Channels of Distribution

in Marketing
Index
• What is Distribution Channel
• Functions of Distribution Channel
• Types of Distribution Channel
• Direct Channel
• Indirect Channel
• Dual Distribution
• Internet as a Distribution Channel
• Case Studies
• Factors Determining the Choice of Distribution Channels
• Conclusion
 What is a
distribution channel

A distribution channel, often referred to as a

It's the path or route that a product or
marketing channel, is a set of intermediaries
service follows as it makes its way from the
or middlemen through which products or
point of production to the point of
services move from the manufacturer or
consumption.
producer to the end consumer.
Functions of Distribution
Channels
• Distribution channels not only
bridge the gap between the
producer of a product and its user
but also prove time, place and
ownership utility.
• They make the product available
when, where and in which
quantities the customer wants it.
Some other functions of distribution channels
• Market Coverage: Distribution channels help companies reach a broader audience by making
products or services available in various geographical areas, both locally and globally.
• Logistics and Transportation: Channels provide the infrastructure for the physical movement of
goods from the manufacturer to the end customer. This includes storage, packaging, and
transportation services.
• Inventory Management: Distribution channels manage inventory levels to ensure that products are
available when and where they are needed. This helps in reducing stockouts and overstock
situations.
• Promotion and Marketing: Distribution channels play a role in marketing by promoting products or
services to potential customers. This includes advertising, sales promotions, and merchandising.
• Credit and Financing: Some intermediaries offer credit and financing options to customers,
allowing them to purchase products on credit or through installment plans.
Types of distribution Channels
Channels of Distribution can be divided
into direct channels and indirect
channels. Indirect channels can be
further divided into one-level, two-level,
and three-level channels based on the
number of intermediaries between
manufacturers and consumers.
Direct Channel (zero level
CHANNEL)
• In a direct distribution channel, products or
services move directly from the
manufacturer to the end consumer without
any intermediaries.
• Examples include manufacturers selling
products through their own retail stores, e-
commerce websites, or direct sales teams.
• This type of channel provides the
manufacturer with maximum control over
the distribution process.
Advantages of Direct
Channel
Maximum Control: With a direct channel, the manufacturer or producer has complete
control over every aspect of the distribution process. They can set pricing, branding,
marketing strategies, and customer interactions according to their vision and objectives.

Brand Management: Direct channels allow for the preservation and consistent
presentation of the brand's image and values throughout the customer journey. This
helps in building and maintaining a strong and recognizable brand identity.

Customer Relationship Management: Direct channels enable direct communication

and interaction with customers. This fosters stronger relationships and allows for
personalized customer service, leading to increased customer satisfaction and loyalty.

Higher Margins: Eliminating intermediaries from the distribution chain means that the
manufacturer can capture the full retail price of the product or service. This results in
higher profit margins compared to indirect distribution channels.

Data and Insights: Direct channels provide access to valuable customer data and
insights. Manufacturers can gather data on customer behavior, preferences, and
feedback, which can be used to tailor products, services, and marketing efforts for better
results.
Disadvantages of Direct
Channel
High Operational Costs: Managing a direct distribution channel can be
expensive. Businesses need to invest in infrastructure, technology, logistics,
and customer support. These costs can be particularly burdensome for small
and new businesses with limited resources.
Limited Market Reach: Direct channels may have limitations in terms of
market reach, especially for businesses looking to expand globally or serve
large geographic areas. It can be challenging to establish a physical
presence or reach customers in distant locations without intermediaries.
Resource Intensive: Running a direct channel requires a significant
allocation of resources, including time and personnel. This can divert focus
and resources away from core business activities such as product
development and innovation.
Complexity in Niche Markets: In niche or specialized markets, direct
distribution might not be the most efficient option. The smaller customer base
may not justify the investment required for a direct channel, making it more
cost-effective to leverage existing intermediaries who already serve those
markets.
 Indirect Distribution
Channel
An indirect distribution channel, also known as an indirect marketing
channel, is a distribution system where products or services pass
through one or more intermediaries or middlemen before reaching the
end consumer. In an indirect distribution channel, the manufacturer or
producer does not sell directly to the end user but relies on
intermediaries to facilitate the distribution process.
Indirect channels can be classified into 3 types:
• One-level Channel
• Two-level Channel
• Three-level Channel
One-Level
Channel
• A "one-level indirect channel" refers to a
distribution strategy where products or services
move from the manufacturer or producer to the
end consumer through a single intermediary,
typically a retailer. In this scenario, there is only
one intermediary standing between the
manufacturer and the consumer.
• This arrangement is common in many retail
settings where products are sourced from
manufacturers or wholesalers and then sold to
consumers through one retail outlet.
 Two-Level
CHANNEL
• A "two-level indirect channel" is a distribution
strategy in which products or services pass through
two intermediaries, or middlemen, before reaching
the end consumer. In this type of distribution
channel, there are typically two distinct layers of
intermediaries between the manufacturer or
producer and the final consumer.
• This type of distribution channel is common in
various industries and allows manufacturers to
leverage the expertise and reach of intermediaries
to distribute products efficiently and effectively to a
wider geographic area.
 • Three-level channel of distribution involves an agent
Three-level besides the wholesaler and retailer who assists in selling
goods. These agents come in handy when goods need to

