CHAPTER 3

Place & Distribution

By:
Prof. Rashmi Phirake
Distribution Channel
A distribution channel can be as short as
being direct from the vendor to the
consumer or may include several
interconnected intermediaries such as
wholesalers, distributors, agents, retailers.
Each intermediary receives the item at
one pricing point and moves it to the next
higher pricing point until it reaches the
final buyer .
 Role of Marketing Channel
 Distribution is one of the four elements of the marketing mix,
the other three being product, pricing and promotion.
 This marketing mix is also referred to as the four Ps of
marketing; distribution is here called physical distribution or
place.
 Simply put, distribution is the process of delivering the
products manufactured or service provided by a firm to the
end user.
 Various intermediaries are involved in this process. This
chain of intermediaries which helps in transferring the
product from one intermediary to the next before it reaches
the end user is called the Distribution Chain or
Distribution Channel.
Distribution channels are not limited to products
only even the services provided by a producer
may pass through this channel and reach the
customer.
Both direct and indirect channels come into use
in this case.
For instance, the hotel industry provides facility
for lodging to its customers, which is a non-
physical commodity or a service.
The hotel may provide rooms on direct booking
as well as through indirect channels like tour
operators, travel agents, airlines etc.
Distribution chain has seen several
improvements in the form of franchising.
Also there has been link ups between two
service sectors like travel and tourism
which has made services available more
accessible to the customer.
For instance hotels also provide cars on
rent.
Functions of a Distribution Channel

The primary function of a distribution channel is

to bridge the gap between production and
consumption.
 A close study of the market is extremely
essential. A sound marketing plan depends upon
thorough market study.
 The distribution channel is also responsible for
promoting the product. Awareness regarding
products and other offers should be created
among the consumers.
 Creating contacts or prospective buyers and
maintaining liaison with existing ones.
Understanding the customer's needs and
adjusting the offer accordingly.
 Negotiate price and other offers related to the
product as per the customer demand.
 Storage and distribution of goods
 Catering to the financial requirements for the
smooth working of the distribution chain.
 Risk taking for example by stock holding
Three Levels of the Distribution Channel
In level (1) there are no intermediaries involved, the
manufacturer is selling directly to the customer. This is called
the direct-marketing' channel. Examples of direct marketing
channel can be seen at factory outlet stores. Various hotels prefer
direct-marketing, they market their services directly to their
customers without taking the help of any retail intermediary
(travel agent).

Levels (2) and (3) are examples of 'indirect-marketing' channels.

In level (2) one intermediary or retailer is used. A Retailer sells
goods/services directly to the end users. Retailer buys products
from manufacturers or wholesalers.

In level (3) along with retailer a second member is added to the
distribution chain. He is the wholesaler. A wholesaler buys and
stores products in bulk from manufacturers. He sells these
products in smaller quantities to retailers.
CHANNEL DESIGN DECISION
Designing a channel system calls for
analyzing customer needs, establishing
channel objectives, and identifying and
evaluating the major channel alternatives.
ANALYZING THE SERVICE OUTPUT
LEVELS DESIRED BY CUSTOMERS

In designing the marketing channels, the

marketer must understand the output levels
desired by the target customers. Channel
produce five service outputs:

LOT SIZE
The number of units the channel permits a
typical customer to purchase on one
occasion.
WAITING TIME
The average time customers of that channel
wait for receipt of the goods.

SPETIAL CONVENIENCE
The degree to which the marketing channel
makes it easy for customers to purchase
the product.
PRODUCT VARIETY
The assortment breadth provided by the
marketing
channel. Normally customer prefer greater
Assortment because more choices increase the
chance of finding what they need.

SERVICE BACKUP
The add-on services (credit, delivery, installation,
repairs) provided by the channel.
DETERMINE THE CHANNEL
OBJECTIVES AND CONSTRAINTS
Channel objectives vary with product
characteristics. For example; perishable
products require more direct marketing.

Bulky products, such as building

materials, require channels that minimize
the shipping distance and the amount of
handling in the movement from producer
to consumer.
Besides the target market, the company’s
channel objectives are influenced by;
◦ the nature of its product, e.g. perishable
products require more direct marketing
to avoid delays and too much handling.
◦ company characteristics, e.g. the
company’s size and financial situation
determine which functions it can handle,
how many channels it can use, which
transportation can be used.
◦ characteristics of intermediaries,
intermediaries differ in their abilities to
handle promotions, customer contact,
storage and credit e.g. the company’s
own sales force is more intense in
selling.

