Distribution Channel

DISTRIBUTION CHANNELS

Introduction

·       A distribution channel is the path or route through which goods and services flow from the producer/manufacturer to the end consumer.

·       It includes all individuals, organizations, intermediaries, and activities involved in making a product available for use or consumption.

·       Philip Kotler: “A distribution channel is the set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user.”

·       In simple words: It is the pipeline that connects producers and consumers for exchange of goods and services.

Role of Distribution Channels

(i) Bridging Gaps

• Time gap: Products produced at one time but consumed at another (warehousing solves this).
• Place gap: Goods produced in one location but consumed in another (transportation solves this).
• Ownership gap: Producers transfer goods to consumers via intermediaries.

(ii) Functions Performed

1. Transactional Functions
• Buying, selling, risk-taking (retailers/wholesalers bear risks).
2. Logistical Functions
• Storage, warehousing, transportation, inventory management.
3. Facilitating Functions
• Financing, market information, after-sales services.

(iii) Value Creation

• Creates utility: form utility (customization), place utility (availability), time utility (when needed), and possession utility (ownership transfer).
• Enhances customer satisfaction by ensuring availability, variety, and convenience.
• Reduces burden on producers by handling distribution tasks.

Marketing Flow in Distribution Channels

A channel is not only about product movement; it involves multiple flows:

1. Product Flow: Movement of goods from producer → consumer.
2. Negotiation Flow: Discussions between producers, wholesalers, retailers about terms (pricing, delivery, credit).
3. Ownership/Title Flow: Transfer of ownership (producer → intermediaries → consumer).
4. Information Flow: Market intelligence flows both ways (consumer demand feedback → producer, product info → consumers).
5. Promotion Flow: Promotional campaigns, advertising, sales promotion by intermediaries.
6. Finance Flow: Payment for goods (consumer → retailer → wholesaler → producer) and credit facilities provided by intermediaries.
7. Risk Flow: Risk of damage, spoilage, obsolescence, and market fluctuations transferred across intermediaries.

Channel Choice and Decisions

(i) Factors Influencing Channel Choice

1. Product-related factors
• Perishability (milk, bread → direct/short channel).
• Complexity/technicality (machinery → direct selling).
• Standardization vs customization.
2. Market-related factors
• Number of customers (industrial buyers vs mass market).
• Geographic concentration (local vs global markets).
• Order size (bulk vs small orders).
3. Company-related factors
• Financial resources of company.
• Desire for control over distribution.
• Experience with distribution management.
4. Environmental factors
• Economic conditions (inflation, recession).
• Legal restrictions, government regulations.
• Technological changes (e-commerce, digital channels).
5. Competitor-related factors
• Channels used by competitors.
• Need to differentiate through better accessibility.

(ii) Channel Decision Areas

• Channel Length: Direct (producer → consumer) vs Indirect (with intermediaries).
• Channel Intensity:
• Intensive distribution (max outlets, e.g., soft drinks).
• Selective distribution (limited outlets, e.g., electronics).
• Exclusive distribution (one/few dealers, e.g., luxury brands).
• Channel Integration: Vertical (coordinated system), Horizontal (merging similar intermediaries), Multi-channel systems.

Routes / Types of Channels of Distribution

(i) Direct Channels (Zero-level)

• Producer → Consumer (no intermediaries).
• Example: Direct sales, online selling, door-to-door selling, company-owned outlets.
• Suitable for perishable goods, industrial products, customized products.

(ii) Indirect Channels (One or more levels)

1. One-level channel:
• Producer → Retailer → Consumer
• Example: Garments, footwear.
2. Two-level channel:
• Producer → Wholesaler → Retailer → Consumer
• Example: FMCG products, packaged foods.
3. Three-level channel:
• Producer → Agent → Wholesaler → Retailer → Consumer
• Example: Agricultural produce, imported goods.

(iii) Special Channels

1. E-channels / Online distribution – Amazon, Flipkart, D2C websites.
2. Franchise system – McDonald’s, Domino’s.
3. Multichannel distribution – Combination of physical retail + e-commerce.
4. Dual distribution – Manufacturer sells both directly and via intermediaries.
5. Non-traditional channels – Telemarketing, home shopping networks, vending machines.

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