write a short essay in selecting channels of distribution

Types of Distribution Channels

Everything you need to know about the types of distribution channels. A manufacturer may plan to sell his/her products either directly or indirectly to the customers.

In case of indirect distribution a manufacturer has again an option to use a short channel consisting of few intermediaries or involve a large number of middlemen to sell his/her goods.

Therefore, there are various forms of channel networks having different number and types of middleman.

Channels can be long or short, single or multiple (hybrid), and can achieve intensive, selective or exclusive distribution. The length of channel could have any number of inter­mediaries or be direct to customers.

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Some of the types of distribution channels are:-

A. Direct Channel –

1. Selling at Manufacturer’s Plant 2. Door-to-Door Sales 3. Sales by Mail Order Method 4. Sales by Opening Own Shops

B. Indirect Marketing Channel –

1. One-Level Channel 2. Two-Level Channel 3. Three-Level Channel 4. Four-Level Channel  C. Hybrid Distribution Channel or Multi-Channel Distribution System.

Types of Distribution Channels – 3 Major Types: Direct, Indirect and Hybrid Distribution Channels

Types of distribution channels – top 2 types: direct and indirect distribution channels.

The channels of distribution, which are sometimes referred to as trade channels, may be broadly classified into two categories:

1. Sale through direct channels; and

2. Sale through indirect channels.

Type # 1. Direct Channels :

The producer can sell directly to his customers without the help of middlemen, such as wholesalers of retailers:

(i) By opening retails shop;

(ii) Through travelling salesmen;

(iii) Through mail order business.

These channels take the shortest route to the consumer. Certain goods, like the industrial machinery, are directly sold to the consumers. Costly goods like computers and luxury automobiles, are also directly sold. Some manufacturers open their own retail shops in many localities and sell goods directly to consumers. The best example is that of the Bata Shoe Company Shops. The manufacturers also try to sell through their own mail order departments.

All these indicate that producers are now taking steps to approach the consumers directly. Though this is possible for some types of goods, the fact remains that the services of intermediaries, such as wholesalers and retailers, are often essential in the distribution of goods to consumers.

Type # 2. Indirect Channels:

The indirect channels of distribution are:

(i) Producer-Consumer (industrial goods with high technical content)

(ii) Producer-Retailer-Consumer (via large department ‘ stores)

(iii) Producer—Wholesaler—Consumer (most industrial products)

(iv) Producer-Wholesaler-Retailer-Consumer (most consumer goods)

(v) Producer-Sole Agent -Wholesaler-Retailer-Consumer (usually for a prescribed geographical area).

The first channel, from the producer to the consumer, is preferable when buyers are few and the goods are costly and mostly purchased by industrial users. In this category fail such goods as complex machinery involving high technology, computers and luxury cars. In this case, buyers can be directly contacted and goods can be sold by direct personal approach.

The second channel, from the producer-retailer to the consumers, is preferable where the purchasers of goods are big retailers like department stores, chain stores, super markets or consumer co-operative stores. In these cases, the wholesalers may be by passed because the bulk of the goods are purchased by these large retail distributors to be sold to the consumers.

Goods like electrical appliances, fans, radios, ready-made garments and a host of other articles fall in this category. This channel is also suitable when the goods are of a perishable nature, and quick distribution is essential. However, the manufacturer will have to undertake such functions as transportation, warehousing and financing.

The third channel, from the producer-wholesaler to the consumer, can be successfully used in distributing industrial goods. Under industrial goods are included goods which are used for further production and not for resale. This is a shorter channel, and the producer eliminates the retailer in this channel link. In this case, the buyers are business houses, government agencies, consumer co-operative stores, etc.

The fourth channel, from the producer-wholesaler-retailer to the consumer, is the longest route in the distribution link but is very popular. It is used for the marketing of a variety of consumer goods of daily use, particularly where the demand is elastic and a large number of similar products are available. This channel is preferable when the market for the goods is highly competitive.

This channel is also suitable when the producer operates under the following conditions:

(a) The producer has a limited line of products.

(b) The finance available to the producer is limited.

(c) The wholesalers handle specialised goods.

(d) Products are not subject to change due to changes in fashion.

(e) Wholesalers and retailers can provide good promotional support.

The last channel, from the producer-sole agent-wholesaler- retailer to the consumer, the used by some producers. The entire production of goods is delivered to the sole agent for further distribution. The sole agent, in turn, may distribute to wholesalers who, in their turn, distribute to retailers. The manufacturer may appoint a single sole selling agent or he may appoint sole agents area-wise.

He wants to pass on the risk of marketing the goods to the selling agents. He avoids the risk involved in selling and, wants to concentrate on production. He cuts down on his marketing expenditure and the expenditure incurred on maintaining a sales organisation and a sales force.

But, in doing so, he takes a big risk of relying only on the sole selling agents, he places himself at the mercy of his selling agent. If the relations between the producer and the selling agent become strained, or if the selling agent fails to distribute the goods, the producer will be put to a great loss. In the marketing of agricultural goods, however, it is a common practice to sell through selling agents.

Types of Distribution Channels – Direct and Indirect Channels of Distribution with Examples

A manufacturer may plan to sell his/her products either directly or indirectly to the customers. In case of indirect distribution a manufacturer has again an option to use a short channel consisting of few intermediaries or involve a large number of middlemen to sell his/her goods. Therefore, there are various forms of channel networks having different number and types of middleman.

Various Types of Channels of Distribution:

1. Direct Channel (Zero Level):

It is the shortest and simplest channel of direct distribution of goods from manufacturer to customers.

It is called as zero level channel of distribution as it does not involve any intermediary.

It facilitates direct relationship between the manufacturer and the customer.

Examples – e-business (selling through internet); Direct Mail Order Houses; Chain Stores (Colourplus, Nike, Bata etc.); Direct selling (Amway; Oriflame etc.)

2. Indirect Channel:

When a manufacturer employs one or more intermediaries to sell and distribute their product to the customers it is called as indirect selling. In this, goods move from the point of production to the point of consumption through a distribution network.

The various forms of indirect distribution networks are:

(a) One Level Channel:

This channel of distribution involves one intermediary to transfer goods from the manufacturer to the customer. In this, the title and risk transfers from manufacturers to retailers who in turn sell goods to customers. This distribution channel enables manufacturers to retain control and approach large number of potential customers.

Examples – Automobile manufacturers sell their cars through authorised dealers.

(b) Two Level Channel:

This channel of distribution involves two intermediaries to transfer goods from the manufacturer to the customer. In this wholesalers and retailers act as a connecting link between manufacturers and consumers. This network enables manufacturer to cover a large market area. It is a most adopted distribution channel for consumer products.

(c) Three Level Channel:

This channel of distribution involves manufacturers using the services of agents or brokers to connect with wholesalers and retailers. Manufacturers appoint agents in major areas who in turn connect them to wholesalers and retailers. It is suitable for manufacturers of limited product line with customers spread over a wide geographical area.

Types of Distribution Channels – 3 Important Types: Direct, Indirect and Hybrid Distribution Channels

The shortest channel of distribution of goods and services adopted by a producer is the zero level channel, where are absent between the producers and consumer.

A producer chooses direct distribution due to the following reasons:

(i) If the firm has marketing expertise.

(ii) If the firm is able to perform the marketing activities at a reasonable cost.

(iii) If the firm has adequate financial resources for investing in marketing.

(iv) Non-availability of suitable middlemen to handle the product.

(v) If the buyers prefer direct marketing.

(vi) If the competitors are following direct marketing.

It was widely used by producers to sell goods and services prior to the advent of industrial revolution and is the one of the oldest method.

Under direct channel of distribution, the manufacturer can adopt one of the following methods of selling:

(i) Selling at Manufacturer’s Plant:

It is one of the earliest, easiest and cheapest methods of distribution of goods and known as direct selling. The goods are sold by the producers directly to the consumers under this system, and it is usually preferred in case of perishable products like bread, milk, ice-cream, fish, meat, egg, vegetables and agricultural products, etc.

These products are directly sold to the consumers for the reason they lose their value or become unfit for use if they are stored or transacted for a long time.

(ii) Door-to-Door Sales:

Manufacturer employed salesmen for a door-to-door marketing. They move door-to-door to introduce the new product at the door of a customer. Dealers may not have knowledge of the goods or they require a good margin of profit or they do not want to stock unknown products; for them this system is good.

Selling under this system may be costly but when the market is known, it can be reduced. But, at the first stage, when the market is unaware of the product, even at higher cost, this system is better.

(iii) Sales by Mail Order Method:

Here the post office plays a significant role and it is known as shopping by post or mail order business or selling by post. It is an impersonal selling, branding, grading, standardising, packaging etc., facilitating the growth of this system.

By Post, customers are approached by sending catalogues, price lists, pamphlets, etc. Advertising adds further speed in the selling; e.g., books, copies, Magazines, Medicines, watches, toys, small appliances, clothes, seeds, jewellery, etc.

(iv) Sales by Opening Own Shops:

The producers of perishable and non-perishable goods sell their products to customers, by opening their own retail shops. Manufacturers can push the goods quickly through retail shops and can offer satisfactory service to customers, thereby building goodwill. It also helps the producers to study the market trends, fashion preferred by buyers and style trend of people. This system offers a two way communication and the price is regulated.

Perhaps, there are few drawbacks of adopting Direct Marketing Channels are given as under:

(i) When customers are innumerable and spiral over a large area, it may be difficult to have direct contact with them economically.

(ii) When customers are multi-millions in number, it may be difficult to establish a direct contact with them.

(iii) When the producers do not prove to be good salesman, the process suffers.

Under this system, distribution of goods is performed by middlemen or intermediaries like wholesalers’ stockiest distributions etc. There is one middleman like a Sole Selling Agent who distributes the goods through a number of middlemen subsequently or, there may be a number of middlemen when the producer distributes the products through a number of agents or wholesalers or even retailers. Retailer sells directly to the consumers whereas wholesalers sell through them.

Typical Indirect Channels of Distribution has four level of channels discussed as under:

(i) One-level Channel Only one intermediary between producer and consumers is present here. It may be a retailer or a distributor.

In case the intermediary is a distributor, this type of channel is used for specialty products like washing machines, refrigerators or industrial products.

(ii) Two-level Channel – Two intermediaries, namely, wholesaler/distributor and retailer and present here.

(iii) Three-level Channel – Three intermediaries, namely, distributor, wholesaler and retailer are present and it is also used for convenience products.

(iv) Four-level Channel – Four intermediaries, namely, agent, distributor, wholesaler and retailer are present here. This channel is similar to the previous two. This type of channel is used for consumer durable products also.

3. Hybrid Distribution Channel or Multi-Channel Distribution System:

Of late, many companies used a single channel to sell to a single market or market segment. Recently, with the proliferation of customer segments and channel possibilities, several companies have adopted multi-channel distribution systems, it is often called hybrid marketing channels. Multi-channel marketing like these occurs when a single firm sets up two or more marketing channels to reach one or more customer segments. The use of hybrid channel systems has increased greatly in recent years.

The producer sells directly to consumer segment 1 using direct mail catalogues and telemarketing, and reaches consumer segment 2 through retailers. It sells indirectly to business segment 1 through distributors and dealers, and to business segment 2 through its own salesforce.

Hybrid channels have advantages to offer to companies facing large and complex markets. With each new channel, the company expands its sales and market coverage and gains opportunities to tailor its products and services to the specific needs of diverse customer segments.

But such hybrid channel systems are harder to control, and they generate conflict as more channels compete for customers and sales. For instance, when IBM began selling directly to customers at low prices through catalogues and telemarketing, many of its retail dealers cried “unfair competition” and threatened to drop the IBM line or to give it less emphasis.

Types of Distribution Channels – Direct and Indirect Channel (With Examples and Methods)

A. Direct Channel:

1. Producer → Consumer…. (Zero Level/No Intermediary)

B. Indirect Channel:

1. Producer Retailer → Consumer…… (One Level/Intermediary)

2. Producer → Wholesaler → Retailer → Consumer (Two Level/Intermediaries)

3. Producer Agent → Wholesalers → Retailer → Consumer (Three Level/Intermediaries)

Diagrammatic Presentation:

1. Producer → Consumer……….. Zero Level

Example – Eureka Forbes

2. Producer → Retailer → Consumer ……. 1 Level

Example – Specialty products like Washing Machines, TVS, Refrigerators, or industrial products are sold

3. Producer → Wholesaler Distributor → Retailer → Consumer ………. 2 Level

Example – Goods like food items drugs etc., small manufacturers’ goods which are widely sold to consumers

4. Producer → Distributor → Wholesaler → Retailer → Con­sumer ……… 3 Level

Example – Items like cloth, grocery where producer wishes to totally pass on the burden of distribution to intermediaries.

1. Producer → Consumer:

Here producer sells direct to final users without any intermediaries. Shortest Distribution Channel.

Methods used are:

i. Opening sales counter at manufacturers plant, e.g., bakery items, ice cream etc.

ii. Door to door sales e.g., Utensils, ladies garments, cosmetics, items of daily use Vim, Surf etc.

iii. Sales by opening shops e.g., Raymonds, Bata etc.

iv. Sales through mechanical devices e.g., Parag milk through ATM, etc.

Usefulness of Methods / When Suitable:

1. Marketing highly perishable goods like milk

2. Products which could be sold by post

3. New product requiring effective salesmanship

4. Industrial goods requiring effective servicing by expert for which producer is the best

5. Closeness with Consumer

2. Producer → Retailer → Consumer:

Here, goods are sold by manufacturer to retailer who sells to consumer. Also known as One – level Channel

Methods used:

i. Salesmen of manufacturers visit and collect orders from retailers

ii. Orders by Post

iii. Sales made at factory

Usefulness/ When suitable:

i. Perishable products, physically or fashion wise, in order to speed up their distribution.

ii. Large Retailers want to deal directly (without whole­salers) with producers.

3. Producer → Wholesaler → Retailer → Consumer:

Two parties in between producer and final consumer. Hence also called Two Level Channel/PWRC. A traditional, normal, regular and popular channel.

Suitability:

i. When there is large number of consumer who purchase in small quantities.

ii. When products need a balanced or equitable distribution.

iii. Small manufacturers whose goods are to be sold to consumers widely scattered in different localities.

4. Producer → Agent / Distributor → Wholesaler → Retailer Consumer:

Here producer sells first to Agent who sells to wholesaler in turn selling to retailer. Agent or Distributor acts as facilitating party on commission basis and does not assume title to goods. Agents are used by manufacturers to free themselves from marketing and pass on the burden of distribution to intermediary.

Concluding Remarks:

In addition to above channels, some different types of channels are also possible and there is no water tight classification of channels. We can say that for different types of product there can be different types of channels.

Type # 1. Wholesalers :

The wholesalers are those merchants who act as intermediaries between the primary producers, manufacturers, or importers on one side and retailers or industrial consumers on the other. They generally buy goods and commodities in large quantities with a view to selling them to the retailers who further sell them to individual consumers on a piecemeal basis.

The wholesalers do not deal directly with individual consumers and do not sell goods on a piece-meal basis. The wholesale establishment can be described as the link-road along which goods and commodities move from producers to those who sell on retail basis.

From this description, it will appear that a wholesaler does not produce or manufacture commodities or goods himself but works only as a trader engaged only in buying and selling activities. But, in practice, there are cases where the wholesaler combines manufacturing and retailing operations with his main function of buying and selling in large lots.

In accordance with the prevalent practice, the wholesalers may be divided into three types:

(i) Manufacturer Wholesalers:

Such wholesalers engage in manufacturing activities to some extent. They may, however, not only sell their own products to the retailers but may also make large-scale purchases from other manufacturers to meet the demand of the retail traders. In this way, the wholesalers carry a comprehensive stock of goods, increase their turnover considerably, and by their dual role reduce their overhead expenses.

(ii) Retailer Wholesalers:

These wholesalers purchase goods in large parcels (say, truck-loads or wagon-loads, etc.,) from the manufacturers and retail them to the consumers through their own shops. In this manner, they combine the twin functions of wholesaling and retailing.

(iii) Wholesalers Proper:

The pure wholesalers are, however, those merchants who concentrate entirely on the functions of buying and selling in large lots, and do not engage in the manufacturing or retailing activities. They are also called distributors. Generally, they maintain a warehouse or godown in some well-located part of the city.

The goods are collected from different manufacturers in these warehouses. The goods are then sent to the retailers who place orders for them. Sometimes, the retailers may send their own messengers to procure supplies of goods from them.

Some of the pure wholesalers have vans which visit outlying retailers and supply goods to them. The wholesalers rely mainly on trade discounts, rebates or cash discounts granted by manufacturers for their gross profits.

Type # 2. Retailers :

The retailer is the last link in the chain of distribution commencing with the consumer. The word ‘retailer’ is an adaptation of ‘retailer’, a French word which means ‘to cut’. “Evidently, the retail trade was viewed as one that cut off small portions from larger lumps of goods.” This .is the direct opposite of wholesale which means handling of the whole rather than of the whole bulk divided into small parts.

