Unit - 4

CHANNELS OF DISTRIBUTION



Meeting and Definition::

A major focus of channels of distribution is delivery. It is only through distribution that public and private goods and services can be made available for use or consumption. Producers of such goods and services are individually capable of generating only the form or structural utility for their products and services. They can organize their production capabilities in such a way that the products they have developed can, in fact, be seen, analyzed and sold in the market. The emergence and arrangement of a wide variety of distribution oriented institutions and agencies, typically called intermediates because they stand between production on the one hand and consumption on the other, can be explained in the following terms :

i) Intermediaries can imporove the efficiency of the process.

ii) They help in the proper arrangement of routes of transactions.

iii) They help in the searching process.

iv) They help in the sorting process.

Marketing Channels are set of Interdependent organizations involved in the process of making a product or service available for use or consumption.

According to American Marketing Association, “A Channel of distribution, or marketing channel, is the structure of intra-company organization units and extra-company agents and dealers, wholesale and retain through which is a commodity, product or service is marketed.”

According to Philip Kotler, “Every producer seeks to link together the set of marketing intermediaries that best fulfil the firm’s objectives. This set of marketing intermediaries is called the marketing channel (also trade channel or channel of distribution).”



According to William J. Stanton, “A channel of distribution for a product is the route taken by the title of the goods as they move from the producer to the ultimate consumers or industrial user.”



According to Cundiff, Still and Govani, “Marketing Channels are the distribution networks through which producers’ products flow to the market.’

Channel Levels

The producer and the final customer aree part of every channel. We will use the number of intermediary levels to designate the length of a channel.


Channel of Distribution for Consumer Goods :

As we know that a channe of distribution is the combination of middlemen that a company uses to move is products to the ultimate consumer. For the consumer productds, four channels are widely used as shown in figure below :



i) Zero Level Channel : A Zero level channel (also called a direct-marketing channel) consists of a manufacturer selling directly to the final customer. The major examples are door-to-door sales, home parties, mail order, telemarketing. TV selling, internet selling, and manufacturer owned stores. Eureka Forbes representatives sell vacuum cleaners door-to-door.



ii) One-Level Channel : A one level channel contains one selling intermediary, such as a retailer example Maruti Suzuki. Bata, Adidas.



iii) Two-Level Channel : A Two-level channel contains two intermediaries. In consumer markets, these are typically a wholesaler and a retailer.



iv) Three-Level Channel: A three-Level channel contains three intermediaries. In the this type of channel, agents, brokers sell to wholesalers who sell to small retailers. Longer marketing channels can be found. In Japan, food distribution may involve as many as six levels. From the producer’s point of view, obtaining information about and users and exercising control becomes more difficult as the number of channel levels increases.


Channel of Distribution for Industrial Products: An industrial-goods manufacturer can use its sales force to sell directly to industrial customers. It can sell to industrial distributors, who sell to the industrial customers, or it can sell through manufacturer’s representatives or its own sales branches directly to industrial customers, or indirectly to industrial customers through industrial distributors. Zero- one, and two-level marketing channels are quite common in industrial marketing channels.



Steps involved in Designing a Channel System::



1. Formulating the Channel Objective: Formulation of Channel objectives are the first step in designing a channel system. The objectives clarify what is sought to be achieved by having the channels. All firms seek to realize certain common objectives by having the channel. In addition, they may also have some specific objectives depending on their unique circumstancers.

The common objectives, firms seek from channels, are:

i) Effective coverage of the target market.

ii) Efficient and cost effective distribution.

iii) Ensuring that consumers incur minimum exertion in procuring the product.

iv) Helping the firm to carry on manufacturing uninterrupted, confident that the channels will take care of sales.

Formulating the Channel Objective



















Identifying Channel Functions










Linking Channel Design to Product

Characteristics










Evaluation of the Distribution

Environment










Evaluation of Competitor’s Channel

Designs











Matching the Channel Design to

Company Resources











Evaluating the Alternatives and Selecting

the Best



2. Identifying Channel Functions: Identification of the functions to be performed by the channel is the next step in designing a channel system. We have already discussed the channel functions in detail. Suffice to add here that channel design depends on the functions expected of the channel and that channel functions must be identified in the specific context of the firm in order to get practical direction in designing the channel system.



3. Linking Channel Design to Product Characteristics: Different products require different channel systems. The firm should analyze the characteristics of the product and choose the channel system that matches the product best. Consumer and industrial goods, for examples, need different channels. And within the category of consumer goods, different sub-categories such as convenience goods, shopping goods and specially goods may need different channel systems.



