2. INTRODUCTION TO DISTRIBUTION
MANAGEMENT
• Distribution management refers to the process of overseeing the movement of
goods from supplier or manufacturer to point of sale. It is an overarching
term that refers to numerous activities and processes such as packaging,
inventory, warehousing, supply chain, and logistics.
3. WHAT IS A DISTRIBUTION
CHANNEL?
• A distribution channel is a chain of businesses or intermediaries through
which a good or service passes until it reaches the final buyer or the end
consumer.
• Distribution channels can be short or long, and depend on the number of
intermediaries required to deliver a product or service.
• The target for any business is to bring their product or service to the market
and make it available for consumers by creating a distribution path or
channel. The link between producers and the end consumer is normally
intermediaries, such as wholesalers, retailers, or brokers.
• A distribution channel must be efficient and effective. It means that
transportation and other logistical requirements need to be used at maximum
capacity and at the lowest rates possible.
4. ROLE OF DISTRIBUTION CHANNELS
Distribution channels help in the following ways:
(i) Enhance Efficiency: The components of distribution channels enhance the
efficiency of the system. A system of manufacturers directly dealing with
consumers will be less efficient than the decentralized system involving
distribution agents.
(ii) Smooth Flow of Goods and Services: The distribution channels smoothen
the flow of goods and services by creating possession, time and place utilities.
(iii) Reducing Cost of Transactions: The cost of transactions is minimized if
they are undertaken regularly. The distribution through intermediates will be
possible if products are standardized. The terms and conditions of purchase,
sale, payments will be standardized resulting into increased number of
transactions. Instead of casual transactions, routine dealings will reduce the
cost of marketing.
5. (iv) Facilitate Search: The buyers and sellers search for each other in the
market to transact for products and services. This function is facilitated by
distribution agents. These intermediaries remain in touch with sellers and
buyers, thus facilitate exchange.
(v) Less Stocks of Goods: In the absence of distribution agents manufacturers
are required to keep large stocks of goods. When middlemen enter the chain of
distribution then stocks are maintained by large number of intermediaries and it
reduces the burden of producers.
(vi) Proximity to Consumers: The intermediaries are more near to the
consumers as compared to the producers. They are in direct touch with the
users of goods and services and understand their reactions to the supplies. The
intermediaries help producers in knowing the reactions of consumers to the
goods and services brought out by them. This information is of immense value
to producers in planning for their products.
7. • SPATIAL DISCREPANCY- This discrepancy occurs due to the space or
distance between the production point of a product or service and its consumption
point.
• TEMPORAL DISCREPANCY- This refers to the time difference between the
production point and the time at which the product may get bought or consumed.
• NEED FOR BREAKING THE BULK- To minimize the production costs,
products have to be made in large quantities or in bulk. However, consumption of
these products is in smaller quantities. There is, therefore, a need to break the bulk
into consumable quantities
• NEED FOR ASSORTMENT- One company make one set of products in one
plant and another set of products in another plant located far away. At the
consumer level, when they visit any retail store, they expect all the products of the
company at one location.
8. TYPES OF DISTRIBUTION CHANNELS
• There are two major types of distribution channels. One is direct channel and
the other one is indirect channel.
9. • Direct channel:
In the direct channel method, the manufacturer directly sell the goods to the customers.
There is no involvement of intermediaries in this distribution. This is also called as zero
level distribution. The manufacturer distribute their products mainly by setting up retail
outlets and internet selling. This distribution gives a company control over relationships
with the customers. The companies using direct distribution channel has higher profits than
the companies using indirect distribution channels. But this may suits only for the smaller
companies.
• Indirect channel:
Indirect distribution channel has divided into 3 types according to the usage of
intermediaries or channel methods. They are one level, two level and three level channel. In
one level channel, manufacturer sells the goods directly to a retailer. Mostly this channel is
used by expensive watches and FMCG products. In the two level channel, the manufacturer
sells the goods to a wholesaler, the wholesaler to a retailer and then to the customer. The
wholesales purchases large volumes from the manufacturer and then distribute them to
retailers in small volumes. This channel is mainly used to sell soaps, sugar, cigarette etc. In
the three level channel, one more level is added to two level channel in the form of agents.