The retailer can easily be referred to as the most important intermediary. Under the present-day industrial set-up mass production is geared to the requirements of the ultimate consumes. Retailers, being directly and intimately in touch with the consumers, occupy a strategic position in the whole system of distribution.

Though there is a large variety of a retail trading organisation, the basic underlying feature of retail trading is purchase of goods from wholesalers and selling it in small lots to the consumers. Since the retailer is connected with the transfer of goods to the ultimate consumers, he has to deal with people of varied tastes and temperaments.

He has, therefore, to be very tactful in his dealings with customers of different types. His efforts should be to please the custodies with the best of personal attention and service possible. In competitive retailing, the retailer may have to extend certain extra facilities (like home delivery service). In short, service is of essence in retail selling.

Types of Distribution Channels – 4 Important Types: Direct Sale, Sale through Retailer, Wholesaler, Agent

1. Direct Sale :

This is the simplest form of distribution channel which involves the manufacturer and the consumers. Goods and services are directly delivered to final consumer. The manufacturer may have its own retail outlet like Bata shoe store or may sell directly by appointing travelling sales force by house to house canvassing like Eureka Forbes. Modern manufacturer may also sell their product online through their official website.

Manufacturer → Consumer

2. Sale through Retailer :

Retailers may be individual shop owners or large retail stores, departmental stores, retail chain stores that purchases goods from the manufacturer and resell it to final consumer. Retailers are sometimes referred to as dealers or authorised representatives.

Manufacturer → Retailer → Consumer

3. Sale through Wholesaler :

In this method a manufacturer sells the material to a wholesaler also called stockist or distributor, the wholesaler to the retailer and then the retailer sells to the consumer. Here, the wholesaler after purchasing the material in large quantity from the manufacturer sells it in small quantity to the retailer. Then the retailers make the products available to the consumers. This medium is mainly used to sell FMCG etc.

This channel is more clarified in the following diagram:

Manufacturer → Wholesaler → Retailer → Consumer

4. Sale through Agent :

Big manufacturing firms in order to avoid the complex responsibilities of marketing may appoint an agent who acts as a link between the manufacturer and the wholesaler. The agents may be sole selling agents who have a wide distribution network, wide network of sales person, wholesaler and retailer. These agents perform the marketing and distribution functions on behalf of the manufacturers and earns a large margin.

Companies also appoint another type of agent called carrying and forwarding (C&F) agents who on behalf of the manufacturer distributes the goods to wholesaler and retailer but do not resell. They only act as an agent and transfer the goods on behalf of manufacturer.

Manufacturer → Agent → Wholesaler → Retailer → Consumer

Types of Distribution Channels – 3 Main Types: Direct, Indirect and Hybrid Channels

A direct channel is said to exist when there are no intermediaries between the supply organisation and its customers.

Such an arrangement could be:

Insurance → (own sales team) → Customers

General trader → mail order catalogue → Customers

Garden bulb → direct mail leaflet → Customers

Clothing manufacturer → part plan → Customers

Library service → mobile library → Customers

Small bakery and cake shop → own retail outlet → Customers

The last is also an example of vertical integration. In these examples the supplier will decide all aspects of the contact with the customer. This could include how often the sales person should contact the customer or how frequently to send out a catalogue. In this type of direct channel there is no doubt who has control of the many decisions regarding the exchange. The situation is more complicated in indirect channels. There are many reasons for using direct channels, but equally there are a number of reasons why such channels are not always used.

Type # 2. Indirect Channels :

The roles of wholesaler and retailer could be filled by any of the intermediaries relevant to a particular market.

The links are important with a marketing exchange taking place at each stage. The link provided by negotiation is not necessarily formal, but it certainly takes place in the legal sense of an offer and acceptance.

It is important to realise the effect of the indirect nature of the channel, and the supply pipe line, on these indirect channels. One well-known British company launched its product into the USA with apparently great success. It more than met the year 1 esti­mates of sales. In year 2, sales did not increase. In fact they fell.

On investigation it was found that many wholesalers had bought large quantities in the first year, being encour­aged by attractive promotional deals. However, the retailers and consumers were not buying, and so the pipeline was blocked by large stocks of the old product.

It was an expensive lesson as the British company attempted to sort out the problems. This exam­ple shows the importance of information and feedback from all parts of the distribution channel. It also illustrates the problem of loss of control that a supplier can have in an indirect channel.

Another common problem is the extent to which products are ‘out-of-stock’ at one level in a distribution chain. The longer the channel, the more difficult it is to cope with the vari­ations of consumer demand. If a product is not available when required it could lead to a lost sale. This again emphasises the need for monitoring all levels of any indirect channel.

Type # 3. Hybrid Channels :

There is no reason why a supplier should stay with a single channel. Educational toy supplier, Early Learning, started with most sales via its mail order catalogue. It carefully monitored sales in large areas of population and, when it considered the time was appropriate, a retail outlet was opened in a secondary shopping area.

Note that these areas were not in the prime High Street sites. It was considered customers would be prepared to seek out an Early Learning outlet because the company felt they offered a unique type of product. So it was decided there was no point in paying the highest retail rents for prime High Street sites. The catalogue still continued and sales justified both channels running alongside each other.

Intensive, Selective and Exclusive Distribution :

i. Intensive distribution involves maximising the number of outlets where a product is available. This wide exposure means more opportunities to buy. It is typified by con­fectionery, soft drinks and other FMCGs (fast-moving consumer goods).

ii. Selective distribution is used where the choice of outlet or service offered is specifically relevant to the buying situation. Examples are electrical or photographic specialists who can offer professional advice or plumbers who can install purchases. However, this type of restricted distribution is becoming less common, with supermarkets and chemists, as well as department stores, offering ever wider ranges of household and electrical goods.

iii. Exclusive distribution is much more restrictive. In this case there is often only one exclu­sive company in any one geographic area. The major main dealers for motor cars come into this category but, in addition to sales, they offer service, repair and warranty facil­ities. They receive the benefit of exclusivity which reduces competition.

It is likely that the relationship will be formalised with a legal contract including targets, and obliga­tions on the distributor. In return for acting as the local distributor for Ford or BMW or Rover, the distributor could receive promotional help.

Types of Distribution Channels – Classified into 3 different Categories

Depending on the number of middlemen involved, channels of distribution may be classified as follows:

(i) Manufacturer → Customer:

This is also known as direct setting because no middleman is involved. A producer may sell directly through his own retail stores (e.g., Bata), through mail or through door-to-door selling. This is the simplest and the shortest channel. It is fast and economical. It enables the producer to have direct contact with customers and full control over the distribution of his product. But a small-scale manufacturer can rarely afford the investment and expertise required for direct selling. This channel is more common in the distribution of industrial goods like heavy machinery, industrial chemicals, etc.

(ii) Manufacturer → Retailer → Customer:

In this channel, the producer sells to big retailers like departmental stores and chain stores who in turn sell to consumer. This channel is very popular in the distribution of consumer durables such as refrigerators, TV sets, washing machines, type writers, automobiles, etc.

(iii) Manufacturer → Wholesaler → Retailer → Customer:

This is the traditional channel of distribution. It is widely used in the distribution of consumer products like groceries, drugs, cosmetics, etc. It is quite suitable for small-scale producers whose product line is narrow and who require the expert services and promotional support of wholesalers. But in this channel the producer loses direct contact with his customers and control over distribution. In some cases, an agent is employed in place of/in addition to the wholesaler. For instance, in the distribution of cloth, mills generally appoint a sole selling agent/distributor in addition to wholesalers and retailers.

Types of Distribution Channels – 2 Main Primary Channels: Direct and Indirect Channels

The two primary channels through which distribution of products can be made:

1. Direct channel

2. Indirect channel

1. Direct Channel:

Here the vendor of a product or service sells product directly to the customer. The vendor may maintain its own sales force to close deals with clients or sell its products or services through an e-commerce website. The direct sales approach requires vendors to take on the expense of hiring and training a sales team or building and hosting an e-commerce operation.

Selling through Direct Channels:

This is the oldest, shorter and the simple channel of distribution. The producer sells the product directly without involvement of any middle man. The sale can be made door to door through salesman, retail stores and direct mail.

Advantage of Selling through Direct Channels:

i. It is simple and fast

ii. It is economical

iii. The producer has full control over distribution

iv. It satisfies the desire to reduce dependence on middle men

v. It results in Cash sales

Disadvantages of Selling through Direct Channels:

i. Non-availability of expert services of middle man

ii. Large investment is required.

iii. Unsuitable for small producers

iv. Methods of selling through direct channels

v. Selling goods through own retail outlets

vi. Selling goods through postal services

vii. Selling goods through courier services

viii. Selling goods against orders received, by telephone, email in case of telemarketing

Here the sales activities for individuals and organizations are carried on by third persons, known as intermediaries. Examples of intermediaries include value-added resellers, systems integrators, managed service providers, wholesalers, retailers and distributors. Each type of intermediary represents a channel, with its own distinct characteristics. A vendor develops a channel strategy to determine what types of intermediaries to target and how to optimize partner relationships to increase sales and improve distribution.

Selling through Indirect Channel:

According to this method of indirect selling, product is passed on to the customers through intermediaries, known as wholesalers, retailers and agents. A firm can design any number of channels. Channels are classified by the number of intermediaries between producer and consumer.

The Different levels of Channels of Distribution or Marketing channels/Trade Channels are given as under:

i. A level zero channel

ii. A level one channel

iii. A level two channel

iv. A level three channel

v. A level four channel

i. Zero Level Channels – (Producer-Customer):

As the name implies, this channel does not have an intermediary and is used in direct marketing. This is the simplest and shortest channel in which no middlemen is involved and producers directly sell their products to the consumers. It is fast and economical channel of distribution.

Under it, the producer or entrepreneur performs all the marketing activities himself and has full control over distribution. A producer may sell directly to consumers through door-to-door salesmen, direct mail or through his own retail stores. Big firms adopt this channel to cut distribution costs and to sell industrial products of high value. Small producers and producers of perishable commodities also sell directly to local consumers.

ii. One Level Channel – (Producer-Retailer-Customer):

This channel of distribution involves only one middlemen called ‘retailer’. Under it, the producer sells his product to big retailers who buy goods in large quantities and who in turn sell to the ultimate consumers. This channel relieves the manufacturer from burden of selling the goods himself and at the same time gives him control over the process of distribution. This is often suited for distribution of consumer durables and products of high value.

iii. Two Level Channel – (Producer-Wholesaler-Retailer-Customer):

This is the most common and traditional channel of distribution. Under it, two middlemen namely the wholesalers and retailers are involved. Here, the producer sells his product to wholesalers, who in turn sell it to retailers. And retailers finally sell the product to the ultimate consumers.

This channel is suitable for the producers having limited finance, narrow product line and who needed expert services and promotional support from wholesalers. This is mostly suited for the products with widely scattered market.

iv. Three Level Channel – (Producer-Agent-Wholesaler-Retailer-Customer):

This is a very long channel of distribution in which three middlemen are involved, namely agent, wholesaler and retailer. This is used when the producer wants to be fully relieved of the problem of distribution and thus hands over his entire output to the selling agents. The agents distribute the product among a few wholesalers.

Each wholesaler distributes the product among a number of retailers who finally sell it to the ultimate consumers. This channel is suitable for wider distribution of various industrial products.

v. Four Level Channel – (Producer-Distributor-Agent-Wholesaler-Retailer-Customer):

This is the longest channel, where the goods pass through four intermediaries before they reach the end-user. Mostly, in case of crop, vegetables, wheat, fruits etc., this channel is most popular, although with the intervention of central and state governments, some intermediaries are chopped off from the list. The price of a product tends to be quite high in this channel.

Types of Distribution Channels – 3 Other Types: Hybrid Distribution System, Wholesaler and Physical Distribution

Type # 1. hybrid distribution system:.

A Company must manage a hybrid distribution system to avoid chaos and maximize efficiency, Responsibilities, relationships and compensations among various channel members must be made clear.

A company receives its distribution system in legacy. The company starts its journey with serving a particular type of customers. The company may have targeted big businesses initially, so it set up a team of salespersons to serve and manage these big accounts. But soon it found that smaller businesses were interested in its product.

It used its existing sales force to serve these small accounts as well but soon discovered that it was not economical to serve these small accounts with their existing sales force. So the company appoints a team of telemarketers to serve these small accounts. But the salespersons remained accountable for the smaller accounts lying in their territory.

The telemarketers were also asked to deal with routine matters of the big accounts to free up some precious time of the salespersons. As the markets for the product grew, the company decided to appoint independent distributors to stock and sell its products. A separate group of marketers looks after this part of this business.

Soon there was confusion galore. Nobody knew to whom he had to sell to, and who was someone else’s customer. The same customers were being solicited by different members of different channels with different types of offers. More than one person claimed compensation for one sale. The customers did not know whom to contact for specific queries or problems.

It is not that the company could have avoided this chaos by continuing to sell only by employing correct sales force. It would be prohibitively costly to serve small accounts by using direct sales force. Similarly if the company had started out with independent distributors serving small accounts, it would have had to appoint salespersons to serve big accounts if such opportunities came their way. Independent distributors cannot be trusted to provide the services that big accounts expect.

Therefore, as the customer set of a company becomes more diverse, maintaining a single channel of distribution will either become ineffective or uneconomical. Adding new channels is imperative when requirements of customers become diverse. But the process can be accomplished in a more thoughtful and deliberate many, rather than being a knee-jerk reaction to growing diversity among customers.

Three issues are important in this task. Which channel is supposed to serve which customers? Which channel does what tasks of the sales function, and for which customers? Which channel gets compensated for which customers and for what tasks? These are tricky questions and there will be no straight answers.

But it is important to ask these questions each time the company decides to add another channel because each time a channel is added the existing relationships, responsibilities, and compensation structure among various channel members are altered.

And the company has to debate and fix the new relationships, responsibilities and compensation structures as precisely as possible. Customers’ reactions to these new relationships and responsibilities are very important. If a customer is inconvenienced by the new arrangement, he is likely to shift his business.

For example, assume that telemarketers are added as a new channel over the direct sales force that the company previously deployed. Earlier the sales force did all the tasks 01 the sales function for the existing accounts, most of which were big, though the company had started focusing on acquiring small accounts. The sales force received all the commission emanating from these accounts.

The new responsibilities may run as follows. The telemarketers do all the tasks of the sales function for the small accounts but if they feel that a visit by a salesperson would help them clinch a lucrative deal, they can ask the salesperson serving the big accounts of that territory to solicit the account by making a visit.

The salespersons would do most of the tasks of the sales function for the big accounts but the telemarketers would be required to take manage routine matters with them under the guidance of the respective salespersons. Compensation structure has to be designed in a manner that salesperson is happy to seal a small account at the request of a telemarketer because he will get compensated for the task of making a visit.

Similarly, the telemarketer would not mind sharing a part of his commission because he understands that if it were not for the salesperson’s help, the smaller Account would not have been converted. Similarly the salesperson is content to part with a portion of his commission from the big accounts as he has more time to pursue new accounts and the telemarketers do not mind some extra income for making a few extra calls.

The big accounts are happy that there are also some people in the seller’s company besides their salesperson who can sort out small difficulties, and they do not have to be completely dependent on him or wait for his visit to get their problems solved. The small accounts are happy as their objections and queries have been personally taken care of by a representative of the seller’s company.

The new responsibilities, relationships and compensation structures may not looks neat especially if many channels are trying to serve a large pool of diverse customers but need not necessarily be as messy as most hybrid channels are. The essential idea is to raise these tough questions and answer them as squarely as possible.

There may still be confusion and conflicts and they have to be constantly addressed and redressed. A company usual gets into problems by pushing the uncomfortable questions of responsibilities, relationship and compensation structure under the carpet, and hoping that the members of various channels will automatically sort out these issues among themselves in due course of tin. They may, but that will not be in the best interests of the company and its customers. Who it comes to managing a hybrid distribution system it does not help to be expedient.

Type # 2. Wholesale r :

A wholesaler is an organization that serves as an intermediary between manufacturer retailer to facilitate the transfer of products, or the exchange of title to those products- an organization that sells products to manufacturers or institutions that resell the prod!

The functions of a wholesaler are:

i. Bulk breaking function – This consists of buying products in relatively large quantity and selling in smaller quantities.

ii. Bulk accumulating Junction – This consists of buying small quantities of a participating product from many small producers and then selling the assembled large quantity.

iii. Selling Junction – This consists of classifying accumulated products as to grade size, and then grouping them accordingly.

iv. Assorting function – This consists of combining products purchased from several manufacturers to create assortments.

v. Buying function – This is associated with making a purchase and thus affecting the transfer of ownership of goods.

vi. Service function – This consists of activities that increase the efficiency and effectiveness of the exchange process. Repair services and management services are examples of such services.

vii. Credit function – It consists of providing credit to another member of a distribution channel.

viii. Risk taking function – This means assuming the responsibility .for losses when the future is uncertain.

