Distribution/Marketing Channels

Role/Need Marketing channels:

Company 1 Company 2 Company 3

Intermediary

Large number of consumers

 Marketing channels / Distribution channels / trade channels are the

intermediaries which are involved in the process of making a product or
service available for use by the customers.
 A marketing channel is expected to add value to the product passing
through it.
 Intermediaries balance the inherent gap between manufacturers
producing large quantities of limited SKUs ( goods) & consumer
needing / buying small quantities of a large number of goods.
 Role/Need of Middlemen or Intermediaries

a) Provide Marketing Intelligence about the market to the

manufacturer

b) Maintain price stability in the market

c) Promotion of the products in his territory

d) Financing by providing the necessary working capital in the form of

advance payments for goods and services

e) Middlemen also take the title of the goods and services and trade in
their own name
 Role of Marketing channels:
 Marketing channel members have the essential role of
taking care of 5 discrepancies (gaps) in the market place :
Where / When / How / What of the consumer needs ?
1. Spatial discrepancy ( Where ?) – Distance between the
production point & consumption point needs to be bridged.
2. Temporal discrepancy ( When ?) – Time difference between the
production time & buying time needs to be bridged.
3. Breaking the bulk ( How ?) – To minimise the production costs ,
products have to be made in bulk. However , consumption of these
products is in smaller quantities.
4. Need for assortment ( What ?) – Consumer grocery list would
typically have 30 to 40 items cutting across companies / brands /
unbranded etc & only the channel members can aggregate all
these products.
5. Need for financial support ( How ?) – Most companies are
reluctant to give credit but the markets need credit & the channel
partners take on this responsibility.
 Channels Decisions-Strategies
• A push strategy uses the manufacturer’s sales force,
trade promotion money, and other means to induce
intermediaries to carry, promote, and sell the product
to end users.
• A pull strategy uses advertising, promotion, and other
forms of communication to persuade consumers to
demand the product from intermediaries.
o high brand loyalty and high involvement in the category,
when people perceive differences between brands, and
when people choose the brand before they go to the store.
o Top marketing companies such as Nike, Intel, and Coca-
Cola skillfully employ both push and pull strategies.
 Channel formats & categories
 A wide variety of channel formats exist & they are typically
categorized into 4 categories namely :
1. Producer driven
Manufacturer produces & tries to reach the product directly to his
consumers.
2. Retailer ( Seller ) driven
The company making the product uses wholesalers & retailers in the
final stage to reach their consumers. Typical to FMCG / intensive
distribution.
3. Service driven
These intermediaries facilitate the distribution but typically are not
involved in title / payment of goods.
4. Other formats
 Producer driven channel formats
• Company owned retail outlets – The company owns & operates the retail
outlet which sells to the consumers.
• Bata shoes ; Apparel brands like LP , Arrow , Allen Solly ; Titan : Indian oil ; Airtel
• Licensed outlets –The company gives exclusive rights to some retail outlets to
sell their products to the consumers. Typically such stores would then retail only
one company’s brands. For Example: Safal outlets.

• Consignment selling agents –The company passes on the physical stocks to

the intermediary who pays the co. only after the products have been sold.
• Widely prevalent in NE which is largely inaccessible.

• Brokers – Intermediary contacts the user and sells the product on behalf of the
company without taking any physical possession of the goods. He takes a
commission when the sale is consummated. Ebay, Flipkart, Amazon,
Metrimonial Websites
• Equity , Real estate , paper manufacturers & textile companies.
• Franchisees –Product , merchandising are decided by the co. & the franchisee
has to buy from the company & sell.
• Bata shoes ; Pepsico ; KFC ; Pizza hut ; The great kabab factory ; Raddison …
• Vending machines – used largely by beverages , confectionery , magazines.
• Bank ATMs , Pepsico , Nestle
 Seller driven channel formats
• Existing retailers – Shops already established in market place & used
by companies to reach the end-users.
• Corner stores ; Paan shops ; Convenience outlets ; Kirana stores.

• Department stores , supermarkets –Larger stores with modern

formats stocking a wider range of SKUs.

• Specialty stores – are retailers who sell one type of merchandise only.
• Shopper’s stop ; Pantaloon ; Tanishq ; Furniture stores

• Discount stores – Similar profile to supermarkets but selling at much

lower prices using the power of volumes and lower overheads.
• Subhiksha

• Door-to-door people
• May be selling vegetables , bread , milk , eggs , carpets ……
 Service driven channel formats
• C&FAs – provide time and place utility. They are
responsible for stocks receipts , storage & dispatch .
• Used by both FMCG & durables companies.
• Transporters – Provide service on contract for companies
to reach their ultimate customers.
• Auto / LCV / HCV owner ; Large transporter with a fleet of
vehicles.

• Warehouse owners – providers of storage space

• 3P Logistics service providers – 3rd party which takes

care of entire distribution from the factory gate to the retailer
including warehousing , transportation.
• Madura Coats uses ; Gati …
 Channel formats & categories
• Multi-level marketing systems – sales agent sells the
Other
formats
company products and also recruits other sales agents to keep
the chain getting stronger.
• Amway ; Modicare ; Tupperware ; Avon
• Other formats include :
 Cooperative societies
 Telephone kiosks
 TV home shopping
 Internet based selling
 Exhibitions , trade fairs…

• The number of channel members decides the

level of the channel.
Channel  Zero-level channel denotes a direct distribution
Levels set-up where the product is provided to the end-
user directly by the company.
 A one-level channel consists of one intermediary.
 A two-level channel consists of two intermediaries.
 Consumer Marketing Channels
Give 5 Examples for Each

HYBRID
CHANNELS (Diff
channels used by
companies)
 Wholesalers
Wholesalers buy & resell merchandise to retailers and to industrial
, institutional and commercial users , but do not sell in significant
Definition
amounts to ultimate consumers.