◦ competitors’ channel, some companies

may prefer to compete in or near the
same outlets that carry competitors’
products, some may not e.g. Burger King
wants to locate near McDonald’s
environmental factors, economic
conditions and legal constraints affect
channel design decisions e.g. in a
depressed economy, producers want to
distribute their goods in the most
economical way, using shorter channels.
IDENTIFY THE MAJOR CHANNEL
ALTERNATIVES
After the channel objective have been
determined, the company should identify
its major channel alternatives in terms of
(1)types of intermediaries,
(2)the number of intermediaries needed,
and
(3)the terms and responsibilities of each
channel member.
1) Types of intermediaries
The firms need to identify the types of
intermediaries available carry on its channel work.
Marketing intermediaries, also known as
middlemen or distribution intermediaries.
Important part of the product distribution channel.
Intermediaries are individuals or businesses that
make it possible for the product to make it from the
manufacturer to the end user, essentially facilitating
the sales process.
Four basic types of marketing intermediaries :

a) AGENT - is an independent individual or

company whose main function is to act as the
primary selling arm of the producer and
represent the producer to users.
Agents take possession of products but do not
actually own them.
Agents usually make profits from commissions
or fees paid for the services they provide to the
producer and users.
b) WHOLESALERS - Wholesalers are
independently owned firms that take title to
the merchandise they handle.
The wholesalers own the products they sell.
Wholesalers purchase product in bulk and
store it until they can resell it.
Wholesalers generally sell the products they
have purchased to other intermediaries,
usually retailers, for a profit.
c) DISTRIBUTORS - Distributors are similar to
wholesalers, but with one key difference.

Wholesalers will carry a variety of competing products,

for instance Pepsi and Coke products, whereas
distributors only carry complementary product lines,
either Pepsi or Coke products.

Distributors usually maintain close relationships with

their suppliers and customers.

Distributors will take title to products and store them

until they are sold.
d) RETAILERS - A retailer takes title to, or
purchases, products from other market
intermediaries.

Retailers can be independently owned and

operated, like small “mom and pop” stores, or
they can be part of a large chain, like 7
ELEVEN.

The retailer will sell the products it has

purchased directly to the end user for a profit.
2. Number of intermediaries
Companies have to decide on the number of intermediaries to
use. Three strategies available;
a) EXCLUSIVE DISTRIBUTION
• limited number of intermediaries. It is used when the
producer wants to maintain control over the service
level and service outputs offered by the reseller.
• It involves exclusive dealing arrangement, which the
resellers agree not to carry competing brands. By
granting exclusive distribution, the producer hopes
to obtain more dedicated and knowledgeable selling.
 It requires greater partnership between seller and
reseller.
 Appropriate for specialty products which are
expensive, infrequently bought and require service or
info to fit them to buyers needs, such as Rolex watch,
Mercedes and Roll Royce car.
b) SELECTIVE DISTRIBUTION
• Only some available outlets in area are chosen to
distribute a product.
• The company does not have to dissipate its efforts
over too many outlets, it enables the producer to gain
adequate market coverage with more control and less
cost than intensive distribution.
• It is appropriate for shopping products, which
consumers are willing to spend more time visiting
several retail outlets to compare prices, designs,
styles, and other features of these product. Nike is a
good example of selective distribution.
c) INTENSIVE DISTRIBUTION
• Intensive distribution is the use of all available
outlets to distribute a product. It is suitable for
convenience products, such as soft drinks, bread,
candy, newspapers, etc. because they have high
replacement rate and require almost no service.
• Multiple channels (i.e. convenience stores, service
stations, supermarkets discount store) are used to sell
these products. Availability of these products is
more important than the nature of the outlet.
• For convenience of consumers, store must be located
nearby and minimum time will be necessary to
search for the product at the store.
3) Terms and responsibilities of channel members
each channel member must be treated respectfully and given
the opportunity to be profitable. The main elements are;

i. Price policy – price list, schedule of discount and allowances

ii. Conditions of sale – payment terms and producers guarantees
iii. Distributors territorial rights – distributors territories and the
terms under which the producer will enfranchise other
distributors.
iv. Mutual services and responsibilities - particularly in franchised
and exclusively-agency channels. Franchiser provides promotional
support, training, record keeping system, etc.
 Each channel alternative needs to be evaluated against
economic, control and adaptive criteria.
a) ECONOMIC CRITERIA
Company need to estimate the costs of selling
different volumes through each channel and the next
step is comparing sales and costs.

A company compares the likely sales, costs and

profitability of
different channel alternatives. What will be the investment
required by each channel alternative, and what returns will
result?
b) CONTROL CRITERIA

The company must also consider control

issues. Using intermediaries usually means
giving them some control over the marketing
of the product, and some intermediaries take
more control than others.
c) ADAPTIVE CRITERIA

The company must apply adaptive criteria. Channels

often involve long term commitments, yet the
company wants to keep the channel flexible so that it
can adapt to environmental changes.

