1. Distribution
Sanjeev Varshney

2. Middlemen and Distribution Channels
A middleman is a firm that renders services related directly to the sale and/or purchase of a product as it flows from producer to consumer.
Merchant middlemen take title to products.
Agent middlemen do not take title to products, but arrange the transfer of title.
Middlemen serve as purchasing agents for their customers and as sales specialists for their suppliers.

3. Channel Members Distributors or Stockists Carrying & Forwarding agent
Wholesalers
Dealers/Retailers
Brokers

4. Classification of Channel Members
Title of Goods Transferred
Titles of Goods Not Transferred
Redistributors
Distributors
Carrying & Forwarding Agent
Selling to End Consumers
Retailer
Agent

5. Role of the Marketing Channel (manufacturers viewpoint)
Offers manpower and physical facilities
Provides personal selling, advertising and display to aid in selling
Interprets consumer demand and transfers this information back
Breaks the bulk
Offers storage
Shares risk of the manufacturer
Information provider of all other sought

6. Role of Channel (consumers view point)
Product decision
Brand decision
Consideration set formation
Information search
Evaluation of alternatives
Purchase
Form utility
Time utility
Place utility
Possession utility

7. Functions to be performed
Prospecting
Promoting
Bulk breaking & assortment
Service
Feedback

8. © 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Information Flows
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

9. Designing a Distribution Channel
WELL-
DESIGNED
DISTRIBUTION
CHANNEL
Specify
the role of
distribution
within the
marketing
mix
Select
type of
distribu-
tion
channel
Determine
appropriate
intensity
of distri-
bution
Choose
specific
channel
members
Copyright © 1997 by The McGraw-Hill Companies, Inc.

10. Consumer Decision Process & the Role of Channel
The role the channel can play
Picking/Impulse
Displaying the brand ensuring visibility
Variety seeking
Brand enters the consideration set through the process of recognition (merchandising & display)
Habit
Supplement the buyers evaluation through testimonial based POP advertising
Sub-contracting
Increase the credibility by acquiring technical skills
Extended problem solving
Brand enters the consideration set and also help in information search and evaluation by increasing the credibility by acquiring technical knowledge

11. Framework for Designing the Channel Objective
Variables
Dimensions of the Channel Objective, which is likely to be influenced
Consumer
Role of the channel in decision making
Positioning
Type of outlet
Company norms
Minimum standards
Market orientation
Middlemen service norms (push vs pull)

12. Exercise
A company is planning to launch a new product. There are no substitutes available in the market. What should be the distribution objective
A company is entering into a already crowded market but with some enhanced features. What should be the distribution objective
A company is entering into a product which is in growth stage. Company has developed a new cheaper production technology than the competitor and thereby plans to launch the product at a price lower than the competitor. What should be the distribution objective.

13. Major Channels of Distribution
For distribution of consumer goods, five different types of channels are widely used.
Business goods are normally distributed through four major types of channels.
There are only two common channels of distribution for services.
Some producers are not content to use only a single distribution channel and use multiple channels.
Multiple channels can aggravate middlemen and cause conflicts in the channels.

14. Major Distribution Channels
PRODUCERS OF CONSUMER GOODS
Agents
Agents
Merchant
wholesalers
Merchant
wholesalers
Retailers
Retailers
Retailers
Retailers
ULTIMATE CONSUMERS

15. Major Distribution Channels
PRODUCERS OF BUSINESS GOODS
Agents
Agents
Merchant
wholesalers
(industrial
distributors)
Merchant
wholesalers
(industrial
distributors)
Merchant wholesalers
(industrial distributors)
Resellers
BUSINESS USERS

16. Major Distribution Channels ULTIMATE CONSUMERS OR BUSINESS USERS
PRODUCERS OF SERVICES
Agents
ULTIMATE CONSUMERS OR BUSINESS USERS

17. Multiple Distribution Channels
Some firms choose to use two or more channels of distribution
They are used when:
the same product is sold to business & consumer markets
the producer has unrelated products
the buyers are of different sizes
geographic concentration differs across parts of the market

18. Vertical Marketing Systems (VMS)
Has become the dominant form of channel
High degree of coordination and control
Corporate VMS - common ownership of successive channel levels
Contractual VMS - contracts between channel members
Administered VMS - market power of one or more members, or willing cooperation of channel members