4. Evaluation of the Distribution Environment: While selecting the channel design, the firm should also take into account the distribution environment obtaining in the country/territory. It should evaluate the vital features of the distribution environment and ensure that the proposed channel design is compatible with them. Distribution environment in the broader sense includes the trade related legal environment as well. The legal implications of channel design must be carefully examined before taking a final decision.




5. Evaluation of Competitor’s Channel Designs:: The firm should also study the competitor’s channel patterns before deciding its channel design. While the firm may not necessarily follow the competitors in channel design, it should analyze the plus and minus of the channel patterns adopted by each of its major competitors. Quite a number of firms do settle down for a follow the leader’ policy in channel design. They find it an easy route. But such an approach may deprive them of the chance to score an edge over competition through the channel strategy. Reliance textiles and Asian Paints are two goods examples of companies striking an entirely new Path in channel design both broke away from the existing practice and scored high success.



6. Matching the Channel Design to Company Resources: The resources available with the organization also govern choice of channel.



i). Firms with limited resources settle for conventional channels: Firms with limited resources and small volume of business will normally find it difficult and uneconomical to opt for own channels. For such firms, establishing branch showrooms/depots/retail outlets of their own will result in a high unit cost of distribution, which they cannot afford. They are better off by depending on conventional channels.



ii. Firms with larger resources have more options: Firms with larger resources and larger marketing operations can go in for varied distirubiton channels. In fact, in India, in several businesses, firms, which are strong in resources, usually operate two parallel channels, one reaching out to the customer through company depots and showrooms, and the other through conventional intermediaries. Firms like Reliance Industries, Bombay Dyeing, DCM and Mafatials, have all gone in for such a two pronged channel design.



7. Evaluating the alternatives and selecting the best: With the completion of the foregoing steps, the number of alternatives would have narrowed down considerably. The firm must evaluate these alternative designs and choose the best among them. Actually, two distinct evaluations – an economic evaluation and a conceptual evaluation – may be necessary.

Intensity of Distribution (Market Coverage)







RETAILING



Meaning and Definition:



The distribution of consumer products begins with the producer and ends at the ultimate consumer. Between the producer and the consumer theree is a middleman the retailer, “Who links the producers and the ultimate consumers. Retailing is defined as a conclusive set of activities or steps used to sell a product or a service to consumers for their personal or family use. It is responsible for matching individual demands of the consumer with supplies of all the manufacturers. The word ‘retail is derived from the French word retailer, meaning to cut a piece off or to break bulk.



According to William J. Stanton, “A retailer or a retail store is a business enterprise which sells primarily to the ultimate consumers for non business use.”



According to Cundiff and Still, “Retailing consists of these activities involved in selling directly to ultiumate consumers.”



Thus, Retailing includes all the activites involved in selling goods or services directly to final consumers for personal, non business use. A retailer or retail store is any business enterprise whose sales volume primarily from retailing.



Function of Retailing:

01. Assembling of goods from various wholesalers.



02. The physical movement and storage of goods for the supply to the final consumers to meet their needs and requirements.



03. Providing of information concerning the nature and use of goods to the wholesalers and producers. It also informs about the market trend to them.



04. The standardizatiokn, grading and final processing of goods which have been left ingraded or unstandardized by wholesalers.



05. The provision of ready availability of goods of various qualities and of various manufacturers.



06. the assumption of risk concerning the price, nature and extent of demand of goods as long as they remain unsold.



07. The financing inventory and the extension of credit to consumers for a short period.



Types of Retailers:



01. Speciality Store:: Specially stores, as the name implies, are ones that carry a narrow product line with a deep assortment within that line, such as apparel stores, sporting goods stores, furniture stores,florists, and bookstores. A clothing store would be a single-line store; a men’s clothing store would be a limited line store; and a men’s custom-shirt store would be a super specially store.

Consider the example of garments. A store like Shopper’s Stop that retails ready-made garments for the family is called single-line store. Raymond’s showshops that retail only men’s clothing and accessories is known as limited line store and stores that retail desiger clothes for men like Chirag Din, Lousis Phillip and Van Heusen are known as super speciality stores.



