define a marketing channel as “a path traced in the direct or indirect transfer of title to a product, as it move from a producer to ultimate consumes or industrial users”.

According to American Marketing Association, “A channel of distribution, or marketing channel is the structure of intra-company organisation units and extra-company agents and dealers wholesale and retail, through which a commodity, product or service is marketed.”

Philip Kotler difines a marketing channel as “the set of firms and individuals, that take title, or assist in transferring title, to the particular goods or services as it moves from the producer to the consumers.”

A distribution channel is “a set of interdependent organizations involved in the process of making a product or service available for use ro consumption by the consumer of business user.”

Thus, it may be noted that every marketing channel contains one or more of the ‘transfer points’ at each of which there is either an institution or a final buyer of the product. From the view point of the producer, such a network of institutions used for reaching a market is known as a marketing channel.

A channel always includes both the producer and the final customer of the product, as well as agents and middlemen involved in the transfer of title. However, the channel does not include firms such a bank, railways and other institutions which render a marketing service, but play no major role in purchase and sales. If a consumer buys rice from the cultivator, or if the publisher sells a book by main direct to a lecturer, the channel is from producer to consumer. On the other hand, if the publisher sells books to booksellers who in turn sell to the students and teachers are channel is from producer-retailer-consumer.

CHANNEL FUNCTIONS

The primary purpose of a distributive channel is to bridge the gap between producers and users by removing differences between supply and demand. For this, certain essential functions need to be performed. They are:

1. Information: gathering and distributing marketing research and intelligence information about actors and forces in the marketing environment needed for planning and aiding exchange.

2. Promotion: developing and spreading persuasive communications about an offer.

3. Contact: finding and communicating with prospective buyers

4. Matching: shaping and fitting the offer to the buyer’s needs, including such activities as manufacturing, grading, assembling and packaging.

5. Negotiation: reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred.

Others help to fulfill the completed transactions.

6. Physical distribution: transporting an storing goods.

7. Financing: acquiring and using funds to cover the costs of the channel work.

8. Risk taking: assuming the risks of carrying our the channel work.

The importance of these functions varies depending upon the nature of the goods themselves. For example: transportation and storage tend to predominate in the case of bulky raw materials such as coal, petroleum products and iron one, where price and specification are standardized and the market comprises a limited number of buyers and sellers. As the complexity of the product increases, the provision of information and product service becomes predominant; for example, computers, automobiles etc. Therefore, it is necessary to consider the precise nature of the product and the seller-buyer relationship to determine their relative importance.

MAJOR CHANNELS OF DISTRIBUTIONS

There are a number of channels of distribution available to the producer which may be employed by him to bring his products to the market.

Distribution of Consumer Goods

Consumer goods may be distributed generally through various channels. The channels used are:

i) Producer to Consumer

ii) Producer-Retailer-Consumer

iii) Producer-Wholesaler-Retailer-Consumer.

iv) Producer-Wholesaler-Jobber-Retailer-Consumer.

Distribution of Industrial Goods

Industrial goods are distributed by manufacturer, through four important channels, although he may also use his sales brand or sales office for the purpose.

i) Producer-Industrial User: Through this direct channel are sold, large installations like generators, plants etc. to users.

ii) Producer-Industrial distributor-User: Through this channel are sold operating supplies and small accessory equipment, such as building material, construction equipment, air-conditioning equipment.

iii) Producer-Agent- User: This channel is often used when a new product is introduced, or a new market is entered.

iv) Producer-Agent-Industrial distributor-User

FACTORS AFFECTING THE CHANNELS OF DISTRIBUTION

A large number of channels of distribution are available to the manufacturer for bringing his product to the ultimate consumer. From this vast number of potential distribution arrangements, the marketing executive must screen those that may be appropriate for distribution of the product at least expense per unit of merchandise and which secure the desired volume of sales.

Efficient distribution at the least cost and attaining the desired volume of sale can be secured only after experience, study and analysis. The notice of the product, its unit value, its technical features, its degree of differentiation from competitive products etc., are the factors which may limit the number of potential channel alternatives.

The best channel is one that works best in the marketing strategy selected by the company. The channel chosen should achieve ideal market exposure and should meet target customer’s needs and preferences.

The channel choice is influenced by-

s Distribution Policy

s Product Characteristics

s Supply Characteristics

s Customer Characteristics

s Middlemen Characteristics

s Company Characteristics

s Environmental Characteristics

s Cost of Channel

Distribution Policy

A firm’s distribution policy may be of intensive distribution selective distribution or exclusive distribution.

Intensive distribution refers to maximum distribution though every possible type of outlet. This policy requires the use of more thant one channel to reach the target market with many intermediaries.

Selective distribution is the sale of product through only those outlets which will be able to sell more products.

Exclusive distribution involves granting of exclusive rights to the channel member to distribute the products. Thus the distribution policy of the firm decides the choice of a channel.

Product Characteristics

The product Characteristics such as the use of the product, its frequency of purpose, perishability, value, the service required etc. decide the channel.

For example, perishable products require more direct marketing; convenience goods such as soaps, match box which are frequently purchased and low unit value require long channel. Shopping goods such as refrigerator require selective channel.

Supply Characteristics

Small number of producers, geographically concentrated use short channel. If the number of products are large, and geographically dispersed, they use long channel.

Customer Characteristics

Customer characteristics such as their number, geographical dispersion, frequency and regularity of purchase greatly influence the channel selection.

Middlemen Characteristics

The choice of channel is also depends on the strengths and weaknesses of various types of middlemen performing various marketing functions. Their behavioural differences, product lines, the number and locations affect the choice of the channel.

Company Characteristics

The choice of channel is also influenced by company charachericsits such as its financial position, size, product mix, past channel experience etc. The company marketing policies such as speedy delivery, after-sales services etc. also influence the choice of channels.

Environmental characteristics

Environmental characteristics such as economic conditions and law also influence the channel selection. For example, when economic conditions are depressed the products prefer shorter channels to reduce cost.

Cost of Channel

As each channel will be doing some of the marketing functions, the cost of performing such marketing functions at each distribution level and the total cost of performing the entire marketing task has an influence in the choice of the channel. Those channels which ensure efficient distribution at least expense and which secure the desired volume of sales should be chosen.