 Basic differences between wholesalers and retailers are :

 Wholesalers are less bothered about the location , ambience or
promotions.
 Deal largely with other intermediaries rather than consumers.
Wholesalers
vs
 They usually carry a more limited / specialized assortment ( specific
Retailers group of products only viz – Housekeeping ; catering ; foods &
beverages ; glassware & kitchenware ; ….)
 Their trading area ( catchment ) is much larger vs the retailers’.
 Individual transactions larger for both buying & selling.
 Lower margins but much higher volumes.

 Key role performed by the wholesalers includes :

 Help Company in : Selling / Stocking / Financing / Market information
W/S Role & Risk reduction.
& tasks  Help Retailers’ towards : Buying / Stocking / Market information /
Financing / Risk reduction / Aggregation.
 Distributors
Distributor is a wholesaler ( intermediary) nominated by the company
to exclusively re-distribute the company products to all retailers and
institutions in a designated territory.
 Drive secondary sales – Value / Volume / Brands thru’ :
 Market service ( Visits & productivity)
 New outlet opening
 Merchandising
 Trained sales people ( Qualification & experience)
 Market relations – Market standing & goodwill.
Distr  Invest in infrastructure :
role  Godown Communication / I.T
 Transport
 Working capital towards :
 Inventory Credit to retailers Company claims ( damages / discounts)
 Company selects a redistribution stockist basis his strength & capabilities in
performing the above role.
 Additionally company looks for :
Distr
 Involvement in the business. Location
selection
 Present business portfolio & competencies related to the industry.
 Dealers

A dealer has a similar role of a distributor but

has two differences:

• He may not have a clearly defined territory and

sells both in the market and from his shop.

• He may deal with competitive products also.

 Stockist
• A stockist may be working for one company
and may have a pre-designated territory but he
does not re-distribute the stocks. He sells them
to customers who visit his shop.
Merchants: wholesalers and retailers—buy, take title to, and resell
the merchandise. ITC Selling Aashirwad atta to Nilgiris, title is now
transferred. Patanjli??????

Facilitators: transportation companies, independent warehouses,

banks, advertising agencies—assist in the distribution process but
neither take title to goods nor negotiate purchases or sales
TYPES OF DISTRIBUTION STRATEGIES
1. Exclusive distribution
2. Selective distribution
3. Intensive distribution
 1. Exclusive Distribution

Situation where suppliers and distributors enter

into an exclusive agreement that
only allows the named distributor to sell a
specific product.
– Limiting intermediaries to a greater extent
– Not allowing competing brands
– Maintain control
e.g.
MERCEDES, TANISHQ, MARUTI, ARMANI SUITS
– Tanishq—Cos exclusive showrooms
– Exclusive dealers
– Huge investments by dealers
 2. Selective Distribution
Type of product distribution that lies between intensive distribution and
exclusive distribution, and in which only a few retail outlets cover a specific
geographical area.

– Use of more intermediaries compared to exclusive

– Need more visibility
– More control
– Less cost
e.g.
SHAHNAZ HUSSAIN HERBAL PRODUCTS
PETER ENGLAND, DELMONTE
– Not available in every Grocery Shop
– Available at selected outlets
– Maintain image
 3. Intensive Distribution
A marketing strategy under which a company sells
through as many outlets as possible, so that the
consumers encounter the product virtually everywhere
they go: supermarkets, drug stores, gas stations, and
the like.

– As many outlets as possible

– Multiple channels
– Consumers widespread
– Problems of control
e.g.
LUX SOAP, LIFEBUOY, COLGATE, SOFT DRINKS, MAGGI, PEPSI
 The Retail chain Demands
What FMCG Cos give What Retail Chain wants

6% to 15% Atleast 20%

MARGINS

7 to 10 days CREDIT DAYS 15 to 30 days

12 days 7 days
Min STOCK LEVELS

20% to 25% STOCK OUTS Less than 5%

Snigdha Cosmetics Ltd. A leading manufacturer of Face Creams, Fairness
Creams, Shampoos, Toilet Soaps, etc., located at Mumbai has an annual
turnover of Rs. 5 Crores. Presently the company is concentrating its
marketing activities in the state of Maharashtra. The company has recently
added extra manufacturing capacity and it proposes to triple its production.
In order to meet enhanced sales to a tune of 15 Crores, the Company
proposes to have a wider market network. In order to penetrate into new
markets the chief executive of the company Dr. Vagvala asked his,
Marketing Manager, Distribution Manager, Product Manager and Sales
Manager, each one of them to give a write up how they propose to enter into
the new markets by selecting appropriate distribution channels. The four
managers after detailed study have suggested four different channels of
distribution such as: (a) Exclusive distribution suggested by Marketing
Manager; (b) Intensive distribution suggested by Distribution Manager;
(c) Selective Distribution by Product Manager; (d) Appointment of
Carrying and Forwarding Agent (CFA) suggested by Sales Manager; Dr.
Vagvala, the Chief Executive, is in a dilemma to choose the best alternative
among the above suggested channels of distribution. Discuss &
recommend the solution.