02. Department Stores: A department store carries several product lines, invariable all that is required by a typical household. These lines include food, clothing, appliances and other household goods, home furnishings, gifts and curions. In a typical department store each product line is managed independentlyn by specialist buyers or merchandisers. In India these stores are still at the introduction phase and they are mainly located in metros like Mumbai, Delhi and Channai and other cities like Bangalore and Hyderabad. The closest to the concept of department store is akbarally’s which has three stores in Mumbai.



03. Supermarket: This is a large, low cost, low margin, high volume, self service operation designed to serve the customer’s need for food, laundry and household maintenance products. Once again one does not see these supermarkets in the true sense of the term in India.

For Example: Foodland and Garware are in Mumbai and similar stores in New Delhi and other major cities.



04. Convenience Stores: These are generally food stores that are much smaller in size than supermarkets. They are conveniently located near residential areaas and have long hours of supermarekets. They are conveniently located near residential areas and have long hours of operations, seven days a week, and carry a limited line of high turnover convenience products. In the Indian context, the old and faithful street corner grocery store or cold storage or the food store are the ones that can be called convenience stores. These stores serve a very useful purpose.



05. Discount Stores: As the name implies, discount stores are the one that sell standard merchandize at lower prices than conventional merchants or stores by accepting lower margins but pushing for higher sales volume. A true discount store has four characteristics :

o It regularly sells its goods at discounted price.

o It carries national or reputed brands to enhance its image.

o It keeps its operational costs to the minimum by emphasizing on self services and no frill interiors.

o It location tends to be in low rent areas, and its draws customers from even distant locations.

The best known and the biggest discount store in the US is Wal-Mart. The nearest to this concept are textile stores like Babubhai Bhawani (BB) and Babubhai Jagivanram (BJ) in Mumbai.



6) Off Price Retailer : Merchandise but as less than regular wholesale prices and sold at less than wholesale prices and sold at less than retail. Often leftover goods, overruns, and irregulars obtained at reduced prices from manufacturers or other retailers.





Trends in Retailing:



At this point, we can summarize the main defeloopments retailers and manufacturers need to take into account as they plan their competitive strategies.

1. New retail forms and combinations continually emerge. Bank branches have opened in supermarkets Gas stations, include food stores that make more profit than the gas operation. Bookstores feature coffee shops.



2. The electronic age has significantly increasedthe grown of nonstore retailing. Consumers receive sales offers in the mail and over television computers and telephones to which they can immediately respond by calling a toll free number or via computer.

3. Retailers with unique formats and strong brand positioning aree ingreasingly moving into other countries McDonald’s. The limited, GAp, and Toys “R” US have become globally prominent as a result of their great marketing prowess. Many more U.S. retailers are actively pursuing overseas markets to boost profits.





WHOLESALING



Meaning and Definition:

Wholesaling includes all the activities involved in selling goods or services to those who buy for resale or business use. Wholesaling excludes manufacturers and farmers because they are engaged primarily in production, and it excludes retailers.



The person who is involved in wholesaling activity is called a wholesaler.



According to Philip Kotler, “Wholesaling consists of the sale and all activities in selling goods or services to those who buy for resale or business use.”



According to American Marketing Association, “Wholesalers sell to retailers or other merchants and or industrial, institutional and commercial users but they do not sell in significant amounts to ultimate consumers.”



Functions of Wholesalers



1. Selling and Promoting: Wholesalers provides a sales force that helps manufacturers reach many small business customers at a relatively low cost. Wholesalers have more contacts, and often buyers trust wholesalewrs more than they trust a distant manufacturer.



2. Buying and Assortment Building: Wholesalers are able to select items and build the assortments their customers need, saving the customers considserable work.



3. Bulk Breaking: Wholesalers achieves savings for their customers through buying in large carload lots and breaking the bulk into smaller units.



4. Warehousing: Wholesalers hold inventories, thereby reducing the inventory costs and risks to suppliers and customers.



5. Transportation: Wholesalers can often provide quicker deliveryto buyers because they aree closer to the buyers.



6. Financing: Wholesalers finance customers by granting credit, and finance supplers by ordering early and paying bills on time.



7. Risk Bearing: Wholesalers absorb some risk by taking title and bearing the cost of theft, damage spoilage and obsolescence.



8. Market information: Wholesalers supply information to suppliers and customers regarding competitor’s activities new products, price developments, and so on.



9. Management Services and counseling: Wholesalers often help retailers improve their operations by training sales clereks, helping with store layouts and displays, and setting up accounting and inventory control systems. They may help industrial customers by offering training and technical services.