Type # 3. Physical Distribution :

Physical distribution focuses on an efficient movement of goods from manufacturer’s intermediaries and the consumer. Channel and physical distribution decisions are interrelated but channel decisions tend to be made earlier.

i. The aim of physical distribution is to provide intermediaries and customers with the right products, in the right quantities, in the right locations, at the right time.

ii. Effective physical distribution saves cost and improves customer service levels. Co-savings can be achieved by reducing inventory levels, using cheaper forms of transport and shipping in bulk. Customer service levels can be improved by fast and reliable delivery, holding high inventory so that customers have a wide choice and the chance of stock out are reduced, fast order processing and ensuring products arrive in the, right quantities and quality.

iii. Physical distribution management concerns the balance between cost reduction and meeting customer service requirements. Tradeoffs are often necessary, for instance, low inventory and slow, cheaper transportation methods reduce costs but lower customer service levels and satisfaction as well. Determining this balance is a key marketing decision as physical distribution can be a source of competitive advantage.

iv. Analyzing the market in terms of customer service needs and price sensitivity will reveal two segments.

v. It is important to define the target market segment and design an appropriate marketing mix. In industrial markets, large companies may possess their own service facility while smaller firms may require manufacturer or distributor services as a part of product offering and may be willing to pay a higher price.

vi. Low service needs high price sensitivity.

vii. High service needs, low price sensitivity.

viii. Besides tradeoffs between physical distribution costs and customer service levels, there are possible conflicts between elements of physical distribution itself. Inventory management may favor low stocks to reduce costs but if this leads to stock out this may raise costs elsewhere. Freight management may have to accept higher costs resulting from faster aircraft delivering.

Low cost containers may lower packaging costs but raise cost of goods damaged in transit. This fact and the need to coordinate order processing, inventory and transportation decision means that physical distribution needs to be managed as a system with management overseeing the whole process.

It is important that a single manager manages the physical distribution of a company and should prevent managers managing individual functions, like transportation, from maximizing their performance and causing harm to the overall efficiency and effectiveness of the system. Physical distribution manager should reconcile the conflicts inherent in the system so that total costs are minimized, subject to required customer service levels.

Elements of the Physical Distribution System :

The purpose of physical distribution system is to make the product available to the customer. Infrastructure facilities like number and locations of warehouses, availability of suitable modes of transport, and the level of inventories that have to be maintained at various locations determine die responsiveness of the physical distribution system.

1. Customer service – What level of customer service should be provided?

2. Order processing – How should the orders be handled?

3. Inventory control – How much inventory should be held?

4. Warehousing – Where should inventory be located? How many warehouses should be used?

5. Transportation mode – Which modes of transport should be used to transfer goods on time and without damage?

6. Materials Handling – How Will The Products Be Handled During Transportation?

Customer Service:

Customer service is the percentage of orders that are filled in time. It is important to set standards of customer service. A customer service standard may be that 90% of the orders are delivered within 48 hours of receipt and 10% are delivered within 72 hours. Higher standards means higher costs as inventory levels need to be higher or faster means of transportation may have to be used.

The physical distribution management needs to be aware of the costs of fulfilling various customer service standards (80, 90, 100% of orders delivered within 48 hours), and extra customer satisfaction which results from raising standards.

i. Some customers’ value consistency in delivery time rather than speed (guaranteed delivery within 5 days each time.

ii. Customer service standards may be the differentiating factor between suppliers. They may be used as a key customer choice criterion.

Methods of Improving Customer Service:

1. Improve product availability – Higher stock levels, improvement in accuracy of deliveries in terms of delivery at the promised time and in terms of delivery of the right assortment of products.

2. Improve order cycle time – Shorter time between order and delivery, improve consistency between order time and delivery time.

3. Raise information levels – Improvement in salespersons’ information on inventory, improvement in information levels on order status, promptness in notifying customer of imminent delays.

4. Raise flexibility – Development of contingency plans for urgent orders, a structure to ensure fast reaction time to unforeseen problems like product return.

Order Processing:

The idea is to reduce time between the consumer placing an order and receiving the goods. A computer link between order department and salesperson is effective. Computers can also check the customer’s credit rating and whether the goods are in stock, issuing an order to the warehousing, invoicing the customer and updating inventory records.

Some basic questions can reveal areas for improvement. What happens when a sales representative receives an order? What happens when it is received in the order department? How long does it take to check inventory? What are the methods for checking inventory? Delineating the steps that will be followed in the above situations will reveal gaps in the process to fulfill a customer order. Customer service levels can be improved by plugging these gaps.

Since inventory represents cost, finance managers seek stock minimization. But marketing wants large inventories to prevent stock out. Balance has to be found particularly as inventory costs rise at an increasing rate as customer service standard nears 100%. To always have in stock every conceivable item that a customer might order would normally be prohibitively expensive for companies marketing many items.

One solution is to separate items into those that arc in high demand and those that are slow moving. A high customer service standard is then set for high demand items but a much lower standard is used for those less in demand.

Two related inventory decisions are knowing when and how much to order so that stocks are replenished. Unless stock out is tolerated, the order point will be before the inventory reaches zero. This is because there is lead time between ordering and receiving inventory, and there should not be a stock out as the company is waiting for the ordered items to arrive.

The more variable the lead time, the greater the fluctuation in customer demand during the lead time and higher will be the safety or buffer stock that the company will be required to keep to prevent a stock out. The amount of safety inventory for a product should be related to variability in its demand. Higher the variability in demand from one time period to another, the higher should be the safety inventory for that item.

Small, frequent orders raise order processing costs because more orders have to be placed but reduce inventory carrying costs because lesser average inventory is held. (The average inventory held throughout the year is equal to half of the order amount. When the frequency of orders is increased, the order amount is reduced). Large infrequent costs raise inventory costs but lower processing expenditure. The tradeoff is the EOQ (Economic Order Quantity).

Warehousing:

It involves all activities required in the storing of goods between the time they are produced and the time they are transported to the customer. These activities include breaking bulk, making product assortments for delivery to customers, storage and loading. Storage warehouses hold goods for moderate along periods.

Distribution centers operate as central locations for fast movement of goods to retail stores. Retailing organizations use regional distribution centers where suppliers bring products in bulk. These shipments are broken down into loads that are then quickly transported to retail outlets. Distribution centers usually are highly automated. A computer reads orders and controls fork lift trucks that gather goods and move them to loading bays.

Warehousing strategy involves the determination of the location and number of warehouses to be used. At one extreme is one large warehouse to serve the entire market, at the other extreme is a number of smaller warehouses that are based near the local markets. Latter option improves customer service, but the cost is higher. The optimum number and location of warehouses is a balance between customer service and cost considerations.

Transportation Mode:

The selection of mode of transport will depend on the type of product, urgency of delivery and the volume being transferred.

A company can use anyone or a combination of following means for transporting their goods:

1. Rail – sure efficient at transporting large bulky freight over large distances, but there is lack of flexibility. There is additional transport by lorry to and from a rail depot. For small quantities the use of rail would be uneconomical.

2. Road – is flexible because of direct access to companies and warehouses. Lorries can transport goods from the supplier to receiver without unloading en route.

3. Air – Advantages are speed and long distance capabilities. It is used to transport perishable and emergency goods. It works to reduce inventory. Air freight is expected to grow. But it is costly and there is need to transport goods by road to and from the terminals.

4. Water transportation – is slow but inexpensive. It is used to transport bulky, low value, non-perishable goods. Road transportation of goods to and from docks is needed.

5. Pipeline – are dependable means for transporting liquids and gas. It requires low maintenance. Construction is expensive and time consuming.

Related Articles:

• Distribution Channels in Marketing
• What is Distribution Channel?
• Factors Affecting Choice of Distribution Channel
• Functions of Wholesalers

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Distribution Channels (Place), Essay Example

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A distribution channel is a set of interdependent organization involved in a process of making a product or service available for use or consumption. A channel of distribution therefore moves goods and services from producers to consumers. It overcomes the major time, place and possession gaps that separate goods and services from those who would use them. the main functions of this channel is to gather important information required, being a point of communicate, promotion, packaging, negotiation, physical distribution, financing and risk taker.

Intermediaries are mostly used to improve efficiency in making goods available to the target market. A layer of intermediaries define a channel level which is later used to determine a distribution channel. These levels are: direct level marketing channel and indirect marketing channel. In direct level, there are no intermediaries while indirect incorporates one or more intermediaries. Marketing managers would best fall into the indirect marketing channel because it is connected by several types of flow like the promotion flow, payment flow or even the flow of the product.

While developing the place element of a marketing strategy, the marketing managers should consider matters concerning competition, type of location, availability of customers, level of product distribution, nature of the product, the best available channels of distribution to supply the products, accessibility of the product or service to the customers because the place element does not necessarily mean that the place has to be physical because it could also be online. The sales force should also be analyzed to determine the best marketing strategies to use. Among other factors, competition is quite vital in the sense that the company in question should manage to be unique in terms of how it offers its goods and services so that it can gain a competitive advantage. All the above factors are considered so as to design the best marketing strategy.

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Channels of Distribution: Meaning, Objectives, Role, Factors, Functions and Strategies

In this article we will discuss about:- 1. Channels of Distribution – Meaning and Definition 2. Objectives of Channels of Distribution 3. Role 4. Factors Influencing 5. Role of Intermediaries 6. Distribution Intensity 7. Types of Intermediaries 8. Need of Channels of Distribution 9. Functions 10. Strategies 11. Management Decisions 12. Factors to be Considered.

Channels of Distribution – Meaning and Definition:

The Distribution of product is a major element of marketing mix. A right product at right price will not have any value if it is not made available at the right place. Distribution is the process of moving the product from the producer to the ultimate consumer. It provides place utility to the product. The increasing complexity of the modern production process has created a wide gap between the manufacturer and the ultimate consumer.

At the same time mass production, decentralisation of the market and small buying requirement of the consumers has made it difficult for the manufacturer to deal directly with the customers. Channel of distribution helps in bridging the gap between the manu­facturer and consumer. It includes a number of intermediaries like wholesaler, retailer, brokers, sales agents, etc.

It has two important aspects – Channels of dis­tribution and Physical distribution. A channel of distribution refers to the path­way through which the goods move from the producers to the consumer. This is done through a number of intermediaries. Physical distribution, on other hand, is concerned with the physical movement of the prod­uct to the target market so as to provide time and place utility to it. The physical distribution activities include transportation, warehouse, inventory main­tenance, order processing, etc.

Channels of distribution have been defined in different ways by different authors.

According to Philip Kotler, “Every produces seek to link together the set of marketing intermediaries that best fulfil the firms’ objective. This set of market­ing intermediaries is called marketing channel also trade channel and channel of distribution.”

According to William J. Stanton, “A channel of distribution for a product is the route taken by the title of the goods as they move from the producer to the ultimate consumer or the industrial user.”

According to American Marketing Association,” The structure of intra com­pany organisation units and extra company agents and dealers, wholesaler and retailer, through which a commodity, product or service is marketed.”

In other words, a channel of distribution is a pathway directing the flow of goods and services from producer to consumer consisting of number of inter­mediaries. It is an organised network which performs all the activities required to link producers with users to accomplish the marketing task.

Objectives of Channels of Distribution :

Objectives are the starting point of any activity. They are the intended goals which prescribe scope and suggest direction to the efforts of the manager. Channel objectives also suggest direction for framing channel policies and strat­egies, selection of distribution channels etc. They flow out of the overall objec­tive of the firm. The main objective of any distribution system is to make avail­able the product at right place in right quantity and at right time.

It makes avail­able the goods to the consumer as per his requirement. Apart from the main objective, distribution channel has other objectives like production and safety of the product, quick disposal of the product at the low cost, low inventory control of the channel and marketing intelligence. It is important to note that channel objectives vary in different environmental conditions and market conditions. It also varies form one time period to another.

Role of Distribution Channels:

In order to move product from producer to consumer, it is necessary that the product is properly handled, packed, stored and transported. All these activi­ties involve high amount of cost and are performed by intermediaries of the channels in accordance with their efficiency and specialisation. Channel of dis­tribution has thus become a very important link between the producers and the consumers.

The producers who do not have sufficient fund to carry out direct marketing can easily take advantage of the service of middleman. Channels of distribution fill the gap between the producer and consumer in the form of title, place and possession utilities. The presence of intermediaries between producer and consumer improve the efficiency of exchange process. Distribution without the presence of intermediaries becomes more complicated and costly.

Channel of distribution is not only concerned with the physical movement of the product from manufacturer to consumer but also concerned with other type of flows like transfer of ownership, financial transaction, communication and transfer of risk. Transfer of ownership is concerned with the transfer of title to the goods from producer to consumer via intermediaries.

Financial flow means flow of funds from consumers to producers. Com­munication is concerned with dissemination of all concerned information to the consumer while transfer of risk is concerned with all the risk that are experi­enced while carrying out the channel work, like perishable nature of product, product obsolescence, etc.

Factors Influencing Distribution Channels:

Channels of distribution form an important part of the marketing mix. Decision relating to it involve decisions regarding type of channels, type of inter­mediaries, channel strategies, motivation to channel members, physical distribu­tion etc. These decision affect and are affected by various factors. There are various factors which influence channel of distribution decision.

They can be categorised as:

(A) Product Characteristics.

(B) Market Characteristics.

(C) Middleman Characteristics.

(D) Manufacturer’s Characteristics.

(E) Environment Considerations.

(A) Product Characteristics:

Product factors have significant influence on the channel selection.

They are concerned with:

i. Nature of the Product – Nature of the product is the primary factor in channel selection. If the product is perishable in nature, small channel (less number of intermediaries) should be used, to save them from physical deterioration. Durable goods can be transferred through longer channels.

ii. Technical Nature of the Product – Product Technical products require greater explanation Characteristics and training. For such products exclusive dealers may be used. For other products which are not highly technical, intensive distribution may be selected to make the product available.

iii. Length of the Product Line – Product line consists of group of closely related products. Length of the product line influences the channel selection. Short product line is more apt to sell through middleman than a long product line. Manufacturers have to decide whether to sell all the products through single channel or use multiple channels.

iv. Unit Value – The unit value of the product also influences the selection of distribution channels. Higher unit value products are preferred to be sold directly or through shorter channels. On the other hand, low unit value unit product are preferred though longer channels, as they require intensive distribution.

v. Market Position – Established product and products of the reputed manufacturers can be easily sent through various channels. However, new products may face difficulties.

(B) Market Characteristics:

Market factors includes following factors which influence channel decisions:

i. Size of the Market – If the market is large in size, more number of middlemen will be required to sell the product. For small markets, direct selling may be preferred.

ii. Area or the Market – National and international markets require wide and long channels while local and regional market markets may be served through shorter channels.

iii. Concentration of Buyers – When buyers are concentrated in few areas only, short channels will be sufficient. However, if the buyers are scattered over a wide geographical area, then shorter channels become uneconomical and longer channel should be opted for.

(C) Middlemen Characteristics:

These factors relate to:

i. Availability of Middlemen – The existing channel system may not be interested in selling the products of the manufacture. In such case, marketer has to find out other channel members and work in a compromising manner.

ii. Competitors’ Channels – The distribution channels used by the competitors also influence firms channel selection. When the competitors is using a particular channel and have been successful, the concerned manufacturer may also use it in similar manner, provided it suits his requirements. It is not always necessary to go for separate channel system.

iii. Type of Middleman – Choosing the right middleman is important for smooth distribution of the goods. The efficiency of the middlemen to perform various functions (standardisation and grading, branding and packaging, after-sale services, etc.), his financial standing in the market, his market influence and penetration, are important factors which affects the choice of channels.

(D) Manufacturer’s Characteristics:

A manufacturer’s own strength and weaknesses also significantly influence channel selection.

This includes:

i. Size of the Company – A very significant factor influencing channel selection is the size of company. Large companies prefer shorter channels and small companies use longer channels.

ii. Financial Strength of the Company – Companies having substantial financial resources need not depend upon intermediaries for assistance and can use shorter channels. However, financially weak companies use indirect channel.

iii. Experience and Ability – Long established companies have good experience and ability; therefore they do not go to intermediaries but only maintain good relations. However, new companied rely heavily on middlemen, as they lack working experience.

(E) Environmental Considerations:

Changes in the marketing environment also influence channel selection. The prevailing economic conditions in the country may force companies to change its channel policies. Slump periods may force the manufacturers to go for less expensive distribution channels. Similarly technological development and innovations also influence distribution strategies.

Role of Intermediaries:

Intermediaries are the important link between the producer and the con­sumer. A part of indirect channel system, these intermediaries, and help in several types of flow functions between producer and consumer.