Channel move quickly into the market soon after the order is
placed. They are given the duty to handle product
distribution of a specified area.
• Manufacturers opt for three-level channel where the
userbase is spread all over the country and the demand
for the product is very high.
 Dual Distribution
• Dual distribution, also known as multi-channel distribution, is a
distribution strategy where a manufacturer or producer sells its
products or services through two or more different distribution
channels. In this approach, a company simultaneously utilizes
multiple distribution channels to reach different market
segments, geographic areas, or customer groups. Dual
distribution allows a business to diversify its distribution
strategy and expand its market reach.
• It can serve both B2B and B2C customers effectively, tailoring
distribution methods to specific needs.
A competitive advantage can be gained by offering more
distribution options than competitors.
A perfect example of goods sold through dual distribution is
smartphones.
 Internet as a distribution
channel
The internet has revolutionized the way manufacturers deliver
goods. Other than the traditional direct and indirect channels,
manufacturers now use marketplaces like Amazon (Amazon also
provide warehouse services for manufacturers' products) and other
intermediaries like aggregators (Uber, Instacart) to deliver the
goods and services. The internet has also resulted in the removal
of unnecessary middlemen for products like Software which are
distributed directly over the internet
• The internet's versatility and global reach have made it a
fundamental component of modern distribution strategies for
businesses of all sizes, enabling them to connect with
customers, expand their markets, and streamline the buying
process.
 Case STUDY 1 - Apple Inc. -
Omni-Channel Retail
Strategy
Distribution Channels: Apple utilizes various channels, including:
• Apple Retail Stores: The company has a network of flagship stores worldwide that offer a
unique customer experience.
• Online Store: Apple's official website allows customers to purchase products directly and
access online support.
• Third-party Retailers: Apple products are also sold through authorized resellers, such as
electronics stores and carriers.
Key Points:
• Integration: Apple seamlessly integrates its offline and online channels. Customers can buy
products online and pick them up in-store, schedule appointments with Apple Geniuses for
technical support, or even receive technical assistance through live chat.
• Customer Experience: The physical stores provide a unique, hands-on experience that
encourages product exploration and engagement. This enhances brand loyalty.
• Control: Apple maintains strict control over its products and services, ensuring a consistent
brand image and customer experience across all channels.
 Case Study 2 - Coca-Cola - Multi-Channel Distribution

Distribution Channels: Coca-Cola employs a multi-channel distribution strategy, including:

• Direct Store Delivery (DSD): For high-demand, fast-moving products like Coca-Cola, DSD involves
delivering products directly to retailers, ensuring freshness and availability.

• Wholesale and Distributors: For less popular or niche products, Coca-Cola relies on wholesalers and
distributors to reach a broader range of retailers.
• Vending Machines: The company utilizes vending machines, which are placed strategically in various
locations like offices, schools, and public spaces.

