Distribution Channel: The path through which goods and services travel from the vendor to the consumer or payments for those products travel from the consumer to the vendor. A distribution channel can be as short as a direct transaction from the vendor to the consumer, or may include several interconnected intermediaries along the way such as wholesalers, distributers, agents and retailers. Each intermediary receives the item at one pricing point and movies it to the next higher pricing point until it reaches the final buyer. Coffee does not reach the consumer before first going through a channel involving the farmer, exporter, importer, distributor and the retailer. Also called the channel of distribution.
Philip Kotler & Gary Armstrong: Marketing channel or distribution channel is a set
of interdependent organizations that help make a product or service available
for use or consumption by the consumer or business user.
Evans
& Berman: Channel of distribution
is all the organizations or people involved the distribution process.
William
j.
Looking
at the diagram above:
Channel 1
contains two stages between producer and consumer - a wholesaler and
a retailer. A wholesaler typically buys and stores large
quantities of several producers’ goods and then breaks into bulk deliveries
to supply retailers with smaller quantities. For small retailers with limited
order quantities, the use of wholesalers makes economic sense.
Channel 2
contains one intermediary. In consumer markets, this is typically a retailer.
The consumer electrical goods market in the UK is typical of this arrangement
whereby producers such as Sony, Panasonic, Canon etc. sell their goods directly
to large retailers such as Comet, Tesco and Amazon which then sell onto the
final consumers.
Channel 3 is
called a "direct-marketing" channel, since it has no
intermediary levels. In this case the manufacturer sells directly to customers.
An example of a direct marketing channel would be a factory outlet store. Many
holiday companies also market direct to consumers, bypassing a traditional retail
intermediary - the travel agent.
Functions of
Distribution Channel?
Ans: Marketing
consists of four key P's: product, price, promotion and placement. The fourth
P, placement, is the distribution channel, which consists of all organizations
between production and consumption. It is the bridge between producers and
consumers, creating cost efficiencies and multiplying selling opportunities
through networks of intermediaries (wholesalers and retailers). A distribution
channel serves eight major functions as follows:
1. Information
A distribution
channel collects and analyzes market intelligence on current and potential
customers, competitors, suppliers, regulators and on the general political and
business environment. For example, a multinational company's Chinese
distributor can potentially tap into his government sources and provide timely
information about impending regulatory changes that could prove valuable in
adjusting strategies ahead of the competition.
2. Promotion
A channel
develops marketing strategies, including preparing the marketing budget,
designing the promotional and advertising material, recruiting and training
sales representatives and organizing trade shows and other networking events.
The channels can adjust their marketing efforts faster than the head office
because they are closer to their customers.
3. Contact
Distribution
channels find and establish contact with prospective buyers. For example, a
computer wholesaler's job would be to find computer retailers, while a
retailer's job would be to find customers. This can be done through promotions
that pull in customers--including attracting them directly to the company's
online store--and also through old-fashioned telephone calls and door knocking
that push products to customers.
4. Matching
Once contact is
made, the channel partner's job changes to a matching role, which involves
tailoring the product to fit customer needs. For example, if a retailer only
wants to sell laptops with word-processing software included, the distributor
needs to contact her company's nearest manufacturing facility to ensure the
laptops are properly configured prior to shipment.
5. Negotiation
Closing the sale
is part of a channel's negotiation function. For a computer wholesaler, it
could mean negotiating price and minimum quantity levels with the retailer. For
a master franchise operator (an experienced franchisee with exclusive rights in
a region), it could mean negotiating the franchise agreement with a new
franchisee and providing training and mentoring services.
6. Transportation
A distributor
often transports products from the manufacturer to retailers and customers. For
example, a potato chip distributor may have one or more delivery vans departing
every day to different retailers (chains and convenience stores) to drop off
their merchandise.
7. Financing
A distribution
channel partner finances his costs, including buying and storing inventory. For
example, a car dealership may arrange financing through the car manufacturer or
the local banks or a combination.
8. Risk
A distribution
channel shares in some of the business risks. For example, if a new product
launch does not go well, the distributor may get stuck with excess inventory.
There also is the risk of unpaid bills and damaged inventory. Foreign
distributors also bear the risk of political and economic uncertainty in their
respective countries.
Distribution Channel
Management:
• Economics requires us to recognize where costs are being
spent and profits being made, or should be made, in a channel to maximize our
return on investment;
• Coverage is about maximizing the amount of contact and
benefits for the customer in terms of making the product available. This
satisfies the marketer’s desire to have the product available to the largest
number of customers, in as many locations as possible, at the widest range of
times.
• Control refers to achieving the optimum distribution
costs without losing decision-making authority over the product and the way it
is marketed and supported in the delivery channel. This includes decisions
about the product, its pricing, promotion, and delivery in the distribution
channel.