These flow functions are:

(1) Possession:

Flow of possession is the physical flow of goods from producers to consumers through intermediaries.

Flow of title is from manufacturer to the intermediary or middlemen and from intermediary to the final consumer. Many middlemen take title of the goods and then trade it on their own risk.

(3) Promotion:

Intermediaries play an important role in promoting their goods in their territory. They have their own sales programmes to attract the consumers.

(4) Negotiation:

Numbers of middlemen are there due to stiff competition. As a result intermediaries have to negotiate the various activities of business.

(5) Payment:

The payment flows backwards i.e. from the consumer to producer. Middlemen help the manufacturer by providing advance payments to meet their working capital requirement for goods and services.

(6) Information:

Information flow takes place from intermediary to manufacturer. Since middlemen are in close contact with the consumers they provide valuable information about the market to the manufacturer.

Distribution Intensity:

Once the channel level is decided by the firm, the next task is to choose the number of intermediaries i.e. specifying distribution intensity. It is concerned with the market exposure to be given to the product to meet the target consum­ers’ needs and wants. There are three types of distri­bution intensity-Intensive distribution, exclusive dis­tribution and Selective distribution.

(1) Intensive Distribution:

Under this type of distribution, seller sells his product through all possible outlets. The emphasis here is to flood the market with the product so that customer automatically goes for that product. Seller here widely advertises his products so that consumers are well aware about the product. This naturally leads to high cost. This type of distribution is commonly used for convenience goods like-soft drinks, stationery, etc. The main demerit of this distribution system is that manufacturer has very less control over channel members.

(2) Exclusive Distribution:

This is opposite of intensive distribution. An extreme method of distribution, here the firm selects a very few middlemen (not more) to sell its product in each geographical area. These middlemen are granted exclusive rights to sell the product in their territory. It is most suitable for expensive speciality goods. Here the firm has great deal of control over the channel members.

(3) Selective Distribution:

Selective distribution is a mid-way between the intensive and exclusive distribution. It refers to the selection of few middlemen for selling the product so that the product is available at more than one outlet but not at every outlet. Through this, firm tries to create selective demand for the product. This method enables the seller to enjoy the benefits of selective distribution while still having adequate market coverage. Firm has moderate control over the channel members.

Types of Intermediaries:

Intermediaries are the middlemen who specialise in performing various functions or rendering services involved in the process of moving the product from the producer to the consumer. These intermediaries may be individual or organisation, who helps the manufacturer in reaching to the final consumers. Intermediaries are of two types – Agent middlemen and Merchant middlemen.

Agent middlemen are those intermediaries who do not take title of the goods but only specialises in the negotiating the buying or selling transactions. Unlike merchant middlemen, they negotiate the purchase or sale or both with­out acquiring the ownership of these goods for example – Brokers, commission agents, auctioneers, resident buyers, factors, selling agents, etc.

Merchant middlemen, on other hand, are those intermediaries who take title to the goods and involve in buying and reselling of the goods. These include wholesaler and retailers.

Need of Channels of Distribution:

Channels of Distribution are required for the follow reasons:

(i) Channels of Distribution Help in the Production Function:

The producer can concentrate on the production function leaving the marketing problem to middlemen who specialize in the profession, their services best utilized for selling the product.

(ii) Marketing Demand and Supply:

The chief function of intermediaries is to assemble the goods from many producers in such a manner that a customer can make effective purchases with ease.

(iii) Financing the Producer:

Middlemen orders and purchases products in bulk from the producers to undertake large-scale production and in adopting better techniques of production because they have no problem for finance.

(iv) Aid to Communication:

The middlemen are connecting link between the producer and the buyer. Middlemen have complete knowledge of consumer behaviour and the market and they communicate the necessary information to the producer so that they may produce according to the needs of the consumers.

(v) Stabilizing the Prices:

The middlemen help to stabilize the prices. By stocking goods, constant flow of goods to the market is assured at a place where they are wanting and at a proper time. Thus middlemen create place, time, and possession utilities to the products and maintain the prices.

(vi) Promotional Activities:

Middlemen also perform various promotional activities like advertising, personal selling and sales promotion. Sometimes wholesaler does it alone for the producer. Retailer also performs such activities by displaying the product in his window which attracts the customers.

(vii) Pricing:

In pricing the product, the producer should invite the suggestions from the middlemen who are very close to the ultimate users and who know the consumer behavior aptly. Pricing may be different for different markets or products depending upon the channel of distribution.

5. Functions of a Distribution Channel:

Important functions of a Distribution Channels are:

(i) The primary function of a distribution channel is to bridge the gap between production and consumption.

(ii) A close study of the market is extremely essential. A sound marketing plan depends upon thorough market study.

(iii) The distribution channel is also responsible for promoting the product. Awareness regarding products and other offers should be created among the consumers.

(iv) Creating contacts or prospective buyers and maintaining liaison with existing ones.

(v) Understanding the customer’s needs and adjusting the offer accordingly.

(vi) Negotiate price and other offers related to the product as per the customer demand.

(vii) Storage and distribution of goods.

(viii) Catering to the financial requirements for the smooth working of the distribution chain.

(ix) Risk taking for example by stock holding.

6. Different Channel Strategies:

Channel Strategy is the decision about the allocation of roles within a channel of distribution, and the way in which the channel is formally or informally managed and administered.

Various channel strategies are:

(i) Push Strategy:

Push strategy is a manufacturing strategy aimed at other channel members rather than the end consumer. The manufacturer attempts to entice other channel members to carry its product through trade allowances, inventory stocking procedures, pricing policies, etc. Under this strategy the communications and promotional activities by the marketer to persuade wholesale and retail channel members to stock and promote specific products.

(ii) Pull Strategy:

A manufacturing strategy aimed at the end consumer of a product. The product is pulled through the channel by consumer demand initiated by promotional efforts, inventory stocking procedures, etc.

Under this strategy the communications and promotional activities by the marketer to persuade consumers to request specific products or brands from retail channel members.

7. Channel Management Decisions:

Channel management is a term that refers to the way that a business or supplier of products uses various marketing techniques and sales strategies to reach the widest possible customer base. The channels are all of the various outlets by which the product is marketed and sold to customers.

When done properly, channel management motivates those channels to sell the product and ultimately develops a better relationship between customer and product. This is achieved by identifying the goals for each distinctive channel and then implementing various marketing strategies to make sure that those goals are attained, all while staying consistent to the overall brand of the business.

Channel management, as a process by which a company creates formalized programs for selling and servicing customers within a specific channel.

It customizes a channel management program that includes:

At first define the specific goals for each channel segment. Consider the goals for the channel as whole as well as individual accounts. And, remember to consider the goals for both acquisition and retention.

(ii) Policies:

Construct well-defined polices for administering the accounts within this channel. Be sure to keep the unique characteristics of each segment in mind when defining policies for account set up, order management, product fulfillment, etc.

(iii) Products:

Identify which products in offering are most suited for each segment and create appropriate messaging. Also, determine where the up sell opportunities lie.

(iv) Sales/Marketing Programs:

Design support programs for the channel that meet their needs, not what idea of their needs are. The standard considerations are product training, co-op advertising, seasonal promotions and merchandising.

Factors to be Considered While Selecting a Distribution Channel :

While choosing an appropriate channel of distribution the following factors should be considered:

1. Nature of Market:

Criteria like nature and location of buyers, size and frequency of purchase, buying habits and preferences of consumers, scope of distribution and competition etc., are to be considered.

2. Nature of Product :

(i) Perishability – Perishable products require more direct marketing because of dangers associated with delays and repeated handlings.

(ii) Size – Products that are bulky (for example, Iron & steel, cotton etc.) usually need short channels so that distance and number of handlings from product to ultimate consumer may be reduced.

(iii) Style – This is a dangerous element and often necessitates frequent changes in the channels. Manufacturers prefer selling direct to retailers, especially when goods are subjected to fast style changes.

(iv) Unit value – Products of high unit value are often sold through company’s own sales force.

(v) Newness of the product – When new products are introduced, new channels are preferred.

3. Consumers’ Buying Habits:

Factors like size of average sales, seasonal character of sales; concentration of customers etc. play a vital role in deciding a distribution channel. As far as convenience goods are concerned, long channels are preferred. Shopping and speciality goods on the other hand, are marketed more directly.

4. Competition:

Generally the same channels which are preferred by the competitors are used since the channel partners are familiar with the customers and they are more approachable. Also trying out a totally new set of channel members will lead to rise in cost and risk.

5. Financial Limitations:

They are always taken into consideration before making a selection.

Selection of Distribution Channels Requires a Compromise between Cost and Control:

The cost involved in the use of a distribution channel enters the price of the product that the ultimate consumer has to pay. Due to a wrong decision regarding the channel, distribution cost may be very high and sales might be very limited. A sound channel decision enables the firm to cut down costs and maximise sales revenue.

Thus, the distribution channel influences sales volume and profits. If the choice of the channel is proper, fluctuations in production can be reduced due to continuous and effective distribution. The manufacturer can continuously monitor the sales and stock of his distribution partners to exercise effective control over distribution network.

Factors Affecting the Choice of a Channel:

The manufacturer has to find out the most effective and efficient channel of distribution for his product. The selected channel must have the lowest cost with maximum overall profit.

There is no single channel of distribution that will always result in optimum profit. The integrated marketing concept has prompted many manufacturers to employ several kinds of channels.

There are various constraints that are to be considered before deciding a channel of distribution:

i. Number and location of buyers,

ii. Size and frequency of purchase,

iii. Consumer or industrial market, and

iv. Buying habits and preferences.

2. Nature of Product:

i. Size of product —bulk and weight,

ii. Unit value,

iii. Perishability,

iv. Standardisation,

v. Technical nature, and

vi. Age of product, i.e., when new products are introduced, new channels are preferred.

3. Nature of Firm:

i. Market standing,

ii. Financial resources,

iii. Volume of output,

iv. Degree of control desired, and

v. Managerial competence.

4. Nature of Distribution:

i. Availability of middlemen,

ii. Attitude of middlemen,

iii. Services provided by middlemen,

iv. Sales potential,

v. Cost of the channel, and

vi. Legal considerations.

As far as convenience goods are concerned, long channels are preferred. Shopping and speciality goods are marketed more directly. Industrial goods of high value are also marketed directly. When the quantity sold is small, the channels should be elaborate.

Factors Taken into Consideration while Planning the Distribution Network for a Product:

The management should carefully consider the following factors while planning the distribution network for a product:

A. Market considerations;

B. Product considerations;

C. Company considerations; and

D. Middlemen considerations.

Following features of the market should be analysed:

(i) Consumer or industrial market;

(ii) Number of potential customers;

(iii) Size of order;

(iv) Buying habits of customers; and

(v) Geographical concentration of the market.

B. Product:

Important factors with regard to the product are to be analysed carefully:

(i) Unit value;

(ii) Product line;

(iii) Standardised product – It can be distributed through longer channels because their brand names are quite popular.

(iv) Technical nature – Industrial products which are highly technical, are often distributed directly to the industrial users.

(v) Bulk and weight – Bulky and heavy goods are distributed directly to users in order to minimise the physical handling of the product.

(vi) Perishability – The producers of perishable products usually sell their products directly to consumers or sell through the middlemen who have the special storage facilities.

C. Company Considerations:

Following factors are important with regard to nature and size of the business firm:

(i) Volume of production;

(ii) Financial resources;

(iii) Experience and competence of management;

(iv) Desire for control of channel – A manufacturer who wants to control the distribution of his product will select a short channel of distribution.

D. Middlemen:

Following factors relate to the middlemen:

(i) Availability of desired middlemen;

(ii) Financial ability;

(iii) Attitude of middlemen;

(iv) Sales potential;

(v) Cost; and

(vi) Competition and legal constraints.

Channel Width:

It is a distribution policy which needs to be decided by the manufacturer in which he decides about the number of outlets or individual channels.

The channel width is chosen from among three alternatives:

1. Intensive Distribution:

(i) The manufacturer seeks to use as many outlets as possible, in as many places as possible.

(ii) Also referred to as “Maximum expansion”.

(iii) Usually adopted in case of convenience goods, like cigarettes, sweets, toffees etc.

2. Selective Distribution:

(i) The manufacturer selects a limited number of wholesalers or retailers and works closely with them to further the sale of his products.

(ii) It is suited in case of shopping goods like washing machines, computers etc.

(iii) Requires lots of planning and strategizing from the manufacturer’s end so that he can choose the best distributor and leave the unimportant ones.

(iv) The control on the dealer is limited.

(v) Best strategy for goods which require after sales service and carry a high net price.

3. Exclusive Distribution:

(i) It refers to the practice of selecting and allocating a distributor an exclusive area of sales called as “Territory”. Herein, the manufacturer also agrees in exclusive selling agreement that he will not sell to anyone else in that territory.

(ii) The distributor will, in return agree to be exclusively retailing only that particular product.

(iii) Gives prestige to the product as having an exclusive dealer.

(iv) The Exclusive Distributor will have a monopoly in his territory and will thus be protected from any price cuts or markdowns.

Trends in Marketing Channels:

1. Vertical Marketing System.

2. Horizontal Marketing System.

3. Multi-Channel Marketing System.

1. Vertical Marketing System:

It comprises the producer, wholesaler and retailer operating as an integrated arrangement. Under this either one channel member owns the others or gives franchise to them or has such an arrangement that they all work together.

Advantages:

(i) Vertical organization provides clear lines of authority and a tight span of control;

(ii) Offers high operating efficiency;

(iii) Combination of relatively small departments;

(iv) Facilitates close monitoring and control;

(v) Direct reporting by each level to upper level.

Disadvantages:

(i) Lower level members feel less valued;

(ii) Some members may not relish the accompanying culture of politics;

(iii) It is time consuming.

2. Horizontal Marketing System:

The Horizontal marketing system is a channel in which few companies operating at the same level jointly and mutually agree to pursue a fresh marketing prospect. Its major advantage is that businesses merge their assets, resources, production potentials, and therefore realize more.

This collaboration may be temporary or permanent. For example, Nestle and Coca-Cola created a joint venture where Coke offered its all-inclusive expertise in marketing and distribution of beverages and Nestle contributed for two established brand names — Nescafe and Nestea.

(i) Employees attain greater satisfaction;

(ii) Offers greater freedom and autonomy;

(iii) High levels of cooperation throughout the organization because of the use of cross-function teams.

(i) Loss of control;

(ii) High level of responsibility but low level of authority;

(iii) Not always favourable.

3. Multi-Channel Marketing System (MMS):

Under this system, the company gets its products sold not only from their own showrooms or authorized dealers but the product is made available through the retailers who keep various brands. This way the product gets maximum exposure in the market.

Channels of Distribution Add Convenience for Consumers and Help make the Product Available at Right Place:

“Channels of distribution add convenience for consumers and help make the product available at right place.” This statement aptly explains the important and significant role played by channels of distribution in passing the ownership of the goods produced from the producer to ultimate consumers in the most efficient and cost effective manner.

The channel of distribution consists of a set of people and firms involved in the transfer of title to a product as the product moves from producer to ultimate consumer or business users.

The above statement can be explained by highlighting the various functions performed by distribution channels in this regard:

(i) Procurement and sorting – They procure the supplies of merchandise from a number of sources and sort them on the basis of different qualities, nature or size. For example -wholesaler of almonds procures large quantities of almonds from different sources and sorts them on the basis of size or quality and packs them accordingly.

(ii) Maintains flow – They maintain the continuous flow of supply of goods by accumulating them in large numbers.

(iii) Repacking in convenient lots – They repack the bulk quantity of goods purchased by them in convenient small packs of 1 kg, 2 kg, 5 kg.

(iv) Assortment – They take up the work of assorting the goods to make them into a kit or package. For example – a bookseller sells a complete set of books to school children in a kit comprising books, notebooks, stationary items, project files, art and craft files, folders, crayons, etc.

(v) Risk taking – They also assume a risk on account of price and demand fluctuations.

(vi) Promotion – They carry out promotion of goods by doing window displays, demonstrations, etc.

The Middleman are doing nothing but Simply Robbing the Customers:

Channels of distribution are hired to perform the function of transferring goods from the place of manufacture to the place of consumption. These functions are not performed free of cost and this additional cost is borne by the customers. But there is a severe criticism that charges made by the middlemen are more than what is due to them. Hence the statement.

Thus gradually there is a feeling to do away with middlemen and bring the producers and consumers in direct touch, which will benefit both because of the following reasons:

(i) Wholesalers do not take interest in increasing sales inspite of large incentives given to them.

(ii) Most of the middlemen do not actually perform the marketing functions such as storing, transportation etc. They simply help in changing the ownership without shouldering any responsibility.

(iii) The present manufacturer is desirous of establishing closer contacts with the consumers.