This agents reduce the distance between the manufacturers and wholesaler. This is suitable
for very big companies like Toyota, Pepsi etc.
12. 1. INTENSIVE DISTRIBUTION- Intensive distribution aims to provide saturation coverage of the
market by using all available outlets. For many products, total sales are directly linked to the number
of outlets used (e.g., cigarettes, soft drinks etc.). Intensive distribution is usually required where
customers have a range of acceptable brands to choose from. In other words, if one brand is not
available, a customer will simply choose another.
• This alternative involves all the possible outlets that can be used to distribute the product. This is
particularly useful in products like soft drinks where distribution is a key success factor. Here, soft
drink firms distribute their brands through multiple outlets to ensure their easy availability to the
customer.
• Hence, on the one hand these brands are available in restaurants and five-star hotels and on the other
hand they are also available through countless soft drink stalls, kiosks, sweet marts, tea shops, and so
on. Any possible outlet where the customer is expected to visit is also an outlet for the soft drink
13.
14. II. SELECTIVE DISTRIBUTION- Selective distribution involves a producer using a
limited number of outlets in a geographical area to sell products. An advantage of this
approach is that the producer can choose the most appropriate or best-performing outlets and
focus effort (e.g., training) on them.
• This alternative is the middle path approach to distribution. Here, the firm selects some
outlets to distribute its products. This alternative helps focus the selling effort of
manufacturing firms on a few outlets rather than dissipating it over countless marginal
ones.
• It also enables the firm to establish a good working relationship with channel members.
Selective distribution can help the manufacturer gain optimum market coverage and more
control but at a lesser cost than intensive distribution. Both existing and new firms are
known to use this alternative.
15. III. EXCLUSIVE DISTRIBUTION- Exclusive distribution is an extreme form of selective
distribution in which only one wholesaler, retailer or distributor is used in a specific geographical
area.
• When the firm distributes its brand through just one or two major outlets in the market, who
exclusively deal in it and not all competing brands, it is said that the firm is using an exclusive
distribution strategy. This is a common form of distribution in products and brands that seek a high
prestigious image.
• Typical examples are of designer ware, major domestic appliances and even automobiles. By
granting exclusive distribution rights, the manufacturer hopes to have control over the
intermediary's price, promotion, credit inventory and service policies. The firm also hopes to get
the benefit of aggressive selling by such outlets.
16. MARKET INTERMEDIARIES
• A marketing intermediary is the link in the supply chain that links the
producer or other intermediaries to the end consumer. These parties are used
in the selling, promotion or the availability of the goods/services through
contractual agreements with the manufacturer. They receive the products at
a particular price point, add their margins to it and move it to the next link
in the supply chain at the higher price point. They are also known as
middlemen or distribution intermediaries.
• The four types of marketing intermediaries are agents, distributors,
wholesalers and retailers.
19. There are four generally recognized broad groups of intermediaries: C&FA’s, Distributors,
Wholesalers and retailers:
1. C&FA’s- They are basically transporters who act as a mid way point between company
and its distributors. They store the goods in a central location for breaking bulk. They take
the physical possession of the goods but do not pay for it.
2. Distributors, dealers, stockists, agents
Agents or brokers are individuals or companies that act as an extension of the manufacturing
company. Their main job is to represent the producer to the final user in selling a product.
Thus, while they do not own the product directly, they take possession of the product in the
distribution process. They make their profits through fees or commissions.
3. Wholesalers
Unlike agents, wholesalers take title to the goods and services that they are intermediaries
for. They are independently owned, and they own the products that they sell. Wholesalers do
not work with small numbers of product: they buy in bulk and store the products in their own
warehouses and storage places until it is time to resell them. Wholesalers rarely sell to the
final user; rather, they sell the products to other intermediaries such as retailers, for a higher
price than they paid. Thus, they do not operate on a commission system, as agents do.
4. Retailers
Retailers come in a variety of shapes and sizes: from the corner grocery store, to large chains
like Wal-Mart and Target. Whatever their size, retailers purchase products from market
intermediaries and sell them directly to the end user for a profit.
