DISTRIBUTION

CHANNELS
WHAT IS DISTRIBUTION?

 Distribution is one of the four elements of marketing mix. It is the process of making a
product or service available for the consumer or business.
 This can be done directly by the producer or service provider or indirectly with the
help of distributors or intermediaries.
WHAT ARE DISTRIBUTION CHANNELS?

 Distribution channels are the paths that products and services take on their way from
the manufacturer or service provider to the end consumer.
 It represents a chain of businesses or intermediaries through which the final buyer
purchases a good or service.
 The longer the distribution channel from manufacturer to customer, the less profit the
manufacturer will make as each intermediary or vendor charges for their services.
NEED OF DISTRIBUTION CHANNELS

 Increase distributional efficiency:

The intermediary channels ease the sales process as they are in direct contact with the customers.
They narrow down the gap between producers and consumers both economically and efficiently.
These intermediaries reduce the number of transactions involved in making products available
from producers to consumers.
 Offer products in required assortments:

It is possible for a consumer to buy the required products at right time from a store conveniently
located(geographically closer) rather than ordering from a far located factory. Thus, these
intermediaries break the bulk and meet the less quantity demand of the customers.
 Offer salesmanship:
The distribution channels offer pivotal role of a sales agent. They help in creating new
products in market. They specialize in word of mouth selling and promotion of products.
They assure pre-sale and post-sale service to the consumers. Since these channels are in
direct and regular contact with the consumers, they do salesmanship very well and at the
same time provide true and valuable feedback to the producers.
 Executing the price mechanism between the firm and the final customers:
The intermediaries help in reaching a price level which is acceptable both to the
producers as well to the consumers.
 Assisting product merchandising:
When a customer goes to a retail shop, he/she may be fascinated by the attractive display
of some new product, may get curious about that new product, and may switch over to
that new product leaving his/her regular product. Thus merchandising activities of the
intermediaries serve as a quiet seller at a retail store.
 Assisting stock holding:
The intermediaries perform various other functions like financing the products, storing
the products, bearing of risks and providing required warehouse space.
TYPES OF DISTRIBUTION CHANNELS
 Direct Distribution Channels:

The direct distribution channel does not make use of any intermediaries and also known as
zero-level channel. The manufacturer or producer sells directly to the end consumer. The direct
form of distribution is typically used by producers or manufacturers expensive goods and items
that are perishable. An example is a baker.
 Indirect Distribution Channels

The indirect distribution channel makes use of intermediaries in order to bring a product to
market. The three types of indirect channels are:
One-level channel
The one-level channel entails a product coming from a producer to a retailer and then to the end
buyer. The retailers buy the product from the manufacturer and sell it to the end buyers. The
one-level channel is ideal for manufacturers of furniture, clothing items, toys, etc.
Two-level channel
Wholesalers generally make bulk purchases, buy from the producer, and divide the
goods into smaller packages to sell to retailers. The retailers then sell the goods to the
end buyers. The two-level channel is suitable for more affordable and long-lasting goods
with a larger target market.
Three-level channel
This channel 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.
Zero-Level

One-Level

Two-Level

Three-Level
WHAT ARE INTERMEDIARIES?

 The intermediaries are the external businesses, groups and individuals that help a
company deliver its products to its customers. These intermediaries serve as agents
between the merchandise's original creator and the consumer who makes the final
purchase.
 Intermediaries are necessary for companies to fulfil the delivery of customers' orders.
TYPES OF INTERMEDIARIES

• Wholesalers
• Retailers
• Agents
• Distributors
 WHOLESALERS
 Wholesalers purchase a business' products in large quantities. After purchasing these
products, a wholesaler attempts to sell them to retailers. One of the primary differences
between a wholesaler and an agent is that a wholesaler has ownership of the products
at one point while an agent does not.
 A manufacturing company may prefer to produce a large number of items and sell
them in bulk to one company, the wholesaler, instead of attempting to sell all the items
to many different retailers. They perform the task of finding willing retailers, and they
can charge retailers higher prices for their acquired products.
 AGENTS
• Agents represent the product's original manufacturer. They have direct interactions
with customers to sell products and convince potential customers of their value. They
may answer consumers' questions or conduct product demonstrations to show a
product's main features.
• Agents may be independent businesses or individual salespeople. Instead of owning
the company or product, an agent earns a set percentage of each sale they complete
successfully. An example of an agent could be a real estate agent or a mobile phone
salesperson.
 RETAILERS
 Retailers buy products from other intermediaries, notably distributors and wholesalers.
Once a retailer purchases its desired products, it sells them to consumers directly.
Retailers usually purchase smaller quantities of items than distributors and wholesalers
do. A couple of examples of retailers include department stores and grocery stores.
 Depending on the size of the retailer, it may source its products directly from the
manufacturer. A large retailer with a national or international presence may be able to
purchase its products from the manufacturer due to a long-standing relationship.
Otherwise, a smaller retailer is more likely to purchase its products from a distributor
or wholesaler.
 DISTRIBUTORS
 A distributor has a unique relationship with product manufacturers in comparison to
the relationship that product manufacturers have with agents and wholesalers. Instead
of having no or full ownership of a manufacturer's products, a distributor has partial
ownership of the items they sell. Distributors frequently sell the products they acquire
to retailers and wholesalers, meaning that they have limited contact with the final
buyer.
 They can choose to purchase exclusive rights so that it is the only entity that can buy a
company's products. This strategy can ensure that it is the only distributor of a product
in a specific geographical area. It may also help the distributor remain competitive in a
previously saturated purchasing environment.
STRATEGIES OF DISTRIBUTION CHANNELS

 A distribution channel strategy evaluates ways to improve the positioning of

products to boost demand around them. Your main goal is to find the right
customers and locations of demand, in order to speed up the process of connection
between products and customers and make it profitable.
HOW TO DEVELOP A DISTRIBUTION CHANNEL STRATEGY?

• Identify the Proper Channel

• Consider Your Audience
• Evaluate and Adapt
Identify the Proper Channel :
To develop a robust distribution channel strategy, first you should identify which channel
works best for your product. Can you sell your product directly to the end consumer or
must you go through wholesalers and retailers? These are important questions to ask to
get you thinking about how many businesses need to be involved to sell your product.
The longer the channel, the less profit you'll likely receive from a sale. In most cases,
selling directly to the consumer will yield the most profit. As a result, many
manufacturers choose to bypass wholesalers entirely and sell directly to retailers and
consumers.
Consider Your Audience :
While identifying the proper distribution strategy, you should also consider your
audience. What are the needs of your customers? How do they typically access your
product? Your answers to these questions will impact which distribution channels
you choose to pursue. However, keep in mind that there's no clear-cut answer —
more often than not, businesses find out through trial and error. While a direct
channel of distribution is the easiest and fastest way to get your product to the
consumer, an indirect channel typically reaches a larger audience. Keep your
audience in mind when weighing the pros and cons of each.
Evaluate and Adapt :
Some channels will work better than others. As a result, evaluating the performance
of each channel is critical to improving your strategy. Many businesses evaluate
their channels using the Strategic Profit Model, which examines key metrics of a
channel's financial performance (such as its return on investment and liquidity), and
logistics performance metrics, which examine how effective intermediaries are in
delivering your product. To keep strong relationships with buyers and sellers along
distribution channels, many businesses also conduct periodic satisfaction surveys
that are designed to gauge partner satisfaction. When pulled together, these metrics
should be able to provide you with a complete picture of your distribution channel
strategy and how it can be improved.
THANK YOU