If a manufacturer wants to use a distribution channel then he has three ways of doing it:

(i) Distribution through an agency that stands between the manufacturer and the wholesaler. Usually the manufacturer uses this channel when he cannot afford to have a sales force of his own. Herein, the channel, i.e., the distributor has brokers, agents, commission merchants and export merchants etc.

(ii) Selling to wholesalers, who will sell to retailer – This channel is referred to as “Traditional Channel”. Wholesaler performs different functions like bulk purchasing, receiving, storing, selling in smaller quantities to large number of retailers.

(iii) Selling direct to retailers – This is a short trade channel working on the idea of removing wholesalers and brokers from the middle of the chain. It is gaining more attention in recent times after the formation of so many super markets, departmental stores like Big Bazar etc.

This channel is adopted where:

i. The manufacturer has enough financial resources to take up marketing functions;

ii. There is large scale production;

iii. The product is normally bought by the customers in large quantities;

iv. There is a full line of goods; and

v. The demand of the goods is constant.

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Marketing Mix: Distribution Channels (Place)

Distribution.

The place is the vital aspect in the marketing mix, it is the final launch of the product in the market, and the customers are the end results in the marketing process. The distribution channels are the interconnections or the series of the network which bind the manufacturer with the consumers accompanied by the distributors, wholesalers, and retailers.

The choice of the distribution channel varies depending on the product in the market and the promotion tactics related to the product. The distribution channel can be said to as an intermediary in the marketing process and the plan of the same. “After all, using intermediaries means giving up some control over how products are sold and who they are sold to. Intermediaries are specialists in selling. They have the contacts, experience, and scale of operation which means that greater sales can be achieved than if the producing business tried to run a sales operation itself” (Distribution-Introduction: The nature of distribution channels, n.d, para,5).

Channels of distribution

The product will be distributed through the retailers to the customers in the market, the retailers will be selected depending on the specific criteria relating to the product and the specific features. The location of the product will be present in almost all the metropolitan cities and the towns and also the very next plan is to extend the product to the inner side of the towns and to make all the services available in a separate roof and to make the product much familiar to the people and to increase the publicity.

The timing of the product will be fixed at the regular intervals from the manufacturing time, the time taken for the reach of the product from the manufacturing division to the retailers and to the customers are within a very short span, a time limit of minutes. The availability of the product is the major issue that needs to be considered much deeply and the absence of the product paves the way for the substitute product. The product finds itself in the much-reputed market stores and makes the availability, efficiency in performance, and success in the market.

The location is a constraint that contributes to the success of the product as the product are made available in the major cities and towns the issues of them are settled to a greater extend. The use of the agents is impressive, they act as the catalyst in smoothing the marketing process and achieving success in the market.

The various services included for the customer service and the purchase of the product are splendid, the customers are at the liberty to order the product through mail, telephone and fax, the home delivery system and the online payment system are provided to them and the feedback from them is also welcome. A 24/7 service for the customer query is also available which paves an excellent method for the customer to keep in touch.

Variations in distribution

There will be several variations in distribution that require the use of selling experts, together with transportation and storage groups, wholesalers, and dealers. There must be a proper scheme for the present distribution of the product as well as the future. There should be proper consideration of the distribution of the place. A customer would like to buy the product at a place suitable for him to purchase and reach the destination with the original quality of the product. The customer does not like to go far to buy a simple product. This distribution variation will have a major effect on the target market. It should be properly planned also. “The critical place questions are: How much exposure do we want? And how shall we go about getting it? The marketing manager must develop place policies to answer these questions. It is his job to see that the “right” product reaches the “right” place ” (Marketing Management, 2010, para.5).

The product quality, targeted consumer’s advance to that item, their eagerness to purchase the product, the total rate of overhaul preferred, are some of the factors which will affect the distribution. The distribution variation will be mainly followed by the interaction of consumer behavior and the character of the product. The distribution variation is affected by different types of customers in the target market. The wider distributions at low costs are preferred by most of the companies and shoppers can reach more outlets. The materials, safeguarding, maintenance, working provisions, and good services are required in the distribution of the product to the target market. The distribution should be with the level of market disclosure and the sort of distribution channels in the intended market. The variation in the distribution is targeted to reach as many customers as possible. Each of the customers needs different kinds of promotional tactics and selling blends. This will assist to achieve and convene the exact category of clients and can deal out the product according to the customers. “Common segmentation schemes are based on demographic or behavioral data. While these forms of segmentation are useful, they rarely provide the type of breakthrough insight that lead to innovative new consumer solutions or business models” (Customer needs & segment analysis, n.d, para.3).

These effective variations in distribution ultimately target to increase the purchaser fulfillment, price competence and will lead the competitive improvement.

Reference List

Customer needs & segment analysis . (n.d.). Alliance Consulting Group. Web.

Distribution-Introduction: The nature of distribution channels . (n.d.). Tutor2u. Web.

Marketing Management . (2010). Managerial Marketing. Web.

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Top Distribution Channels Examples: Types & Benefits

How do businesses get products to you?

Well, through distribution channels.

This article covers the examples of distribution channels like direct sales and wholesaling, along with their benefits and real-life case studies so you can choose the best ones for your business.

Quick Summary

• Distribution channels are key to getting your products to customers fast.
• Knowing the difference between direct and indirect distribution channels and their benefits is crucial for determining your sales and market coverage strategies.
• Distribution strategies have evolved with the advancement of e-commerce and AR technologies. Brands are leveraging these technologies for better customer engagement .

What are Distribution Channels?

Distribution channels are networks that get products and services from producers to customers. In a competitive market the choice of distribution channels can make or break a company. Factors like the nature of the product, target market and competitive landscape play a big role in these decisions.

With digital technology, distribution channels have evolved, adding a touch of personalization to customer relationship management , e-commerce, and marketing strategies. This has made it possible for businesses to reach more customers more efficiently and convince them to buy more conveniently.

Why Do You Need a Strong Distribution Channel for Sales?

Distribution channels are key to a go-to-market strategy, which helps businesses expand market coverage and increase sales. Knowing these channels is important as they determine how products get to customers, from pricing to customer satisfaction.

At the end of the day distribution channels are part of the overall sales and marketing strategies, including product, promotion and price.

Distribution channels are key to marketing by getting products to customers on time, customer satisfaction.

But understanding distribution channels is not just about logistics; it’s about strategic planning and market penetration.

Types of distribution channels

Distribution channels fall into two broad categories. Direct and Indirect .

Direct channels allow manufacturers to interact with customers directly, cutting out intermediaries and often saving cost for both the producer and the customer. With the direct channel, the company sells directly to the customer.

For example, a brewery that brews its own beer and sells it to customers at its own brick-and-mortar location. Direct channels like e-commerce and physical stores that allow producers to sell directly to customers, have more control over the distribution process.

Indirect channels involve intermediaries like wholesalers and retailers who handle the distribution channels on behalf of the producer.

Each has its own benefits and challenges, and the choice between them depends on product type, market reach and customer preferences. Let’s go through each of them in detail.

Direct Distribution Channels

Direct distribution channels allow manufacturers or service providers to interact with end customers directly. This model is also known as direct-to-consumer (D2C), it eliminates intermediaries, the producer can sell directly to the end customer.

Companies like Apple and Amazon uses direct channels and a direct channel to reach more customers and have more control over the customer experience .

One of the biggest benefits of direct channels is cost savings for customers. Buying directly from the manufacturer often means lower prices. Direct channels also gives companies more control over the customer buying experience, more personalized interactions and immediate feedback.

Direct sales can take many forms, e-commerce platforms, physical stores and direct sales teams. Each of these channels has its own advantages in terms of customer engagement and market reach.

1. E-commerce

E-commerce platforms are the face of direct distribution channels.

Companies like Amazon support this model by selling products directly to customers through their online marketplace. This allows for control over pricing, inventory and customer relationships, faster delivery and more products.

2. Physical stores

Physical stores are key to direct distribution by integrating various supply chain functions like customer service, inventory management and order fulfillment. They are part of omnichannel strategies, as customers can choose from multiple purchase options, in-store browsing and online purchase.

Retailers are using physical locations to support flexible fulfillment options like buy online, pick up in-store (BOPIS) and home delivery.

3. Direct sales teams

Direct sales teams are more effective in business-to-business ( B2B ) markets where personal interaction and tailored solutions are key. These teams enables direct engagement with customers, build strong customer relationships and increase sales.

Indirect Distribution Channels

Indirect distribution channels involve intermediaries like wholesalers and retailers who handle the distribution. This is used in traditional brick-and-mortar stores where intermediaries distribute, sell and promote products and services.

Who are intermediaries in distribution channels?

Intermediaries in distribution channels do more than just move goods; they also transfer ownership and provide valuable market information. This information can help businesses understand market demand and competition, to make better decisions.

But the inclusion of intermediaries adds another layer between the producer and the customer which can complicate the distribution.

Two-tier distribution or level 2 distribution channel involves multiple intermediaries between producer and buyer. This multi-tiered approach allows businesses to tap on the expertise and market presence of intermediaries to reach a bigger audience. Channel strategies are key to optimize these relationships and distribution.

Indirect channels are more suitable for products that require high availability and multiple touchpoints. It helps small businesses to reach a bigger audience by leveraging the existing market presence of intermediaries through an indirect channel.

1. Retail partners

Retail partners are part of indirect distribution channels.

To give you an example, companies like Coca-Cola has a vast network of channel partners to ensure product availability across multiple locations worldwide. This strategy maximize visibility and accessibility, small businesses can tap into existing market and expand their reach.

2. Wholesalers

Wholesalers are part of the supply chain by buying goods in bulk from producers and selling to retailers. This allows producers to focus on manufacturing while wholesalers handle the distribution.

Wholesalers also stabilizes prices and ensure product availability.

3. Agents and brokers

Agents and brokers are intermediaries that connect manufacturers to end consumers or retailers. They are crucial in industries like real estate and insurance where personal relationships and expert advice are important.

These intermediaries negotiate terms, represent products and assist with sales strategies , making them essential in certain markets.

Hybrid Distribution Channels

Hybrid distribution channels combines both direct and indirect channels, offering flexibility in reaching consumers through multiple touchpoints. This allows businesses to adapt to changing market and consumer behavior and optimize their reach and sales.

By combining direct and indirect channels, companies can get the control and cost savings of direct sales and leverage the market presence and expertise of intermediaries. This dual approach increases customer engagement and a more comprehensive distribution strategy.

1. Online and offline sales

Companies like Nike uses both e-commerce and physical stores to engage customers. For instance, in 2023, it could drive 15% of its sales through digital channels, a solid addition to their otherwise dominant physical store sales model.

This combination allows businesses to maximize their reach and adapt to consumer behavior, drive sales through multiple channels and a more personalized shopping experience.

2. Multi-channel

Multi-channel means using multiple distribution channels to reach more products.

Reiterating the same example, Nike uses e-commerce and physical stores to reach a broader audience and customer experience.

This allows businesses to engage customers across multiple platforms and gain more visibility and sales.

3. Franchise models

A franchise is a business model where a party gets the license to access the company’s proprietary information, processes and trademarks. The franchisee usually pays the initial start-up and licensing fees to the franchisor.

Franchise models, as indirect channels of distribution, allows businesses to scale fast by partnering with franchisees while having some level of direct control.

For example, Zara, a Spanish fast-fashion brand, expands to foreign markets through subsidiaries, franchising and joint ventures.

This allows companies to scale through local franchisees, have control over key parts of the business and leverage the franchisees’ market knowledge and presence.

What are Intensive, Selective, and Exclusive Distribution Strategies?

Distribution intensity can be classified into three: intensive, selective, exclusive. Each level represents a different approach to market penetration and intermediary involvement.

Intensive distribution means placing products in as many outlets as possible to reach more, selective distribution means fewer intermediaries based on strict criteria. Exclusive distribution means limited intermediaries to have a strong, dedicated selling force for a vendor’s products.

1. Intensive distribution

Intensive distribution is a strategy to maximize product availability by using many intermediaries. This means products are stocked in as many retail outlets as possible, to reach more.

This distribution strategy is used for everyday items like snacks and beverages, which consumers buy frequently.

2. Selective distribution

Selective distribution means selecting intermediaries to enhance the brand image and control over the product presentation. This is common in sectors like electronics and luxury fashion where brand prestige is key.

3. Exclusive distribution

Exclusive distribution means giving one distributor the exclusive rights to sell a product in a specific area. This is for luxury goods and high-end brands to maintain brand exclusivity and high quality representation.

How Do You Select the Most-Profitable Distribution Channel for Your Business?

Several factors affect the choice of distribution channels. For instance, the availability and capability of middlemen, distribution intensity and the nature of the product or service.

Effective distribution channels can increase customer satisfaction by ensuring timely delivery and adequate inventory.

Using multi-channel approach allows companies to engage with customers across different platforms, maximizing visibility and sales. Integrating e-commerce with physical stores increases customer engagement.

Direct distribution allows brands to get critical data on customer behavior and preference. They also get better margins by avoiding middlemen costs.

Exclusive distribution gives specific retailers or distributors the right to sell a brand, which often results in higher perceived value.

In short, you’ll know which distribution channel is best suited for you by trying out a few channels, and optimizing your sales and marketing strategies for those channels.

The Impact of New-Age Technologies on Distribution Channels

The digital age has changed distribution channels, making it more convenient and attractive for consumers. Companies like Amazon have simplified the buying and delivery process, disrupting traditional retail.

Even when a company uses indirect channels of distribution, digital technology allows them to manage relationships with these partners, as well as decisions on the overarching distribution strategy.

Online advertising has also changed traditional marketing approach by allowing businesses to target specific demographics more accurately. Social media has become a source of inspiration for purchases. Nearly 39% of consumers say that social media is their main source of inspiration for purchases.

Also, technology like augmented reality and artificial intelligence are changing product marketing and customer experience. For example, L’Oréal uses augmented reality to allow customers to try on makeup virtually, while Walmart uses AI to personalize online shopping.

How are Leading Brands Using Distribution Channels in Their Sales and Marketing Strategies?

Distribution strategy is key to maximize product reach and customer satisfaction in today’s competitive world. The marketing strategies as seen in companies like Amazon, Coca-Cola and Tesla has exemplary distribution strategy to follow.

These case studies show how different distribution models can be applied to achieve impeccable business results.

1. Amazon’s direct-to-consumer model

Amazon has challenged traditional distribution models through its direct-to-consumer e-commerce model, selling products directly to consumers without any middlemen.

A great example of this is Kindle .

Even though Amazon doesn’t reveal much about its sales or profits, the profit from Kindle is estimated $565 million in 2023. A lot of which can be attributed to the superior customer experience delivered through D2C approach.

2. Coca-Cola’s wide retail partnerships

Coca-Cola has a vast network of independent bottling partners to ensure product availability in over 200 countries. This supports their product distribution strategy across the globe. This wide network of retail partners ensures Coca-Cola’s beverages are available in all possible locations.

3. Tesla’s direct sales

Tesla’s direct sales model allows it to sell vehicles directly to consumers without intermediaries. This approach simplifies the buying process, reduces cost of third party sales and gives the company more control over the customer journey .

By providing a seamless and personalized buying experience, Tesla improves customer satisfaction and maintains brand consistency.

The Role of CRM in Optimizing Distribution Channels

CRM (Customer Relationship Management) is key to manage sales distribution channels by providing a single platform to manage all interactions and data across the sales process .

Here’s how it helps.

1. Channel partner management

• Centralized database: CRM software stores all information about distributors, retailers and other channel partners including contact details, performance metrics and contracts.
• Performance tracking : It tracks sales, inventory and market share for each channel partner to evaluate performance and identify top performers.
• Incentive management: It manages commission structures, bonus programs and other incentive plans to motivate channel partners.
• Collaboration tools : It enables communication and collaboration between the company and its channel partners through shared documents, email and messaging.

2. Sales force automation

• Territory management : A CRM can help assign territories or zones to sales divisions and track activities within each channel.
• Order management : It helps processes orders from creation to fulfillment to ensure accurate and timely delivery.
• Sales forecasting : It analyzes sales data to predict future sales and optimize inventory.
• Sales performance Analysis: It tracks sales metrics, identifies top performing sales reps and provides insights to improve.

3. Customer data management

• Customer profiles: It helpscreate and maintain customer profiles including purchase history, preferences and demographics.
• Customer segmentation : A CRM segments customers based on common characteristics to tailor marketing and sales campaigns accordingly.
• Customer satisfaction : It helps you tracks customer sentiments and identifies areas of improvement.

4. Marketing and sales alignment

• Lead Management : CRM software captures and qualifies leads and distributes to the right sales reps.
• Campaign management : It tracks campaign performance and measures impact on sales.
• Sales and marketing collaboration : It enables collaboration between sales and marketing teams to engage customers.

5. Inventory management

• Real-time inventory visibility : A CRM can be integrated with ERP or inventory management software to showcase product availability across the distribution network.
• Demand forecasting : It predicts product demand to optimize inventory and prevent stockouts or overstock.