Key Points:
• Product Variety: Coca-Cola offers a wide range of products, and its distribution channels are tailored to
suit the specific needs of each product category.

• Logistics Efficiency: DSD helps Coca-Cola manage inventory effectively, reduce stockouts, and
ensure consistent product quality.
• Market Segmentation: Different distribution channels enable Coca-Cola to target diverse customer
segments, from convenience stores to vending machines in public spaces.
Factors determining the choice of
distribution channels
Selection of the perfect distribution channel is tough. It is among those
few strategic decisions which either make or break a company.
Even though direct selling eliminates the intermediary expenses and
gives more control in the hands of the manufacturer, it adds up to the
internal workload and raises the fulfilment costs. Hence these four
factors should be considered before deciding whether to opt for the
direct or indirect distribution channel.
1. Market Characteristics
2. Product Characteristics
3. Competition Characteristics
4. Company Characteristics
 Market characteristics
• This includes the number of customers, their geographical location, buying habits, tastes and
capacity and frequency of purchase, etc.

• Direct channels suit businesses whose target audience lives in a geographically confined area,
who require direct contact with the manufacturer and are not that frequent in repeating
purchases.
• In cases of customers being geographically dispersed or residing in a different country,
manufacturers are suggested to use indirect channels.

• The buying patterns of the customers also affect the choice of distribution channels. If
customers expect to buy all their necessities in one place, selling through retailers who use
product assortment is preferred. If delivery time is not an issue, if the demand isn't that high, the
size of orders is large or if there's a concern of piracy among the customers, direct channels are
suited.

• If the customer belongs to the consumer market, longer channels may be used whereas shorter
channels are used if he belongs to the industrial market.
• Understanding consumer behavior is essential for deciding the most effective distribution
channel for the business.
 Product characteristics
• Product cost, technicality, perishability and whether they are standardized or
custom-made play a major role in selecting the channel of distribution for
them.
• Perishable goods like fruits, vegetables and dairy products can't afford to use
longer channels as they may perish during their transit. Manufacturers of these
goods often opt for direct or single-level channels of distribution. Whereas,
non-perishable goods like soaps, toothpaste, etc. require longer channels as
they need to reach customers who reside in areas that are geographically
diverse.
• If the nature of the product is more technical and the customer may require
direct contact with the manufacturer, direct channels are used. Whereas, if the
product is fairly easy to use and direct contact makes no difference to the
number of sales, longer channels are used.

• The per-unit value of the product also decides whether the product is sold
through a direct channel or through an indirect channel. If the unit value is high
like in the case of jewelry, direct or short channels are used, whereas products
like detergents whose unit value is low use longer channels of distribution.
COMPETITION characteristics
• The choice of the distribution channel is also affected by
the channel selected by the competitors in the market.
Usually, the firms tend to use a similar channel as used
by the competitors. But some firms, to stand out and
appeal to the consumer, use a different distribution
channel than the competitors. For example, when all the
smartphones were selling in the retail market, some
companies partnered with Amazon and used the scarcity
principle to launch their smartphone as Amazon
exclusive.
COMPANY characteristics
• Financial strength, management expertise, and the desire for
control act as important factors when deciding the route the
product will take before being available to the end-user.
• A company having a large amount of funds and good
management expertise (people who have sufficient
knowledge and expertise of distribution) can create
distribution channels of its own but a company with low
financial stability and management expertise have to rely on
third-party distributors.
• The companies who want to have tight control over the
distribution prefer direct channels. Whereas, those companies
to whom such control doesn't matter or those who are just
interested in the sales of their products prefer indirect
channels.
 Conclusion
• In conclusion, understanding channels of
distribution is crucial for a successful marketing
strategy. By choosing the right channels and
effectively managing them, companies can
reach their target audience and grow their
business. Direct and indirect channels each
have their advantages and disadvantages, but
by carefully considering your product or service,
you can determine which channels will work best
for you. Emerging channels such as e-
commerce and social media are changing the
marketing landscape, and it's important to stay
up-to-date on these trends.
 Made by:
THANK YOU • Sadeev Singh (221172)
• Harneet Kaur (221089)