A channel involving long term commitments should

be greatly superior on economic and control grounds.
Wholesale:-
(Business / Commerce) the business of
selling goods to retailers in larger
quantities than they are sold to final
consumers but in smaller quantities than
they are purchased from manufacturers.
Wholesaling is a distribution channel
function where one organization buys
products from supplying firms with the
primary intention of redistributing to other
organizations (but, in general, not to the
final consumer).
A wholesaler is an organization providing the
necessary means to:
1) allow suppliers (e.g., manufacturers) to reach
organizational buyers (e.g., retailers, business
buyers), and
2) allow certain business buyers to purchase
products which they may not be able to
otherwise purchase.
A distinguishing characteristic of wholesalers
is they offer distribution activities for both a
supplying party and for a purchasing party.
Wholesalers who sell to other resellers such
as retailers.
What is Retail ?

Retail involves the sale of goods from a

single point (malls, markets, department
stores etc) directly to the consumer in
small quantities for his end use.
In a layman’s language, retailing is nothing
but transaction of goods between the seller
and the end user as a single unit (piece) or in
small quantities to satisfy the needs of the
individual and for his direct consumption.
Let us understand the concept with the help of an
example.
Tim wanted to purchase a mobile handset. He
went to the nearby store and purchased one for
himself.
In the above case, Tim is the buyer who went to
a fixed location (in this case the nearby store).
He purchased a mobile handset (Quantity - One)
to be used by him. An example of retail.
The store from where Tim purchased the handset
must have shown him several options for him to
select one according to his budget and need.
From where do you think the store owner (also
called the retailer) purchased all the handsets?
Here the manufacturers and the wholesalers
come into the picture.
The retailers purchase goods in bulk
quantities (huge numbers) to be sold to the
end-users either directly from the
manufacturers or through a wholesaler.
The Supply Chain
Manufacturer……………Retailer………End
User
(Wholesaler)
Manufacturers - Manufacturers are the ones who
are involved in production of goods with the help
of machines, labour and raw materials.
Wholesaler - The wholesaler is the one who
purchases the goods from the manufacturers and
sells to the retailers in large numbers but at a
lower price.
Retailer - A retailer comes at the end of the supply
chain who sells the products in small quantities to
the end users as per their requirement and need.
The end user goes to the retailer to buy the goods
(products) in small quantities to satisfy his needs
and demands. The complete process is also called
as Shopping.
Franchising
Franchising is a network of interdependent
business relationships that allows a number of
people to share:
A brand identification
A successful method of doing business
A proven marketing and distribution system
In short, franchising is a strategic alliance between
groups of people who have specific relationships
and responsibilities with a common goal to
dominate markets, i.e., to get and keep more
customers than their competitors.
There are many misconceptions about
franchising, but probably the most widely
held is that you as a franchisee are "buying
a franchise."
In reality you are investing your assets in a
system to utilize the brand name, operating
system and ongoing support. You and
everyone in the system are licensed to use
the brand name and operating system.

What is Direct Marketing??????

 Direct marketing
 Direct marketing is a form of advertising which allows
businesses and nonprofit organizations to communicate
directly to customers through a variety of media
including :
 cell phone text messaging,
 email,
 websites,
 online adverts,
 database marketing,
 fliers,
 catalog distribution,
 promotional letters and targeted television,
 newspaper and magazine advertisements as well as
outdoor advertising.
 Among practitioners, it is also known as direct response.
Order processing

Order processing is the process or work-

flow associated with the picking, packing
and delivery of the packed items to a
shipping carrier.
Order processing is a key element
of order fulfillment.
Order processing operations or facilities
are commonly called "distribution
centers".
Order processing is a sequential process involving:

Picking: consists in taking and collecting

articles in a specified quantity before
shipment to satisfy customers' orders.
Sorting: process that separates items
according to destination.
Pre-consolidation or package formation:
includes weighting, labeling and packing.
Consolidation: gathering packages
into loading units for transportation, control
and bill of lading.
Warehousing
A warehouse is a commercial building for
storage of goods.
Warehouses are used by manufacturers,
importers, exporters, wholesalers, transport
businesses, customs, etc.
They are usually large plain buildings in
industrial areas of cities, towns and villages.
They usually have loading docks to load
and
unload goods from trucks.
Sometimes warehouses are designed for the
loading and unloading of goods directly from
railways, airports, or seaports.
They often have cranes and forklifts for

moving goods, which are usually placed

on ISO standard pallets loaded into pallet racks.
Stored goods can include any raw materials,

packing materials, spare parts, components, or

finished goods associated with agriculture,
manufacturing and production.
In Indian English a warehouse may be referred

to as a godown.
Inventory
All organizations keep inventory
Inventory includes company’s raw material,
work in process, supplies used in operations,
and finished goods.
Inventory cost includes :

1. Space
2. Labor to receive, check quality, put away,
retrieve, select, packing, shipping, accounting
for the item
3. Deterioration, damage and obsolescence
4. Theft
Transportation
Railroad Pipeline
Motor Air
Vehicles
Water Intermodal(change
in transportation mode)

Transmodal (same
transportation mode till end)