• Order fulfillment : It simplifies order fulfillment by ensuring accurate and timely delivery.

6. Analytics and reporting

• Performance metrics : CRM tools track KPIs to measure sales and distribution channel performance.
• Sales analysis : It shows sales trends, product performance and customer buying behavior.

• Channel performance : It helps evaluate channel performance to optimize resource allocation.

In short, distribution channels are the foundation of any business strategy. They get products to customers faster and efficiently, thereby increasing customer satisfaction and sales. Whether direct, indirect or hybrid, the distribution strategy is key to a company’s overall success.

By understanding and using different types of distribution channels, businesses can optimize their operations, engage with customers better and adapt to changing market conditions.

If you are looking for a software to manage your distribution channels, attribute conversion sources, we’ve just the right solution for you. Contact us to know more about LeadSquared’s capabilities in managing various sales distribution channels.

Nidhi is a content writer/editor at LeadSquared. She works closely with sales professionals and senior management to bring their outlook into her write-ups. Connect with her on LinkedIn or write to her at [email protected].

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Factors to Consider When Choosing Distribution Channels

Much of the success of a business depends on its ability to reach and engage with customers, and choosing the right distribution channels for its products or services is crucial to that  success. The channels it chooses will determine how effectively it can reach its target market, deliver its offerings, and achieve its sales objectives. A well-thought-out distribution strategy can make all the difference between market dominance and obscurity.  

Understanding Your Product

In order to select the most suitable distribution channels, it’s essential to have a thorough understanding of your product. Consider its nature, complexity, and target market. Some products may require personal demonstrations or explanations, while others may be more straightforward and can be easily sold online.

It’s also important to evaluate the product's life cycle stage when determining the appropriate distribution channels. Is it a new product that requires extensive promotion and education? In this case, you may need to invest in marketing campaigns, product launch events, and partnerships with influencers to create awareness and generate interest.  Or, if your product is already well-established and in the maturity stage, your focus may shift towards ensuring widespread availability. 

By thoroughly understanding your product, its unique characteristics, and its position in the market, you can make informed decisions about the most suitable distribution channels. 

Assessing Direct and Indirect Channel Options

When considering distribution channels, you have two primary options: direct channels and indirect channels. Direct channels involve selling products directly to customers without intermediaries, such as online sales. On the other hand, indirect channels rely on intermediaries, including distributors, wholesalers, and retailers, to reach customers.

Direct Channels

Direct channels offer more control over the customer experience, allowing for direct feedback and relationship building. This direct interaction with customers can be invaluable in understanding their needs and preferences, enabling you to tailor your products and services accordingly. Additionally, direct channels provide the opportunity to establish a strong brand presence and foster customer loyalty through personalized interactions.

However, it's important to note that direct channels require significant investment in infrastructure and resources. From setting up an e-commerce platform to managing inventory and fulfillment, there are various operational aspects that need to be carefully considered. Also, the responsibility of marketing and promoting your products falls solely on your shoulders, requiring a robust marketing strategy to generate awareness and drive sales.

Indirect Channels

On the other hand, indirect channels, while involving intermediaries, provide broader market reach and distribution capabilities without the expenses and complexities of a comprehensive direct-sales setup. By leveraging the existing networks of distributors, wholesalers, and retailers, you can tap into their established customer base and benefit from their expertise in reaching specific markets. This can be particularly advantageous when entering new markets or expanding your product offerings.

However, relying on intermediaries means relinquishing some control over the customer experience. While you can still provide guidelines and training to ensure consistent brand representation, the ultimate interaction with customers lies in the hands of these intermediaries. Therefore, it's crucial to carefully evaluate their capabilities, reputation, and alignment with your brand values before forging partnerships.

When deciding between direct and indirect channels, it's essential to evaluate your business model, customer preferences, and competitive landscape. Consider factors such as the nature of your product, target market, and the level of customer support required. Remember that a combination of direct and indirect channels may also be a viable solution, allowing you to capitalize on the advantages of both approaches and diversify your market presence.

Cost Analysis

When choosing distribution channels, cost plays a pivotal role in your decision-making process. Assessing the associated costs of each channel is essential for optimizing profitability. 

Direct channels typically require significant upfront investments in marketing, logistics, and customer support infrastructure.

On the other hand, indirect channels may involve various costs, such as distribution fees, commissions, and promotional support expenses. It's crucial to evaluate these costs against the potential revenue each channel can generate. Conducting a thorough cost analysis will help you make informed decisions that align with your budget and provide a favorable return on investment.

When you choose to sell your products or services directly, you need to consider the expenses involved in building and maintaining a strong marketing presence. This includes creating and managing advertising campaigns, developing a user-friendly website, and investing in SEO strategies to drive organic traffic. Additionally, you'll need to allocate resources for customer support, including hiring and training staff, implementing a robust CRM system, and providing ongoing support to ensure customer satisfaction.

Also, logistics can be a significant cost factor for direct channels. You'll need to establish efficient warehousing and fulfillment operations to ensure timely delivery of products to your customers. This may involve leasing or purchasing warehouse space, investing in inventory management software, and hiring staff to handle order processing, packaging, and shipping. It's essential to carefully consider these expenses and develop a comprehensive logistics strategy to minimize costs while maintaining high levels of customer service.

When utilizing intermediaries such as distributors or retailers, you may encounter various expenses. Distribution fees, which are typically a percentage of the product's selling price, can eat into your profit margins. Additionally, you may need to provide promotional support to incentivize intermediaries to promote and sell your products effectively. This can include funding co-marketing campaigns, offering discounts or incentives, and providing training to ensure that your brand is represented accurately.

Commissions are another cost to consider when using indirect channels. Intermediaries often expect a percentage of the sales they generate as compensation for their efforts. It's crucial to evaluate these commission rates against the potential sales volume and profit margins to determine if the arrangement is financially viable for your business.

Channel Accessibility and Reach

The accessibility and reach of your chosen channels are fundamental to the success of your distribution strategy. How easily can you access and engage with your target customers through these channels? Consider factors such as geographic coverage, demographic alignment, and the channels' existing customer base.

For example, if your product targets a niche market, partnering with specialized online communities that cater to that specific audience may be more effective than relying on mass-market channels. Understanding your customers' preferences and the channels they frequent will help you select the most accessible and relevant distribution avenues.

When it comes to geographic coverage, it’s crucial to evaluate the channels' ability to reach your target customers in different regions. If you are targeting a global audience, you may need to consider channels with a wide international presence, such as e-commerce platforms that offer worldwide shipping. On the other hand, if your product is more region-specific, partnering with local retailers or distributors can help you tap into the local market more effectively.

Demographic alignment is another important factor to consider. Different channels may attract different age groups, genders, or income levels. For instance, if your target audience consists mainly of young adults, social media platforms like Instagram or TikTok might be more suitable for reaching and engaging with them. Understanding the demographics of your target customers and aligning them with the channels' user base will increase your chances of success.

Competitor Analysis

Analyze the distribution channels and sales enablement strategies used by your competitors. This can provide valuable insights into successful strategies and help identify gaps or untapped opportunities. By understanding the strengths and weaknesses of your competitors' distribution channels, you can create a competitive advantage and differentiate yourself in the market.

When conducting a competitor analysis, it’s important to dive deeper into the various distribution channels your competitors are utilizing. Are they leveraging traditional retail outlets, such as brick-and-mortar stores, or are they focusing more on e-commerce platforms? Understanding the mix of channels being employed by your competitors can give you a clearer picture of their overall distribution strategy.

It's also important to assess the effectiveness of each distribution channel. Are your competitors successfully reaching their target audience through these channels? Are they able to provide a seamless and convenient experience for their customers? These are important considerations when evaluating the strengths and weaknesses of your competitors' distribution channels.

While it’s tempting to simply replicate your competitors' strategies, blindly imitating them may not always yield the desired results.

Instead, use this analysis to gain industry knowledge and inspiration. Take the time to adapt and tailor your approach to stand out from the competition. 

Also consider the emerging trends in distribution channels. Are there any new platforms or technologies that your competitors have yet to tap into? Staying ahead of the curve and being open to innovative distribution methods can give you a significant advantage in the market.

Scalability and Flexibility

When evaluating distribution channels for your business, you should consider not only their current capabilities but also their potential for scalability and flexibility. Scalability refers to the ability of a distribution channel to accommodate your business's growth and changing needs. It’s important to ensure that the chosen channels have the capacity and capability to handle increasing sales volumes without compromising efficiency or customer satisfaction.

Flexibility is another aspect to consider when evaluating distribution channels as market trends and consumer preferences can change rapidly. It’s essential to have a distribution channel that can quickly adapt to these changes and respond effectively. 

Risk Management

Lastly, consider the risks associated with each distribution channel. Evaluate factors such as financial stability of intermediaries, potential brand damage, and the ability to maintain consistent quality and customer service.

Choose channels that not only provide opportunities for growth but also have risk mitigation strategies in place. Diversifying distribution channels can also help safeguard against unexpected disruptions, ensuring continuity in reaching customers even in times of crisis.

Summing Up Choosing Distribution Channels

Choosing the right distribution channels for your products or services is a critical decision that can significantly impact your business's growth and profitability. By understanding your product, assessing direct and indirect channel options, conducting a cost analysis, considering channel accessibility and reach, understanding customer preferences, analyzing your competitors, assessing scalability and flexibility, and managing risks, you can make informed decisions that align with your business objectives.

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Distribution Channels Explained

Distribution channels define the path that goods and services take from the manufacturer to the end consumer.

Their structure, efficiency, and cost-effectiveness can have substantial effects on a company's financial performance, affecting revenue, margins, and ultimately market value.

Types of Distribution Channels

Direct Distribution Channel

In a direct distribution channel, companies sell their products or services directly to the consumer, without intermediaries . For instance, Apple selling iPhones directly through its online store is an example of a direct distribution channel.

Benefits : Greater control over pricing, customer experience, and branding.

Limitations : Increased operational responsibilities, higher costs, and potential scalability issues.

Indirect Distribution Channel

In contrast, indirect distribution involves third parties, such as wholesalers, distributors, or retailers . Coca-Cola , for instance, employs this method, distributing its beverages through supermarkets, convenience stores, and vending machines.

Benefits: Extended reach, reduced operational burden, and potential for higher sales volume.

Limitations: Decreased control over pricing and customer experience, and potential for conflict with channel partners.

Dual Distribution Channel

Dual distribution channels occur when a company uses both direct and indirect channels . For example, Dell sells its computers directly through its website and indirectly via retail partners like Best Buy.

Benefits: Increased market penetration and potential for higher sales.

Limitations: Potential channel conflict and increased management complexity.

Reverse Distribution Channel

In a reverse distribution channel, goods move from the end consumer back to the manufacturer or distributor , as seen in recycling programs or returns management.

Benefits: Increased customer satisfaction and potential for reusing or reselling returned goods.

Limitations: Added costs and potential for operational complexities.

Role of Distribution Channels in Different Sectors

In the retail sector, efficient distribution channels are essential to ensure products are readily available for customers , thus impacting sales and customer satisfaction . For instance, Amazon's sophisticated distribution network is a key factor in its rapid delivery times and customer loyalty.

Manufacturing

In manufacturing, distribution channels influence the speed and cost of getting products to the market . Tesla's direct-to-consumer model, for example, allows for quicker adaptation to market changes and more control over the customer experience.

Service Sector

In the service sector, distribution channels often involve digital or human networks that connect service providers to consumers . For example, Uber’s app-based distribution connects drivers (service providers) directly with riders (consumers).

Impact of Distribution Channels on Financial Performance

A well-designed distribution strategy can significantly affect a company's financial performance:

Effect on Revenue

Efficient channels can enhance market penetration and revenue . For example, Starbucks' presence in grocery stores alongside its cafes (dual distribution) helps increase its market reach.

Effect on Cost of Sales

Companies can control costs by optimizing their distribution. Costco's direct sourcing and limited product range keep its cost of sales low.

Effect on Gross and Net Margins

The balance between revenue growth and cost control through channel optimization can improve profit margins. High-end brands like Louis Vuitton utilize direct distribution to maintain premium pricing and high margins.

How Private Equity and Investment Bankers Use Distribution Channel Analysis

Private equity professionals and investment bankers use distribution channel analysis as a critical tool in their strategic decision-making processes . In the realm of Mergers and Acquisitions (M&A) , understanding a target company's distribution channels can shed light on potential synergies, market expansion possibilities, and operational efficiencies or bottlenecks.

This understanding can significantly affect the perceived value of the deal and negotiation strategies.

Company Valuation

distribution channel analysis provides insight into the company's revenue potential and cost structure . An efficient and broad-reaching channel can justify a higher valuation due to the potential for greater market penetration and profitability.

In conducting due diligence, scrutinizing a company's distribution channels can expose potential risks, such as over-dependence on a single distributor or potential regulatory issues in the case of international channels.

Competitive Advantage

It can also highlight a company's competitive advantage , like exclusive contracts with key retailers or a proprietary e-commerce platform.

Portfolio Management

Ongoing analysis of portfolio companies' distribution channels can guide decisions about additional investment, divestment, or strategic advice to the company's management, all with the aim of maximizing portfolio return.

Emerging Trends in Distribution Channels

Digital channels, multi-channel retailing, Direct-to-Consumer models , and the rise of e-commerce have revolutionized traditional distribution , with companies like Netflix , Amazon, and Warby Parker being noteworthy examples.

How to Analyze Distribution Channels

Key aspects to consider when analyzing distribution channels include:

Key Metrics and KPIs: Look at the cost of sales, gross margins, and delivery speed.

Channel Members : Evaluate the efficiency and reliability of channel partners.

Market Research Methods: Conduct surveys or use industry reports to assess channel performance.

Competitive Analysis: Understand how competitors' channels function to identify opportunities and threats.

As we've seen, understanding distribution channels is crucial for financial professionals to assess a company's performance and market potential. Stay informed on distribution channel trends and continue to learn and apply this knowledge to your financial decisions.

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• Channels of Distribution

CHANNELS OF DISTRIBUTION

Meaning of distribution channel:.

A distribution channel or a conveyance channel is a chain of organisations or its middlemen or intermediaries through a distribution channel chain, a service or a product is moved or proceeds until this arrives at the end consumer or the final purchaser of that specific goods or service. Distribution channels might incorporate retailers, wholesalers, and surprisingly even web facilities.

A distribution channel is, in fact, a downstream interaction, which addresses the inquiry “How might the items be made accessible to the customer?” In most organisation’s conveyance channel is considered an advertising technique or marketing strategy that incorporates the goods, its pricing and promotional activities.

A distribution channel is a course by which each one of the services and products travels to the designated purchaser. Additionally, the way can be depicted as the stream for payments produced using the end purchaser to the first merchant. Distribution channels can be long or even short, and this relies upon the number of go-betweens needed to convey a service or product to the market.

Meaning of Distribution Channel in Marketing:

A distribution channel in the advertising area associates the connection between the maker and the buyers. Channels of conveyance upgrade the effectiveness of promoting and help in planning their objectives to outsmart their clients. This occurs for the intermediaries or middlemen who have a capability in the distribution framework. This additionally diminishes the expense of exchange and hence smoothens the whole interaction.

Wholesalers in this channel bring forth marketing services as well ad sales. This framework empowers the organisations to arrive at their drawn-out or extended market.

Types of Distribution Channels:

While an appropriation channel or distribution channel might appear to be perpetual now and again, there are three primary kinds of channels, all of which incorporate the mix of a maker or producer, distributor or wholesaler, retailer, and end customer.

• The primary channel is the longest on the grounds that it incorporates every one of the four: maker, distributor, retailer, and purchaser. The wine industry and the adult refreshment industry is an ideal illustration of this long conveyance channel. Because of laws conceived out of forbiddance, a winery can’t sell forthrightly to a retailer in this industry. It works in the three-level framework, which means the law requires the winery to initially offer its item to a distributor who then, at that point, offers it to a retailer. The retailer then, at that point, offers the item to the end customer.
• The subsequent channel removes the distributor, where the maker sells straightforwardly to a retailer, who sells the item to the end purchaser. This implies the subsequent channel contains just a single delegate. Dell, for instance, is adequately huge to sell its items straightforwardly to respectable retailers like Best Buy.
• The third and last channel is a direct-to-purchaser model where the maker sells its item straightforwardly to the end customer. Amazon, which utilises its own foundation to offer Kindles to its clients, is an illustration of an immediate or direct model. This is the briefest circulation channel conceivable, removing both the distributor and the retailer.

Significance of Distribution Channels:

Significant elements influencing the selection of channels of dispersion by the maker are:

(A) Considerations Related to Product.

(b) considerations related to market., (c) considerations related to manufacturer/company., (d) considerations related to government., (e) others., (a) considerations related to product.

