By N2H

Channels of Distribution

October 24, 2007

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Channels of Distribution:

A channel of distribution is an organized network of agencies and institutions which, in combination perform all the activities required to link producers with users to accomplish a marketing task.

Resellers in a distribution channel are called intermediaries or middlemen.To understand the possible ways to make products available to potential users, the marketer needs to know the ways most distribution channels are organized.

There are possible ways to organize a channel these are:

a) Channel for Consumer Goods:

The channel is further subdivided into 4 channels these are:

(i) Channel A: In this channel there are no intermediaries. This channel is called direct marketing.

(ii) Channel B: In this channel goods move from producers to retailers to consumers

(iii) Channel C: This is the most common. In this channel the producer sells to wholesalers, who sell to retailer who in turn sell to consumers.

(iv) Channel D: This is the most indirect channel. Goods pass from producers to agents then to wholesalers to retailers and then to customers. Agents coordinate a large supply of goods when they are many small manufacturers and retails. Small manufacturers lack the capital for their own sales force and thus use agents to serve as independent sales force.

Channel A Producer – Consumer

Channel B Producer – retailer – consumer

Channel C Producer – wholesaler – retailer – consumer

Channel D Producer – agent – wholesaler – retailer – consumer

b) Channels for Organizational Goods:

Organizational buyers are usually a small number and also they are more concentrated geographically and usually buy in large quantities. The distribution channel for these goods is usually shorter than those for consumer goods.

The channels are

(i) Channel A: This is a direct channel from a producer to organizational buyers – a direct channel is often efficient when buyers are large and well defined – when selling requires extensive service and support.

(ii) Channel B: Goods flow from producer to a distributor using a distributor is efficient for producers of products targeted to a large number of organizations that buy in small quantities eg software packages.

(iii) Channel C: The goods flow from the producer to agents instead of intermediaries. This happens when the producers marketing department is small or it wants to introduce a new product or enter a new market e.g Manufacturers of food processing equipment.

(iv) Channel D: This brings together producers and organizational distributors. The agent seeks a market for the producers output and locates sources of supply for a buyer.

c) Channels of Services

Most services are produced and consumed at the same time. Services are distributed through short channels. So to buy financial advice you go to the people providing these services so the most common channel is A (Direct one).

When services use intermediaries they are usually agents or brokers e.g. Insurance and Airline services.

Service Provider – Service user

Service Provider – Agent – Service User

Producer – Agents – Organization buyers

Producer – Agents – Distributors – Organization Buyers

Variations of the Basic Channels:

Sometimes the distribution strategy that meets marketing objectives include:

a) Multiple Distribution Channels:

To reach a diverse market, a producer may use several channels of distribution for a single product. A producer might use one marketing channel to serve customers to serve organization buyers.

Sometimes organizations use multiple channels to fit a multibrand strategy i.e. under one brand name, the product is distributed through one channel and another brand name, the product is distributed through another channel.

The use of two or more distribution channel to provide the same basic product to a target market is called dual distribution. Producers use dual distribution to cover or maximize coverage of the market place.

b)Strategic Channel Alliances

This involves building a close relationship between channel members to meet mutual needs. The needs might be to reduce the time spent building a channel of distribution.

c) Reverse Channels

This is a distribution channel from the end user to the producer instead of the other way round e.g. taking apart a computer and selling the semi conductor to parts wholesalers and maintenance shops.

Reverse channels have gained attention due to the growth of recycling efforts and consumer interest in the environment.

Another type of reverse channel is recalls i.e. if a manufacturer discovers a problem with their product to the seller for a refund or a replacement.

Structure of Channels

Structure of a channel depends on the members of that channel and the extent of their relationship. Theses structures are;

Traditional Distribution Channels

In this structure, all members of the channel enter into formal or informal agreements with the one another. The member provide for total quality to marketing in that the customers finds the product easy to purchase.

Horizontal integration

This involves the organization combining with other organization at the same stage in the distribution channel. Often this involves buying or merging with these orgs. This might improve the orgs position in the market place but it might not improve distribution.

Vertical integration

This involves members at different levels of a distribution channel coordinating their efforts to reach the desired market. This is called vertical channel integration.

A vertical marketing system (vms) is a centrally managed distribution channel that is designed to achieve efficiency with maximum marketing impact.

Franchising

This is a contractual distribution system in which a parent company gives franchisers the right to operate the business according to the franchiser marketing plan and to use its trademark.

Apart from the right to operate the business, the franchise receives marketing, management and technical services.

The advantage is that to the franchiser, there is a ready source of funds for expansion coupled with ability to establish policies for each franchise and for franchisee is greater name recognition, better prices from supplier, business advise e.t.c.

Disadvantage; it is hard to find qualified franchisees, harder to control the franchiser.

Direct Marketing

This is using the direct channel of distribution. The usual method for direct marketing is to offer products through mail, by telephone, door to door e.t.c. direct mail is not the most efficient channel of distribution.

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