19. Factors Affecting Choice of Channels
Market Considerations
Type of market
Number of potential customers
Geographic concentration of the market
Order size
Product Considerations
Unit Value
Perishability
Technical nature

20. Factors Affecting Choice of Channels (Con’t.)
Middlemen Considerations
Services provided by middlemen
Availability of desired middlemen
Producer’s and middleman’s policies
Company Considerations
Desire for channel control
Services provided by seller
Ability of management
Financial resources

21. Marketing Channels & Customer Value
Product benefits (Quality, assortment & form)
Service Benefits (after sales service, availability & delivery, transaction services)
Image benefits
Company benefits
Cost efficiency
Competitive advantage

22. Determining Intensity of Distribution
A firm must decide on the appropriate intensity of distribution for its product.
Intensity is actually a continuum, but three categories are normally used:
Intensive
Selective
Exclusive

23. Conflict and Control in Channels
Channel conflict exists when one channel member perceives another to be acting in a way that prevents the first member from achieving its distribution objectives.
Horizontal Conflict
Middlemen of the same type
Different types of middlemen on the same level
Vertical Conflict
Producer versus wholesaler
Producer versus retailer

24. Some of the most common conflicts
Territorial/role conflicts
Overlapping territories
Absence of clarity in roles and responsibilities of different channel partners
Development of new channels and its impact on existing channels
Power politics conflict between manufacturer and channel member
Strategic Conflicts:
Disbursement of sales promotional schemes
Differential pricing
Differential product/promotional strategy
Developmental conflicts:
Development of existing channel members
Growth opportunities

25. Ways to manage Territorial conflicts: Strategic Conflicts:
Documentation
Proper communication & sharing of information
Strategic Conflicts:
Sharing of information
Goal based behaviour
Developmental conflicts:
Goal oriented behaviour
Greater commitment

26. Who Controls Channels? Sources of power in distribution channels
Expertise
Rewards
Sanctions
A channel viewed as a partnership
Collaborative planning
Relationship marketing

27. Some of the criteria's to appraise Channel members
Sales Performance (against targets)
Servicing
Financial Discipline
Inventory Maintenance (no more a very imp criteria)
Personal Commitment & involvement
Adherence to norms (infrastructure and people) and reporting structure

28. Channel Evaluation: Concept
Includes both
Financial Performance measures
Contribution to consumers demand

29. Dimensions of channel performance measures
Effectiveness
Delivery (how the channel meet demands)
Stimulation (how well it stimulates latent demand)
Efficiency
Productivity (measure of physical efficiency)
Profitability (measure of financial efficiency)
Equity
Service to problem ridden market or disadvantged market

30. Profitability Analysis
NMC =
Volume X [ End user price X (1-%channel cost)-COG]-Marketing Expenses
Direct channels have higher margin per unit but incurred higher marketing expenses
Indirect channels have a lower margin per unit but lower marketing expenses

31. Process of Channel Evaluation
Establish the channel objectives
Conduct 3 E analysis
Identify the source of the problem
Identify the remedial measures
Feedback

32. Supply Chain, Marketing Channels, and Logistics are Related
Logistics management
Similar but different
Students may find the distinction between marketing channels and logistics management confusing because of their close relationship. Remind them that the marketing channel consists of institutions, whereas logistics refer to activities among and within institutions. However, both are part of supply chain management.
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

33. Supply Chains Streamline Distribution
Reduce number of transactions
Increase value for consumers
More efficient and effective
Ask students: How does supply chain management reduce inventory levels? What effect does supply chain management have on sales?
Answer: An efficient supply chain can lower overall inventory in the system because merchandise is delivered when it is needed (just-in-time). By having an efficient supply chain, the retailers stay in stock, and sales increase.
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

34. Supply Chain Management Affects Marketing
Fulfilling delivery promises
Meeting customer expectations
Reliant on an efficient supply chain
Customers expect to have their goods delivered and services performed on time. Ask students: What happens when the supply chain breaks down? Imagine you order a textbook from Amazon, which promises to deliver it by Saturday, before your classes start on Monday. What happens in terms of your satisfaction with Amazon if some link in the supply chain breaks down and you don’t receive your book until Tuesday?
© 2007 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin