Principles of Marketing - Lecture No 14

The Channels of Distribution
Course Facilitator: Khurshid Alam Swati
University of Swat, Swat
Email your query to:
Khurshidalamswati@yahoo.com
Lecture No: 14

What is distribution?
• The process of getting products from
production to the consumer
• In marketing, distribution refers to the
process of making a product or service
available for use or consumption by a
consumer or business user
• It is one of the four elements of the
marketing mix
2©Khurshid Alam Swati

Different options

Consumer and Business Marketing
Channels

Direct Selling
Manufacturer to Consumer
Manufacturer Consumer
Product/Service

Single-Intermediary Channel
Manufacturer to a Retailer to a Customer
Manufacturer Retailer Consumer

Two-Intermediary Channel
Manufacturer to Wholesaler to Retailer to a
Customer
Manufacturer Warehouse Retailer Consumer

Distribution Policy
- Policy regarding how a business wants
its products distributed to consumers
- There are four types
1. Intensive Distribution
2. Selective Distribution
3. Exclusive Distribution
4. Integrated Distribution

1. Intensive Distribution
- Try to get the product sold in as many
different places as possible
- Diverse and intensive
- Advantages
- Increase sales
- Increase recognition
- Disadvantages
- Lack of control of retail locations
- Intensive competition
- Product examples: Chocolate, Soft drinks Gum etc

2. Selective Distribution
Try to control the distribution of product but
not exclusively
Concentrate on selected segments
 Advantages
 Some control over where product is sold
 Can still cover a large area
 Disadvantages
 Legal implications – purchase minimums
 Missing out on possible sales
 E.g. Fashion goods,

3. Exclusive Distribution
Exclusive distribution contracts with one
or two businesses in a certain area
Like niche marketing
 Advantages
 Control over image
 Favorable agreements
 Disadvantages
 Can severely limit sales
 Geographical problems
 E.g. Furniture, Jewelry, Cars 11©Khurshid Alam Swati

4. Integrated Distribution
When business owns both distribution
and manufacturing
 Advantage
 Total control of product
 Keep sales revenue
 Disadvantage
 Handle all expenses
 Handle all difficulties

Marketing Channel
A marketing channel is a set of practices or
activities necessary to transfer the ownership
of goods, and to move goods, from the point
of production to the point of consumption
Links producers to buyers. Performs sales,
advertising and promotion. Influences the
firm's pricing strategy. Affecting product
strategy through branding, policies,
willingness to stock

Types of Channels
1. Direct Channels
 Product goes directly from producer to the consumer
Examples
 Trade Services
 “Lemonade stand”
 Marketing agents

2. Indirect channel
2. Indirect Channels
 Use distribution intermediaries who make a profit off holding on
to the product

2. Indirect channel
Examples
 Importers
 Foreign made product goes to exclusive
importer who sells to retail outlets in a
geographical area
 Wholesaler
 Buy products from domestic manufacturers and
sell them to retail stores and other businesses
 Retailers
 Sell product to consumers

Advantages of the Wholesaler
for the Retailer
Buy in bulk – lower costs per unit
Warehousing – hold on to greater amount of product in case needed
Risk bearing – retailer has less risk for owning large quantity of a
product with unknown or changing demand
Financing – retailers don’t have to borrow money to pay for extra
stock, they can use previous sales of smaller quantities to buy more
Buying – saves the time and effort of finding multiple suppliers
Transporting – Wholesalers usually deliver without charge (in the price
of the product)
Managing – Wholesalers will provide advice on inventory management
and play a major role in controlling inventory levels for their customers
Promoting – wholesalers pass on free promotional materials
Providing market information – they know what's hot, what not and
what is on the horizon

3. Specialty Channels
A media whose content is focused on a single genre,
subject or targeted market at a specific demographic
Any distribution that does involve a retail store

Intermediaries make distribution and
selling processes more efficient
Intermediaries offers supply chain
partners more than they could achieve on
their own
 Market Exposure
 Technical Knowledge/Information Sharing
 Operational Specialization
 Scale of operation
The Importance of Marketing
Channels

Channel Efficiency: How Intermediaries Reduce the
Number of Channel Transactions

The physical flow of goods, services, and
related information from points of origin
to points of consumption.
Includes
 Inbound distribution
 Outbound distribution
 Reverse distribution
Marketing Logistics

Transportation Modes
Rail
Nation’s largest carrier, cost-effective
for shipping bulk products, piggyback
Truck
Flexible in routing & time schedules, efficient
for short-hauls of high value goods
Water
Low cost for shipping bulky, low-value
goods, slowest form
Pipeline
Ship petroleum, natural gas, and chemicals
from sources to markets
Air
High cost, ideal when speed is needed or to
ship high-value, low-bulk items

23
1. Speed
2. Dependability
3. Availability
4. Costs
5. Others
Checklist for Choosing
Transportation Modes
Choosing Transportation Modes
©Khurshid Alam Swati

Recent trends in distribution
Increased internet and direct selling of
goods and services
Large supermarkets that act as
wholesalers and retailers
Complete packages are sold….air
flights, rental cars, and hotel
accommodations are packaged and
distributed together.

Effective Use of Distribution
Channels
Feature Products or Services Benefits Drawbacks
Direct Selling
NO intermediaries
Sometimes called “zero
intermediary” channel
• Mail order from
manufacturer
• Farmers markets
• No intermediaries so no
additional profit markup
• Quicker than other
channels
• Producer has complete
control
• All storage and stock
costs paid for by producer
• No retail outlets
• Can be expensive to
deliver products to
customer
One-intermediary
Usually used for consumer
goods but can be used for
B2B
• Travel agents selling
airline, hotel, rental car
services
• Large supermarkets that
old their own stock rather
than wholesalers
• Retailer holds stock and
pays for this cost
• Retailer has product
displays
• Producers focus on
production no selling
• Intermediary takes a profit
which makes product more
expensive
•Producers lose some
control over marketing mix
•Producer has delivery
costs to retailer
Two-intermediaries
Wholesaler buys goods
from producer and sells to
retailer
• In a large country with
many retailers and great
distances, many goods are
distributed this way, e.g.
beverages, books, clothing
• Wholesaler holds goods
and buys in bulk
• Reduces stock holding
costs for producer
• Wholesaler breaks large
stock quantities into smaller
units to sell to retailer
• Another intermediary
takes a profit which
increases the purchases
price
• Slows down the
distribution chanel
HL

What is an Agent?
A business with the authority to act on
behalf of another firm to market its
products.
Examples: Best Buy sells HP computers
and is allowed to handle customer
complaints, provide sales force to sell
products, and creates sales displays.
HL 26©Khurshid Alam Swati

Supply Chain Management
(SCM)
Managing the network of businesses
that are involved in the provision of
products to the final consumers
HL 27©Khurshid Alam Swati

Principles of Marketing - Lecture No 14

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