At the point when a maker chooses some channel of dispersion or distribution, he/she should deal with such factors, which are identified with the quality and nature of the item or goods. They are as per the following:

Normalised or Customised Product:

Standardised items are those that are pre-agreed, and there is no degree for modification. For instance: the utensils of Milton, to sell these branded products long conveyance channel is utilised.

Then again, tailor-made items are those which are made by the preference of the shopper and furthermore there is a chance for change, for instance, furniture. For such items eye to eye association between the maker and the customer is fundamental. So for these types of products, direct sale is a decent choice.

Perishability:

A producer ought to pick least or no mediators as a channel of dissemination are concerned for such products or items which are exceptionally transitory or perishable in nature. In actuality, a long appropriation channel can be chosen for durable merchandise.

Specialised or Technical Nature:

Assuming an item is of a specialised or technical in sort, then, at that point, it is smarter to supply it straightforwardly to the customer. This will assist the client with knowing the important details of the item.

Unit Value of the Product:

At the point when the item is priced exorbitantly, it is ideal to utilise little dispersion or distribution channel. For instance, Industrial Machinery or Gold Ornaments are expensive items that are the reason their small distribution channel is being utilised. Then again, for less expensive items, a long distribution channel is utilised.

(B) Considerations Related to Market

Market contemplations are given underneath:

Kinds of Buyers:

Purchasers can be of two kinds: General Buyers and Industrial Buyers. In the event that more purchasers of the item have a place with the general class, then there can be more agents. Yet, in the event of modern purchasers, there can be fewer agents.

Purchasing Habits:

A producer should take the services of brokers on the off chance that his monetary position doesn’t allow him to sell products on layaway or credit to those buyers who are prone to buy merchandise using a credit card.

Purchasing Quantity:

It is helpful for the producer to depend on the services of brokers, assuming that the merchandise is purchased in a more modest amount.

Size of Market:

In the event that the market area of the item is dispersed genuinely, the maker should take the assistance of mediators.

Number of Buyers:

Assuming the quantity of purchasers is enormous, then it is smarter to take the services of agents for the circulation of the products. Actually, the dissemination ought to be finished by the producer straightforwardly in the event that the quantity of purchasers is less.

(C) Considerations Related to Manufacturer/Company

Contemplations identified with the producer are given underneath:

Want to control the channel of distribution:

A producer’s desire to control the channel of distribution influences its determination. Purchasers ought to be drawn closer directly by such sorts of producers. For instance, the electronic products sector with an intention to control the service levels given to the clients at the retail location.

Monetary strength:

An organisation that has a solid monetary base can advance or fund its own channels. Then again, monetarily powerless organisations would need to rely on agents.

Producer’s goodwill likewise influences the determination of the channel of conveyance. A producer getting a charge out of good standing need not rely upon the agents as he can open his own branches without any problem.

(D) Considerations Related to Government

Contemplations identified with the public authority additionally influence the choice of channel for distribution or circulation. For instance, just a permit holder can sell pharmaceutical drugs in the market as per the law of the public authority.

In the present circumstance, the maker of medications should take care that the conveyance of his goods happens just through such mediators who have the relevant permit.

Accessibility:

At times different channels of dispersion can be chosen in case the ideal one isn’t accessible.

Conceivable outcomes of sales:

Such a channel which has a chance of huge sales ought to be given weightage.

The producer ought to choose such a channel of appropriation or distribution which is less expensive and furthermore helpful from different points.

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Channels of Distribution

The value of the distribution of products, distribution strategies: intensive distribution, effectiveness of intensive distribution strategy, channel conflict.

Distribution involves ensuring that goods are available at the right place for the consumers to purchase them. Various elements of distribution used by manufacturers have considerable significance to the products. Channels of distribution facilitate selling and distributing products from where manufacturers produce them to the place of consumption. Grewal and Levy (2020) note that distribution channels comprise individuals or firms that transfer ownership of goods as they move from producers to consumers. These channels are vital because they allow manufacturers to effectively and efficiently reach out to their existing and potential customers. Some functions of distribution channels that add value to the products include sorting, allocation, assorting, and promotion. For example, intermediaries sort goods based on size and quality before selling them to ensure that every customer gets what they demand. Equally, retailers promote products by displaying them or demonstrating them to end-users. Assortment satisfies consumers’ needs by supplying various products from different producers.

Physical distribution, which comprises different components, ensures that products are available to the customers on-demand in the correct quantity and quality. For example, speedy and accurate order processing guarantees delivery of goods with the right quality and specifications, developing an excellent relationship with the consumers and maintaining the company’s image. Safe and efficient transportation make sure that products move from the point of production to the end of the sale at the right time and condition (Affran & Asare, 2019). Warehousing adds value to the products through storing, grading, and assorting to generate time utility. It allows companies to store their goods near the targeted markets and serve their customers, alleviating the time difference between production and consumption. The inventory control component allows maintenance of appropriate stock and just-in-time operations (Affran & Asare, 2019). The information gathered along the distribution line can facilitate accurate market demand prediction, which is vital for manufacturers to maintain consistent quality and production levels.

Intensive distribution is one of the strategies adopted by organizations in marketing products. According to Grewal and Levy (2020), intensive distribution is a marketing strategy used by companies as they try to sell their products through small vendors and big stores. The approach focuses on ensuring that customers find the products in all places they go. Firms use all possible outlets to distribute their products under this strategy. Grewal and Levy (2020) add that an intensive distribution strategy helps companies create brand awareness of their products and enhance sales. For instance, this method is helpful for fast-moving consumer goods such as soft drinks. Adoption of an intensive distribution strategy is associated with various advantages and disadvantages.

Intensive distribution is advantageous since it increases sales and profit, enhances trust, and allows companies to analyze the sale source. Firms can supply products to all places, raising the possibility of making more sales, which in turn leads to high profits. This method created an improved trust in the consumers’ minds regarding products’ authenticity since the goods are on display in all supermarkets and small retail shops (Parikh, 2020). This distribution strategy lets companies know where the demand for their products is high, for example, at hypermarket stores or local vendors. Such information is instrumental in further planning for promotional efforts to increase products’ presence in the market and boost sales. Equally, companies can utilize the data to analyze the causes of their failure in enhancing sale their sales at particular locations.

Nevertheless, the intensive distribution approach is expensive, makes it challenging to manage partners, and deprives companies of the opportunity to apply premium pricing. This method is costly since companies spend a significant amount of money and effort to establish vast distributors’ and retailers’ networks (Parikh, 2020). It is challenging to manage many distributors and retailers needed to implement this distribution method effectively. Firms have to use an extra workforce and incur additional costs to manage the distribution partners. Companies have to charge competitive prices from the consumers when using this strategy since the products are easily available in the market.

The intensive distribution strategy can be successful when launching the new V Fusion due to various reasons. The strategy will facilitate faster product promotion because it will be supplied to all places, including small retail shops and supermarkets. Equally, the strategy will allow the company to create trust in the minds of potential consumers about its authenticity because it will be displayed in all retail outlets. The company will have higher chances of enjoying substitution benefits. For instance, if customers go to buy other brands of soft drinks, but the sellers only have V Fusion, most of them will buy the latter, and the company will indirectly benefit because of using an intensive distribution strategy. As a result, the strategy will allow the company to make considerable sales and profits as it penetrates the market.

Channel conflict occurs when actions of one intermediary of distribution prevent another from accomplishing its goals. A real-life example of channel conflict is in the Coca-Cola Company. Channel conflicts exist in the company because it uses multiple distributor channels. Equally, the company sometimes ignores the distributor channels and sells products directly to the consumers. One distributor may opt to sell products at lower prices for reasons best known to them, hurting the profit margin of others because they have to lower the amount they charge per unit sale.

Affran, S., & Asare, R. (2019). Emergence of new marketing distribution strategies: a call for a paradigm shift. European Journal of Business And Management Research , 4 (6), 1-15. Web.

Grewal, D., & Levy, M. (2020). M:Marketing (7th ed.). McGraw-Hill.

Parikh, V. (2020). Advantages and disadvantages of intensive distribution . Letslearnfinance.com. Web.

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International Distribution Channels Research Paper

Introduction, background information, international distribution channels, types of channels and what flows through them, the intensity of an international distribution channel, intermediaries and their benefits, importance of an effective international distribution channel.

Using an efficient international distribution channel has become an essential element of strategic management and a key component in supply chain development since it ensures unimpeded and safe provision of products in the markets. Scholars on logistics science point out that there are diverse supply channels in today’s economy, which move products from industries into the global market.

Zagorskas and Turskis (2006), point out that a distribution channel adopted by businesses must be effective in ensuring that products are moved from sites of productions to where they are consumed. This paper has analyzed quite a number of theories in understanding the concept of international distribution channels.

These are the general trade theory, organizational supply management theory, as well as congruency theory. The aforementioned theories have been used to demonstrate that an efficient international distribution channel maintains intensity, low costs, demand flexibility, process capability, strategic risk and competitive advantage. In addition, the impacts of international distribution channels on operations of business have been analyzed.

In their publication, Ustinovichius, Zavadskas and Podvezko (2007) point out that the globalization of markets has today become an important phenomenon; it has put pressure on most businesses with strategies to supply products in the international market in order to devise and adopt proper distribution channels for their products.

The distribution of services or products internationally or within the consumer market has become a globalization process that requires an effective distribution channel. It is imperative to point out that reorganization of distribution and the globalization of markets are processes which are mutually dependent and are therefore guided by changes in the market structure.

Today, the expansion of international markets has created fresh opportunities for businesses to satisfy the demands consumers have. Porter, in his model on competitive advantage, states that such opportunities call for greater specialization in the distribution of both goods and services by businesses that intend to compete favorably in the international market (Bivainis & Zinkeviciute, 2006)

On the same note, due to the massive expansion of the global marketplace, multinational firms have embarked on developing worldwide networks of information, distribution and communication to aid them in facilitating free and smooth flow of goods and information locally and across national boundaries.

Gull, Ashraf, and Rizvi (2011) point out that developing an excellent international distribution channel ensures free flow of products and services while minimizing costs.

This is an important and a very powerful tool that a business can use to attain competitive differentiation. In agreement, appropriate international distribution channels are sources of gaining competitive edges, which many companies have used since the 1980’s to serve offerings and enhance product provision in their supply chain processes.

Gull, Ashraf and Rizvi (2011) conclude by indicating that in international marketing, knowledge and strategy are elements that aid businesses in expanding their distribution and meeting the needs in the market.

Antucheviciene, Zavadskas, and Zakarevicius (2010) point out that a distribution channel is a strategic measure that businesses use to move their products from the sources of manufacture to a site where consumers are. Products from the manufacture are supplied to consumers via wholesalers, agents or retailers in a supply chain, which can either be extensive or short.

International distribution channels are designed in such forms that they integrate economic activities and sustain growth and development of the global marketplace; however, extensive or elaborate distribution channels can cause a business in the global market to incur high distribution costs. This, therefore, calls for businesses to select international distribution channels that are cost-effective and efficient.

Structuring a supply chain that is flexible and responsive enough to meet diverse demands of customers and still maintain manufacturing benefits is a major challenge facing the global distribution management. Barratt (2004) points out that this is majorly due to the number of intermediaries, which a business opts to employ in its distribution process and the choice of a distribution channel that efficiently meets the demands in the market.

It is worth noting that internationally, there are wide ranges of distribution channels that multinational businesses can choose from. In addition, these distribution channels are fundamental for the future growth and success of a business.

There is need for the leadership in a distributing business to make a wise choice of adopting a distributing channel that is efficient. Daniel Kahneman points out in his prospects theory that proper choices for choosing appropriate supply channel alternatives should be made wisely as they involve risks and are expensive and complex processes (Barratt, 2004).

According to Koplin, Seuring and Mesterharm (2007), all forms of products and services, whether targeting industries or consumers, require an efficient channel of distribution. International channels of distribution are diverse and vary from multi-level distribution channels that have numerous intermediaries to direct and elaborate producer-to-consumer types.

Each of these channels has been designed to achieve a particular goal or objective. The channels of distribution can either be direct from producer to consumer or indirect by involving intermediaries (Gull, Ashraf & Rizvi, 2011).

It is important to note from the perspective of economic theory of supply that the structure involving distribution of products from a producer to consumers becomes costly when it is detailed. As such, the channel should be direct as simple as possible.

On the same note, an indirect channel is one in which a consumer receives products from the retailer who has been supplied by a wholesaler who then depends on an agent to distribute from the producer. Bivainis and Zinkeviciute (2006) point out that an indirect channel is a complicated and expensive process which limits the ability of a business to maximize its profits due to the need to pay intermediaries.

It is on this front that many international firms prefer to use their own sales force and greatly rely on the direct channel. However, there are several business organizations that have attempted to improve their distribution channels by making use of intermediaries although there are myriads of barriers such as high start-up costs and low sales volume.

In the international market arena, there are about five different consumer channels that include producer to consumer, producer to retailer to consumer, and the one which involves producer to a wholesaler to a retailer to a consumer (Holweg and Miemczyk, 2003).

Others that are elaborate include one which involves a producer who distributes to a retailer via an intermediary such as an agent or a distributor and then the products reach the consumer (Antucheviciene, Zavadskas & Zakarevicius, 2010). Additionally, another channel begins from a producer to an intermediary to a wholesaler then a retailer and finally a consumer (Antucheviciene, Zavadskas & Zakarevicius, 2010).

In the international distribution channel, goods transfer titles and are either bought or sold to consumers. Liu (2009) indicates that in addition to selling and buying of products, ownership, and physical possession of goods also occur in the distribution channel. These happen through negotiation and promotion flows among others which include payment, ordering, assuming risk and financing flows.

It is imperative to note that this flow can be in multiple directions or in a single direction such as from a producer to a consumer. Single direction flows in a distribution channel occur in promotion, ownership and physical possession flows.

Others like assumption of risks, financing and negotiations flow between a producer and a consumer in a two-way manner. Payment and ordering are flows that are one way and come from a consumer to a producer (Vasilis-Vasiliauskas & Jakubauskas, 2007).

Producer to consumer channel

A producer to consumer channel has been lauded by scholars of chain management studies like Kabadayi, Eyuboglu and Thomas as a channel which enhances a distributor’s profit margin (Kabadayi, Eyuboglu & Thomas, 2007).

In agreement, Jakimavicius and Burinskiene, (2009) posit that the option to adopt a producer-consumer channel has been considered to be attractive by many producers whose objectives have been to maximize profits.

Indeed, as Mary Jo Hatch posits in her model of business dynamics, direct selling is a key business concept that enables a producer to manage favorably in sales and enjoy all the profits without having to share with distributors or other intermediaries (Kabadayi, Eyuboglu &Thomas, 2007).

Indeed, direct selling has become a favorite choice of most businesses such as Tupperware plastic containers and Avon Cosmetics, which sell their products directly to consumers. Additionally, in Europe, direct selling is a common practice and involves aspects such as telephone selling, direct mail and direct response advertising.

Producer to retailer to consumer channel

Today, the number of retailers in the global market has immensely grown making it an important component in the distribution channel that can be easily accessed by consumers.

Turskis, Zavadskas and Peldschus (2009) argue that due to the massive growth of the number of retailers, producers do not only find distributing their products to diverse consumers all over the world an easy task, but they also find it to be fast and economically viable.

In agreement with Turskis, Zavadskas and Peldschus (2009), Ustinovichius, Zavadskas and Podvezko (2007) indicate that supplying directly to retailers without having to go through wholesalers saves them cost and time. Indeed, apart from saving cost and time, it also is a convenient method that allows consumers to visit the numerous retail outlets to test and view products from producers.

The channel from producer to wholesaler to retailer then consumer

The vast number of retailers who have limited order quantities presents a major problem to producers who make their supplies in bulk. Neoclassical macroeconomists argue that there is need for producers to use wholesalers who can buy in bulks (Liu, 2009).

In agreement with the macroeconomists, Liaudanskiene, Ustinovicius and Bogdanovicius (2009) point out that this indeed makes a lot of economic sense as wholesalers have the ability to make bulky purchases from producers and distribute them in smaller quantities to retailers who make limited orders.

However, regardless of the argument, Liaudanskiene, Ustinovicius and Bogdanovicius (2009) provide a solution to the problem of retailers buying in low quantities, it fails to note that there are large retailers in the international market who are able to buy in very large quantities, and as such pose as a danger to wholesalers who may in the end be eliminated from the chain.

On the same note, Vasilis-Vasiliauskas and Jakubauskas (2007) strongly agree with the above argument and exemplify that when large retailers have a strong buying power, it is possible for them to obtain products from producers and sell them to consumers at a cheaper cost than of which retailers who receive goods from wholesalers.

However, a longer channel which involves products moving from a producer to consumer via wholesaler and retailer occurs when oligopolies in retailing fail to dominate within the distribution system.

