CHANNELS OF DISTRIBUTION NOTES
Introduction
Distribution describes all the logistics
involved in delivering a
company’s products or services to the right place, at the right time,
for the lowest cost. Well-chosen channels constitute a significant
competitive advantage, while poorly conceived or chosen channels can
doom even a superior product or service to failure in the market.
Distribution (or “Place”) is the fourth traditional element of the
marketing mix. The other three are Product, Price and Promotion.
The Nature of Distribution Channels
Most businesses use third parties or intermediaries to bring their
products to market. They try to forge a “distribution channel” which can
be defined as “All the organizations through which a product must pass
between its point of production and consumption” Why does a business
give the job of selling its productsto intermediaries? After all, using intermediaries means giving up some control over how products are sold and who they are sold to.
All of the above functions need to be undertaken in any market
The question is – who performs them and how
many levels there need to be in the distribution channel in order to
make it cost effective.
Numbers of Distribution Channel Levels
Each layer of marketing intermediaries that performs some work in
bringing the product to its final buyer is a “channel level”. The figure
below shows some examples of channel levels for consumer marketing channels:
In the figure above, Channel 1 is called a “direct-marketing” channel,
since it has no intermediary levels. In this case the manufacturer sells
directly to customers. An example of a direct marketing channel would be
a factory outlet store. Many holiday companies also market direct to
consumers, bypassing a traditional retail intermediary – the travel
agent. The remaining channels are “indirect-marketing channels”.
Channel 2 contains one intermediary. In consumer markets, this is
typically a retailer. The consumer electrical goods market in Kenya is
typical of this arrangement whereby producers such as Sony, Panasonic,
Canon etc. sell their goods directly to large retailers such as Nakumatt
and Tuskys which then sell the goods to the final consumers.
Channel 3 contains two intermediary levels – a wholesaler and a
retailer. A wholesaler typically buys and stores large quantities of
several producers’ goods and then breaks into the bulk deliveries to
supply retailers with smaller quantities. For small retailers with
limited order quantities, the use of wholesalers makes economic sense.
This arrangement tends to work best where the retail channel is
fragmented – i.e. not dominated by a small number of large, powerful
retailers who have an incentive to cut out the wholesaler. A good
example of this channel arrangement in the UK is the distribution of drugs.
Stockists
A dealer who undertakes to maintain stocks of a specified product at or
above a certain minimum in return for favourable buying terms granted by
the manufacturer of the product
Manufacturer’s representatives
Manufacturer’s representative or rep, manufacturer’s broker and
manufacturer’s agent are all terms used to describe independent sales
agents who work on commission. You don’t pay them a salary, just a
percentage of what they sell. Manufacturer’s reps offer a practical,
cost-effective alternative to a direct sales force for many growing
companies.
Warehousing
Performance of administrative and physical functions associated with
storage of goods and materials. These functions include receipt,
identification, inspection, verification, storage, retrieval for issue, etc.
Physical distribution
Physical distribution is the set of activities concerned with efficient
movement of finished goods from the end of the production operation to
the consumer. Physical distribution takes place within numerous
wholesaling and retailing distribution channels, and includes such
important decision areas as customer service, inventory control,
materials handling, protective packaging, order procession,
transportation, warehouse site selection, and warehousing. Physical
distribution is part of a larger process called “distribution,” which
includes wholesale and retail marketing, as well the physical movement
of products.
Clearing and forwarding
Clearing and forwarding agents are service providers that can assist the
importer/exporter to arrange transport, documentation and custom
clearance for international shipments. Unless an exporting/importing
company handles a vast amount of transactions per month, it is much more
viable for them to make use of this service
