AZAD College

PROMOTION AND DISTRIBUTION MANAGEMENT

By: M Rafeeq
UNIT-IV
MARKETING CHANNELS

According to Richart M. Delwelt, “ a channel is a pipeline through which products

flow on its way to the consumer.”
Goods produced are mostly reached by marketing intermediaries i.e.. Wholesalers and
Retailers. [Intermediaries --- smooth the flow of goods & services]
The channel decisions involve relatively long-term commitments to other firms.
Def: Marketing channel can be viewed as sets of interdependent organizations
involved in the process of making a product or service available for use or consumption.
Channel levels: -

M C
0-Level channel A O
(M-C) N N
U S
1-Level channel F Retaile
(M-R-C) A U
C
2-Level channel T Wholesaler Retaile M
(M-W-R-C) U
R E
3-Level channel E Wholesaler Jobber Retaile R
(M-W-J-R-C)

Fig: - Consumer marketing channel

M In
A dus
N tria
U Industrial lC
F distributo O
A N
C Manufacturers
S
T representatives U
U M
R E
E Manufacturers R
sales branches
R S

Fig: - Industrial marketing channel

Selecting a channel of distribution for the product is one of the important
problems faced by the manufacturers. It is impossible to find any one channel, as the best
for all the firms. Many manufacturers use several channels to reach the consumers.
1.Zero-level channel (direct-marketing channel) –
This is the shortest channel where a producer can follow in market i.e.,
manufactures selling directly to the final customer.
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E.g.: -Technical products ------- door-to-door, mail order, telemarketing, and
manufacturers-owned stores.
2.One-level channel –
Contains one selling intermediary, such as retailer.
Def: - Retailing as “the activities involved in selling directly to the ultimate
consumer for personal non-business use”. Retailers sell varied goods in small quantities
to the final customer.
E.g.: - Perishable goods ---- Ice, milk, soft drinks
Fragile goods -------- glass.
Technical ------------- TV, cars, washing machine
3.Two-level channel –
Contains two intermediaries’ i.e., Wholesaler and a Retailer.
Def: - Wholesaler as “a business unit which buys and resells merchandise to
retailers and merchants and/or to institutional and commercial users but doesn’t sell in
significant amounts to ultimate consumers.
The wholesaler buy goods in large quantities for the purpose of further selling
them in small quantities to the retailers.
E.g.: - Beer, Rice, and Books
4.Three-level channel –
Contains three intermediaries’ i.e., jobber/agents, wholesaler and retailer.
E.g.: - Cigarettes, chocolates, tea, sugar, oil, and coffee.

Channel Behaviour: -
1. Each channel member is dependent on the other.
E.g.: - Dealer depends on the company - to meet consumer needs
Company depends on the dealers – to attract consumers, persuade them to buy
& provide service after the sale.
2. Over all success depends on how this channel completes with the channels of other
manufacturers and how all channel work together smoothly.
3. Best Buy’s role is to display the products in convenient locations.

Merchandising:
The attractive display of a product at a shop in a manner that is consistent with the
Brand image

Channel Conflict: -
Disagreement among marketing channel members on goals and roles – who should do
what and for what rewards.
A conflict occurs in: Delivery, Packing, handling, joint ventures

Channels Structure: -
4 Logically related steps: -
1. Intermediaries arise in the process of exchange because they can improve the
efficiency of the process:
Increasing intermediaries smooth the flow of goods and services
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2. Channel Intermediaries arise to adjust the discrepancy of assortment through the

performance of the sorting processes.

Sorting: - Breaking down a heterogeneous supply into separate stock that are
relatively homogenous
Accumulation :- Bringing similar stocks from a No. of sources together into a larger
homogenous supply (Wholesaler accumulate for retailer & retailers
accumulate for customers)
Allocation :- Breaking a homogenous supply down into smaller & smaller lots.
(breaking bulk)
Assorting :- Building assortment of products for resale in association with each
other.

3. Marketing agencies hang together in channel arrangements to provide for the

routinization of transactions: -
Each transaction involves ordering, valuating, paying for goods and services, the
buyer and seller must agree to the amount, mode and timing of payment. Cost of
distribution should be minimized.
E.g.: Pharmaceuticals and FMCG Products.

4. Channels facilitate the Searching Process: -

Buyers and sellers are engaged in search process in the market place. The process
of searching in uncertain because producers do not know consumer needs and
consumers will not be able to find what they want.
Marketing channels (Wholesalers, retailers) facilitate the process of searching.
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FUNCTIONS AND FLOWS OF MARKETING-CHANNEL:

1. Carrying of inventory – purchasing & holding inventory.

2. Demand generation/selling
3. Physical distribution. (Transportation)
4. After sale service.
5. Extending Credit to customers.

1. Information - Collection and dissemination of marketing research information about

customers, competitors and from other environments.
2. Promotion - Persuasive communication in order to attract customer.
3. Negotiation - Final agreement on price so that transfer takes place.

4. Ordering - Backward communication of intentions to buy by the marketing-

channel members to the manufactures.
5. Financing - Allocation of funds to different levels of the marketing channel.
6. Risk taking - Risks connected with carrying out the channel work.
7. Physical possession - Storage (ware house) and movement of physical products
from raw materials to the final customers.
8. Payment - Buyers paying their bills through banks and other financial institution to
the sellers.
9. Title - Actual transfer of ownership from one organization or person to another.
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III. Relationships: -

Channel Value Chain Advantage:-

(for competitive advantage)
1. Firm infrastructure
2. Human resource management.
3. Technology development.
4. Procurement
5. Inbound logistics
6. Operations
7. Outbound logistics
8. Marketing & Sales
9. Service.
CHANNEL DESIGN DECISIONS:
Many channels are available for the manufacturer to bring his product to the
ultimate consumer. Selecting a channel is one of the difficulties faced by the manufacturer.
The manufacturer has to choose a suitable channel for placing the product at proper place,
time and place.
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Generally smaller markets sell directly to retailers and larger markets sell through
distributors.
1. Type of the product: -
Based on the type of products and distance between the manufactures and
ultimate consumer, channel can be selected.
For e.g.: If the product is a Perishable one like ice cream, milk, bread, etc., or
Fragile goods like glass, crockery, etc. The distance between the manufacturer and the
ultimate consumer must be narrowed down i.e., shorter channel of distribution should be
chosen i.e., retailer.
If the products which has constant demand like tea, sugar, rice, coffee, oil, soap,
etc. The manufacture requires little selling efforts. Therefore he many choose the channel
of distribution according to his choice, i.e., a longer channel of distribution.
For technical products direct marketing and it requires specialized selling and
servicing talents.
In case of new products, which need higher selling efforts, direct selling or
selling through retailers may be adopted.

2. Consumer characteristics: -
While selecting a channel, a manufacture sees the number of consumers and sells
directly if they are few. Based on consumer preferences in buying goods infrequently
and irregularly manufactures can adopt direct channel or a short indirect channel.
E.g.: automobiles (Benz)
If the customers are large in number, live scattered and purchase smaller
quantities of the product frequently and regularly, a longer channel of distribution
can be chosen.
E.g.: books, cigarettes are sold through wholesalers and retailers.
The most important consideration is where the customers expect to find the
product. For e.g.: Consumers want daily consumption articles like milk, etc. at their
doorsteps or nearer to their homes. Where as for luxury items they want to travel a
distance to purchase them. [Even vegetables are supplied & Food World provides home
delivery]
3. Middlemen (intermediaries): -
If the product needs aggressive sales effort or special storage facilities, which can
be provided by the wholesaler, a producer has to appoint middlemen, in order to increase
the sales volume.
Based on companies they have to decide to appoint the number of middlemen in
each channel level. Three strategies are available:
1. Exclusive distribution.
2. Selective distribution.
3. Intensive distribution.