In Europe, with emphasis on Italy and France, the use of wholesalers is a practice that has made the supply chain to be longer (Vasilis-Vasiliauskas & Jakubauskas, 2007). For instance, the number of small independent wholesalers of vehicle spare parts is high, enabling them to dominate the distribution channel.

The channel of producer to an agent to a wholesaler, retailer and to a consumer

Companies that enter the international market adopt a type of channel which moves products and services from a producer to a distributor who then supplies them to a wholesaler.

Products from the wholesaler are then distributed to retailers where consumers finally access them. Zavadskas, Turskis and Tamosaitiene (2010a) point out that this is an efficient distribution channel in the international market as it saves time and allows for investments in terms of money.

This is because the task of selling products is delegated to distributors or agents by an exporting company. As such, retailers or wholesalers are contacted by an agent representing a company who then sells products and receives a commission.

It is imperative to point out that a distributor in this channel can be an independent company which buys a manufacturer’s products then uses the exporters or its own brand name to sell the products.

In agreement with Zavadskas, Turskis and Tamosaitiene (2010a), Zvirblis and Zinkeviciute (2008) point out that most of the responsibilities in this distribution channel lie on the distributor. Such responsibilities include marketing, storage and choosing other intermediaries depending on the arrangements the distributor has made with the producer.

Most companies today use multiple diverse distribution channels to supply their products in the global market. For instance, companies dealing with grocery products supply supermarkets using producer retailer channels while small grocers using producer to wholesaler to retailer channels (Zavadskas, Turskis & Tamosaitiene, & 2010a).

It is imperative to note that the choice of a distribution channel mainly depends on how much the producer needs to regulate the whole process of production.

According to the neoclassical distribution theory, a distribution channel that suitably meets the demands of consumers in the market must adopt a strategy which is intense (Liu, 2009). In their publication, Kabadayi, Eyuboglu and Thomas (2007) point out that due to the intense competition in the global market arena, most companies have resolved to embrace a distribution channel which is intensive, selective and exclusive.

Intensive distribution involves implementing a policy, which ensures that products are distributed effectively and efficiently to as many consumers and retail outlets as possible. On the other hand, exclusive distribution is whereby a business devises a policy that limits its distribution to a single intermediary in a particular geographic area (Kabadayi et al., 2007).

An intensive distribution channel

Intensive distribution of products is a key source of gaining a competitive edge, which most companies in the international market adopt as it ensures that goods and services are distributed in numerous outlets.

Kaplinski and Janusz (2006) posit that most companies producing everyday products such as soap, tobacco, milk and bread products prefer this approach since a great deal of consumers find it convenient when these products reach them where they are located. Indeed, it is imperative to point out that intensive distribution is an important element that aids in enhancing a business sales and increasing coverage.

Kamath et al.(2011), in their publication “ MODISC: Teaching Distribution Fundamentals Through an Experiential Model of Distribution Channel Choice” , point out that intensive distribution is effective in short-term performances of maximizing sales since consumer contacts are made possible by the increased number of outlets.

However, it is imperative to point out that this method requires that an elaborate marketing operation be carried out.

Selective distribution channel

Selective distribution, as Chen and Paulraj (2004) explain it in their groundbreaking article “ Understanding Supply Chain Management: Critical Research and a Theoretical Framework”, is a situation where a company opts to use one or two intermediaries to effectively distribute a particular product. This is a new strategy which is being used by business originations that are not well established since they are still new in the market.

On the same note, it may be used by companies that understand the markets well as one way of cutting down operation costs (Barratt, 2004).

Therefore, selective distribution ensures that the distribution efforts by a company are not dissipated over many outlets. Indeed, this has numerous advantages, which include the fact that through selective distribution, a producer is presented with the ability to gain adequate and ample market coverage.

Unlike intensive distribution, this is less costly and provides a producer with more distribution control. Many companies such as Hewlett Packard (HP), Hi-fi and others that deal with rarely bought goods such as cameras, computers and DVD’s, apply selective distribution (Barratt, 2004).

Exclusive distribution

Scholars of supply chain and logistics argue that practicing constraint is an important aspect in international distribution channels, which ensure greater availability and limited losses during a distribution process (Kaplinski & Janusz, 2006).

Borrowing from the theory of constraints developed by Eliyahu Goldratt, it is worth noting that by severely limiting intermediaries in a distribution channel, a company can maintain service outputs and control service levels that resellers offer.

Ginevicius and Podvezko (2005) point out exclusive distribution minimizes costs and maximizes channel control and goodwill. In agreement, Kaplinski and Janusz (2006) point out that a satisfactory and complete relationship between a producer and an intermediary in an international distribution channel is made easier when intermediaries are few in a given area than when there are many.

Exclusive distribution involves dealing with arrangements that are limited and restricted in which an agreement is made by resellers and not competing brands. As such, through exclusive distribution, producers obtain knowledgeable and dedicated selling of products such as cars and other capital goods.

Selection of an international distribution channel and its impact on business

In his theory of distribution channels, Neil Borden points out that in a market, the mechanism through which a manufacturer distributes products or services to a consumer is an important aspect, that if not well implemented, negatively impacts on business performance and consumers (Goetschalckx & Fleischmann, 2002).

The selection of a channel of distribution as Jakimavicius and Burinskiene (2007) argues, rests on a number of decisions that include whether to employ indirect or direct channels, use multiple or single channels, and the number of intermediaries to use at each level. An appropriate selection will enhance smooth flow of products to consumers and minimize costs.

Besides choosing a channel, it is imperative for a manufacturer to decide upon which distributor to consider to effectively enhance the distribution processes. Neil Borden further exemplifies in his model on marketing mix that in considering a distributor, factors such as a market segment, product life cycle, qualification support and training should be analyzed (Antucheviciene, Zavadskas & Zakarevicius, 2010).

In agreement, Jakimavicius and Burinskiene (2009) posit that in a market segment, a manufacturer should seek a distributor who is well conversant with the market segment as well as the targeted customers. This will not only enhance performance, but will also ensure that products reach retailers and consumers in time.

After selecting the best distribution channel, it is imperative to decide on an intermediary size and type to employ in the distribution channel. In the international distribution channels, there are several intermediaries that include wholesalers, agents, retailers, direct marketing, overseas distributors and the internet (Zavadskas et al., 2008).

In their publication, Vasilis-Vasiliauskas and Jakubauskas (2007) point out that in choosing an intermediary to use in the channel, a number of factors should be considered which include product, marketing capacities, commitment and facilitating factors.

Wholesalers and agents

In the international distribution channel, wholesalers and agents play important pivotal roles, which ensure that products reach the targeted consumers. For instance, wholesalers buy products in from producers and break them down into smaller quantities that retailers can resell.

Besides, they also provide storage facilities and reduce the cost of physical contact such as sales force cost and customer service cost between a producer and a consumer.

On the other hand, Selih et al. (2008) point out that agents are crucial intermediaries in the international market in the sense that they secure orders for a producer while some are able to hold consignment stock; however, agents are also very difficult to control, train and motivate.

Retailers and the internet

Retailers are essential individuals in the channel as they are easily accessible by the consumers. They maintain relationship with customers and expose them to different products and brands. Besides, they merchandise, promote products, and can offer credit services to customers.

Some retailers like Wal-Mart in the USA and Jumbo, Modelo and Alisuper in Portugal, have strong brands and can determine the selling price of a product (Kaplinski & Janusz, 2006).

Liu (2009) indicates that the internet is an important tool in the international market that is geographically dispersed. Its benefits include the fact that through it niche products can reach a large group of customers, it has low set up costs as well as few barriers that may hinder it from entering a new market.

Besides, due to technological advancements, many businesses prefer e-commerce technology for shopping and payment, which is beneficial for online distribution.

In the global business environment, adopting a strategic distribution channel has become one of the key supply chain management practices that companies have assumed to favor them against intense global competition, short product life cycles, and increasingly demanding customers (Kaplinski & Janusz, 2006).

As market for services and products is increasingly becoming global, many businesses are strategically choosing effective and efficient distribution channels in order to improve their overall performance and successes.

As this paper analyzes using general trade theory, organizational supply management theory and congruency theory, efficient international distribution channels are vital for lowering costs, demand flexibility, process capability, and strategic risk as well as for gaining a competitive advantage.

High cost effectiveness

Ginevicius, Podvezko and Raslanas (2008) point out that increased effectiveness and efficiency of international distribution channels are factors that have close relationship with cost. Selective and exclusive distributions have been identified as important key drivers of a long-term approach to saving current distribution cost challenges on supply functions facing businesses in the global arena.

Research indicates that cost effectiveness in adopting an appropriate international distribution channel has been demonstrated through lean thinking by companies, and has seen most of them re-engineer their services with an aim of increasing productivity. As such, they have been able to maintain service quality and reduced distribution expenditure.

Studies indicate that a business with complex products and high changing demands must ensure that it adopts an international distribution channel, which does not interfere with its total throughput time (Brauers et al., 2008). Additionally, studies further point out that any interference with the normal supply chain may easily affect the reliability and reputation a business has towards its customers.

As such, businesses with an understanding of the difference between low cost and low prices of operations as well as the costs of total life cycles may either choose to adopt a long distribution channel or a short one.

In his publication, Ginevicius and Podvezko (2009) point out that this has become important in the sense that an efficient international distribution channel will not only effect lower cost of distribution of products, but also improve performance criteria by taking into account quality, flexibility, reliability and speed.

From a theoretical perspective, the success in carrying out supply operations in the international market and gaining competitive advantage rely on effective distribution strategies and choice of a distribution channel that a business adopts (Goetschalckx & Fleischmann, 2002).

International management textbooks illustrating general trade theories clearly exemplifies that a distribution strategy, with particular emphasis on international distribution channels, is critical to a supply business’ competitive advantage in terms of innovativeness, labor cost and price.

Gaining a competitive advantage requires identifying strategic sourcing methods that are appropriate, and comprehensive planning.

According to transaction cost theory, being able to distribute high quality products at a low cost and still maintain a competitive advantage requires that companies restructure their distribution strategies and capabilities in such a way that supply functions are done at the lowest cost possible (Goetschalckx & Fleischmann, 2002).

Increased flexibility and sustainability

Flexibility and increased sustainability have become some of the key components of appropriate selection of a distribution channel.

Goetschalckx and Fleischmann (2002) point out that understanding of factors such as company strength, commitment, marketing capacities and product factors have offered many businesses the ability to use international distribution channels, which are flexible and can sustain their distribution and supply functions.

In the rapidly changing business environment, good international distribution channels have aided companies to respond faster to circumstances and policies which keep changing, without being tied to procedures that can be expensive to alter. Basing the argument on congruency theory, businesses adopt a distribution channel depending on the complexity of their products and the environment they are in.

Using an appropriate and consistent distribution structure is, therefore, an important component that aids businesses in building and sustaining stable competitive advantages.

Kaplinski and Janusz (2006) point out that this is due to the fact that most international marketing channels have elaborate and long-run characters which require a consistent structure. An international distribution channel, which a company in the global business environment seeks to use, must be well structured to enhance its flexibility and sustainability with the changes in the environment.

Effective and efficient service improvement to deliver added value

Using value creation concept, Liaudanskiene, Ustinovicius and Bogdanovicius (2009) point out that in supply functions, competitive distribution strategies centering on creation of effective and excellent services, and innovation and customer focus are all ways of ensuring service quality.

An effective international distribution channel selection that a supply business adopts together with other variants will aid it in gaining a competitive edge.

Research indicates that an efficient international distribution channel that ensures the intended clients can easily access products from producers, envisages opportunities for producers to expand sales and envision cooperation opportunities (Zavadskas, Turskis & Tamosaitiene, 2010a). Additionally, such a channel ensures that costs to be incurred when moving products are minimized and ensures sufficient feedbacks.

The theory of chain management indicates that the aim of management of a supply chain should be towards creation of added value as well as ensuring that clients’ needs are satisfied (Zvirblis & Zinkeviciute, 2008).

A company that intends to add value to its distribution processes must ensure that its supply chains are well managed and structured with an aim of balancing production costs, haulage and stock, harmonizing demand and supply in such a way that distribution of products is carried out adequately.

Selection of an efficient international distribution channel adds value to service and products distributed as it considers company resources, competition, channel, products and market characteristics (Zavadskas et al., 2010b).

Maintaining customer satisfaction through ensuring that their demands are adequately met has become one of the greatest requirements of most businesses intending to attain high levels of success in the global market.

Jakimavicius and Burinskiene (2009) argue that offering value in terms of quality distribution services becomes a key ingredient in attracting a massive number of customers and sustaining flow of products in the market.

To sum up, the discussion in this paper was based on the thesis statement: Using an efficient international distribution channel has become an essential element of strategic management and a key component in supply chain development which ensures unimpeded and safe provision of products in the markets.

The discussion has clearly indicated that international distribution channels comprise of numerous institutions, which perform diverse activities but with the same objective of ensuring that products or services are moved from production sites to the consumers.

From the analysis, it is evident that companies or businesses that want to enhance their performances, save costs, and boost their profits must make effective and proper selection of distribution channels.

The companies should also select efficient intermediaries that may include the internet, retailers, agents and wholesalers. The paper has concluded by indicating the importance of an efficient international distribution channel and how it enhances business performance and meets the demands in the market.

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Published: 03/30/2023

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a) The selected company is Coca-Cola and their legendary product Coke. As a brand, Coke is a product that is present on a global level, as is a major part of lifestyle of consumers and businesses on a daily basis. The global reach is evident from the fact that Coca-Cola has more than 250 bottling partners on a global level (Our Company, 2016). The distribution system at Coca-Cola uses multiple channels locally, and the final product is distributed through multiple channels, and they are, grocery stores, street vendors, convenience stores, amusement parks, movie theatres to name a few, and the distribution strategy is then applied through a local strategy, and the Coke is distributed to more than 1.9 billion servings per day (Our Company, 2016).               The beverage sector is competitive, with other major players, PepsiCo, Dr Pepper, Red Bull, Suntory to name a few, vying for the consumer’s attention to use their product as part of their lifestyle, based on demographics and taste and since, Coca-Cola has unlimited resources, it is easy for the company to utilize maximum touch points that will create a connect in relation availability of the drink on every possible medium, sans or with the competition. b) The recommendation for the distribution strategy process to add value in terms of expansion and adding to the revenue streams for channel design are as follows (Speh et al, 2008):

Define Customer Segments

Identify and prioritize channel requirements by segment Assessing capabilities Benchmarking offerings of competition Creation of channels to satisfy customer’s needs Evaluating and selecting channel options   The list mentioned above, will help Coke modify channels that are not performing and develop new channels by identifying new consumer segments as the first step, then identifying channel requirements by the selected consumer segments. The third step will help Coke is identifying the strength and weakness of the selected channel, the fourth step will benchmark the competition in tune of the success they are having in channels where Coke is lacking. The fifth step will focus on channel solutions, for the consumers needs of Coke and finally, evaluating the options and selecting a new channel. c) The distribution channels are dynamic and marketers use them depending on the needs and requirements of the products in terms of maximum availability to the consumer segments and also the nature of the product. The reasonable circumstances that may lead to switching distribution channels starts with the value of product with Rolls Royce choosing selected channels due to its cost, customized product such as utensils of Milton, that may require a direct connection with the consumer.

Perishable product channels may be changed to make use of more dynamic place.

Market related considerations also lead to channel switch by marketers, case in point being, if a retail channel is not suitable for Coke in a particular market, the buying habits, types of buyers and consumer will be segmented to allocate a different channel that will result in sales. The considerations in terms of distributors are also a factor, in the case of Coca-Cola with a distribution set up on a global basis, the goodwill, to be in control of the channel of distribution and financial strength that is the forte of a company like Coca-Cola to create and evolve their own channels (Pujari, 2015).

The considerations from government regulations are also a factor that tempts marketers to evaluate, modify and change a channel.

Our Company (2016). The Coca-Cola System.             Retrieved from http://www.coca-colacompany.com/our-company/the-coca-cola-system Pujari, S. (2015). 5 Important Factors Affecting the Choice of Channels of Distribution by the Manufacturer. Your Article Library Retrieved from http://www.yourarticlelibrary.com/production/5-important-factors-affecting-the-choice-of-channels-of-distribution-by-the-manufacturer/1100/ Speh et al (2008). Business Marketing Management: B2B. South-Western. Retrieved from https://books.google.com.sg/books?id=8lMAWJXtf6QC&pg=PA264&lpg=PA264&dq=step+by+step+process+in+designing+distribution+channel+strategy&source=bl&ots=JM-cYNAuI_&sig=gHO3QSFFq-quAHTTNxp_lcz4PLU&hl=en&sa=X&ved=0ahUKEwjNjKakn-jMAhXBnpQKHQqzBlEQ6AEIPjAG#v=onepage&q=step%20by%20step%20process%20in%20designing%20distribution%20channel%20strategy&f=false

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