1). Exclusive distribution: -

It limits the number of intermediaries handling goods or services and the
company sees that the resellers must not carry competing brands. This allows
higher markups.
E.g.: new automobiles, major appliances & some women’s apparel brands.
2). Selective distribution: -
Involves the use of more than a few and is used both in established and
new companies. By this distribution producer covers larger market with more
control and gains marginal ones. This is less cost than intensive distribution.
3). Intensive distribution: -
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Placing the goods or services in as many outlets as possible. This is used
for convenience items.
E.g.: Tobacco products, soaps, bubble gum, snack foods.
The selected middlemen must fully cooperate with the manufactures and
help in increasing the sales volume.

4. Nature and size of the company:

A large manufactures who is financially strong can adopt direct marketing
channel profitably.
A reputed company can establish his own branches, depots, show rooms and
can also grant credit to customers.
Financially weak or small firms are not in a position, to sell directly and depend
on wholesalers and retailers to sell their products.
A new company has to seek the help of middlemen in marketing their
products, because of their lack of experience in marketing.

5. Economic criteria:
Shorter channels are always preferred to cut distribution cost and each
channel will produce a different level of sales and costs.
They estimate the costs of selling different volume for each and every
channel, which increases the sales volume and cheaper will be selected.
A manufactures must also review the channel used by the competitors.

Channel Management Decisions: -

1. Selecting channel members
The company will evaluate each channel member’s years, in business, other lines
carried, growth & profit record, cooperatives, & reputation.
2. Motivating channel members: Higher Margins.
3. Evaluating channel members: Sales quota.

Types of marketing channels systems:

There are three types of Marketing channel systems:
1. Vertical Marketing System (VMS)
2. Horizontal Marketing System (HMS)
3. Hybrid Marketing System (HyMS)

1. Vertical Marketing System (VMS): -

A distribution channel structure in which producers, wholesales, and retailers act
as a unified system.
E.g.: - BPL, Onida, Philips, Bata.

Manufacturer
Poducer/Manufacturer

Wholesaler
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Retailer

Consumer Retailer

VMS

Corporate Contractual Administrative

VMS VMS VMS

Wholesaler Retailer Franchise

sponsored cooperatives organizations
Voluntary
chains

Manufactured Manufactured Manufactured

sponsored retailer sponsored retailer sponsored retailer
Franchise system Franchise system Franchise system

Automobile industry Coca cola Fast food service,

Auto rental

Fig.: - Types of VMS

1) Corporate VMS: -
The stages of the production and distribution are under single ownership
E.g.: - AT&T, Food world, Bakery, Gaint food store

2) Contractual VMS: -
It consists of independent firms at different levels of production and distribution,
but join together for more sales.
a) Wholesaler sponsored Voluntary chains:
Wholesalers organize voluntary chains of independent retailers to
help them compete with large chain organization.
E.g.: - Hardware
b) Retailer cooperatives:
Retailers organize a new, jointly owned business to carry on
wholesaling and possibly production.
E.g.: - Grocers, Hardware

c) Franchise organizations: -
A channel member called as Franchiser links several stages in the
production-distribution process.
Franchising is the fastest growing retailing form in recent years.
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3) Administrative VMS: -
The successive stages of production and distribution are not through common
ownership but through the size and power of one of the portion.
E.g.: - Kodak, Gillette, P&G.
2. Horizontal Marketing Systems:
A channel member arrangement involves cooperation between two or more
companies at one level join together to follow a new marketing opportunity. E.g.:
Forming joint-ventures:
Maruthi-Suzuki, Hero-Honda, TVS-Suzuki,
Mahindra Finance, Maruthi Udyog., Coco-cola & Nestle, etc.
3. Hybrid Marketing Systems:
(Multi channel distribution system)
If a single firm sets up 2 or more marketing channels to reach one or more
customer segments.
Eg: IBM, Bata, Philips, Raymond’s

Franchising: -
A contractual association between a manufacturer, wholesaler, or service
organization (a franchiser) and independent business people (franchises) who buy the
right to own and operate one or more units in the franchise system

Forms of Franchising: -
1. Manufacturer sponsored retail franchising system
E.g.: - Car services
2. Manufacturer sponsored wholesaler franchising system
E.g.: - Coca cola licenses bottles (wholesaler) in each market, who buy its syrup
concentrate, bottle and sell it to retailer in all local marketing.
3. Service-firm sponsored retailer franchise system
E.g.: - Fast-food service, auto-rental business.

PHYSICAL DISTRIBUTION & LOGISTICS MANAGEMENT:

(Marketing logistics)
“A poor distribution system can destroy an good Marketing effort.”
Def: - Physical Distribution:
The tasks involved in planning implementing and controlling the physical flow of
materials, final goods, and related information from points of origin to points of
consumptions to meet customers requirements at a profit.

Suppliers Procuring, channel customer

Manufacturing Physical distribution

Companies must decide the best way to store, handle and move their products & services,
so that they can be available in the right assortment, at the right time and in the right place.
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Nature and Important of Physical Distribution:-

It involves in getting the right product to the right customer in the right place at
the right time.

Traditional Physical Distribution – Starts with production at the plant & tries to find
low-cost solutions to get them to customers.
Today’s Marketers prefers – Market logistics - which starts with the market place &
works backward to the factory (in bound & out bound distribution).
It involves the management of entire supply chains, values-added flows from
suppliers to final users.

Suppliers Manufacturers Wholesalers Retailers customers.

The logistics managers task is to coordinate the whole-channel physical

distribution system i.e., the activities of suppliers, purchasing agents, marketers, channel
members, and customers.
Activities includes- sales forecasting, Information system, purchasing, production
planning, order processing, inventory, warehousing and transportation planning
(distribution), packaging.

Goals of the Logistics systems:

Goal-----------Targeted level of customer service at least cost.
Objective------is to maximize profit.

Major logistics functions (decisions in physical distribution)

1. Order processing
Mail (telephone (sales person/EDI,/Computer
Orders received must be processed quickly & accurately.
2. Warehousing- how many, what types, where will be located.
It can be:
a) Public ---- Storage to all companies
b) Private---- Storage not to all companies
c) Field ----- A public warehouse set up at the location of the customers
inventory
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3. Inventory – When to order, how much to order [JIT(Just-in-time) technique].
4. Transportation –Choice affects the price of the product.

There are 5 Modes of Transportation:

1. Rail
2. Truck
3. Water-Slowest transportation
4. Air- Perishable (Fresh fish, cut flowers) – technical, Jewelry.
5. Pipeline- Supply Petroleum, Natural gas, and chemicals.
6. Packages & material handling system.

Integrated Logistics Marketing:

This concept recognizes that providing better customer service and
trimming distributions costs requires team work, both inside & among all the marketing
channel organization.

1. Cross-functional team works inside the company:

It has different functional units like Marketing, sales, finance,
manufacturing & purchasing.
2. Building channel partnerships:
It has Cross-functional and Cross company teams
3. Third party logistics:
An independent logistics provider that performs any (or) all of the
functions required to get their clients products to market.
This is to save cost, increase efficiency, and gain faster and more effective access
to global markets.

FACTORS INFLUENCE DISTRIBUTION CHANNEL: -

1. Consumers - The number of consumers, their geographic location and purchase
pattern considerably influence the choice of a channel.
2. Intermediaries - Relative strengths and weakness of intermediaries and the
difference in the types of functions performed and facilities desired by then often
determine the choice of channel.
For e.g.: The terms and conditions expected by wholesalers are unfavorable, a
manufacturer would like to assume some of the wholesaling functions himself and
channelize his products through semi-wholesalers or retailers, there by passing
wholesalers.
3. Competitors - Distribution channel used by competitors also influence the
channel, because it may be customary channel used by all those operating in the
field i.e., many times similar channels may be chosen by producers to market
products.
4. Nature and size of the company.
5. Technicality - Depends on the type of product. Products like computers,
machines need direct channel.
6. Seasonality
7. Environments factors - Economic conditions & legislative regulations.
8. Market coverage.
9. Financial strength of company.
10. Product breadth - consists of large number of products.

Strategic Issues and key decisions in Retailing :-

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“ Modern retailing is competitive & innovation oriented”.
Definition:- Retailing includes all the activities involved in selling goods/services
directly to final consumers for personal consumption.

Any organisation that does selling, whether a manufacturer, wholesaler, or retailer – do

retailing. It does not matter.
1. How the goods/services are sold i.e., by person, mail, telephone or vending
machine – Pepsi, Wt. Machine, games.
2. Where they are sold i.e., in a store, on the street, or in the consumers’ home.
Basic elements of competition in retailing: -
1. Margin & Inventory Turnover Goals: -
a) Gross margin return on inventory investment.
b) Gross margin per full-time equivalent employee.
c) Gross margin square feet ( shelf /floor space).
2. Variety and assortment
(Breath) (Depth) - Pepsi, Coke.
3. Location and Convenience.
4. Customer service – Cards debt.
Strategic issues in retailing.
1. The dominance of “Power Retailing”
- Huge investment.
- Ordering & selling high volumes – assortments.
- Delivering value.
- Forecasting.
- Discounts
- Time – impoverished customers.
2. The increasing polarity of Retailing:
a) Growth of limited line – tightly managed, highly focused speciality store
chains.
b) Growth of very large stores (square footage)
- rely on warehouse tech & self-services.
- Merchandise at very low margins.
3. The increasing power of retailers in the marketing channels for packages
Goods: - Packaged goods manufacturers are the smartest marketing people in the
world.
Eg:- Rice, Pulses, Nut, Even Water is package.
4. The Broadened role and impact of private branding :- Super markets and discount
stores push their offers on private label goods by 10% to 2% less than other brand,
with more profit margins.
Eg: Gaint, Food world, electronic

Types Private Brands:-

a) Store-name identification/logo Food World.
b) Retailer own brand name identity program
Eg: Gaint.
c) Designer – exclusive.
5. Suppliers strategic Responses to the growing power of the retail sectors.
-P&G – Reduce its prices by 12 to 14%.
- Increasing spending a promotional support & ad for products a which private
brands are gaining.
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On which private different products & brands in different channels in order to
avoid placing all there “eggs in are basket and to serve the need of different
customer segment.
6. The Increasing Importance of Convenience: -
- Time required to make a purchase, getting in & out of store.
- Consumers are so convinced to self-service
Eg: Stores, ATM, Kiosks.
7. Growing impact of IT.
8. The essential nature of positioning.

Types of Retailers: -
A) Mobile Retailers.
1. Hawkers & Pedlars.
2. Street Vendors – Clothes , Stationery articles.
3. Cheapjacks – Hire small shop at buy location
Fail to make business, they change place,
4. Stall holders – Weekly, monthly – toys – exhibits.
B) Fixed shop retailers
a) Small-scale
1) General stores - Located at residential localities – Oil, ration.
2) Specialty stores - Only textiles, only children wear.
3) Single line stores - Cloth – many varieties of cloth.
Radio – No. of radios manufacture by
different companies.
Watch – No. of watches manufacture by
different companies.
b) Large Scale:
1) Departmental stores – Many dept – controls by one.
2) Multiple stores.
3) Cooperative stores – owned managed & controlled by
ultimate consumer to purchase and distribute
goods & services.
4) Mail order lower-
5) Super markets - Fruits, Veg, Dairy Products. Etc.

IX. Wholesaling: - (Distributors)

It includes all activities involves in selling goods/services to those who buy for
resale or business uses.
To those who buy for resale or business uses.
Functions :
1. Selling & Promoting
2. Buying & Assortment Building
3. Bulk Breaking
4. Warehousing
5. Transportation.
6. Financing
7. Risk bearing- theft, damages, spoilage.
8. market information – cop, new products, price.
9. Management services Counseling.
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Retailer Marketing Decisions:
1. Target – market decision.
2. Product assortment & procurement decision.
3. Services & store atmosphere decision.’ Price decision.
4. Promotion decision.
5. Place decision.

Strategies:-
1. Mergers & requisition – to enter new market.
2. Integration
3. Promotion Brands
4. Expansion into international markets.
5. Value – added services – customozined packages, computer MIS.
6. Niche marketing
7. Multiple mask – Firm manage to simultaneously serve multiple market segments
in a completive ways.
8. New technical on distributes – Order entry, inventory control, tele markets direct