Channels of Distribution

CHANNELS OF DISTRIBUTION

Types of Channels

Direct Channel (Zero Level)

• Most simple and shortest mode of distribution
• Goods are made directly available by the manufacturers to customers, without involving any intermediary
• Mail order selling, internet selling and selling through own sales force, (e.g., Eureka Forbes).

Indirect Channels

When a manufacturer employs one or more intermediaries to move goods from the point of production to the point of consumption

1. Manufacturer-Retailer Consumer(One Level Channel):
   1. 1. One intermediary i.e., retailers is used between the manufacturers and the customers.
      2. Maruti Udyog
2. Manufacturer-Wholesaler-Retailer-Consumer (Two-Level Channel):
   1. 1. Wholesalers and retailers act as connecting links between the manufacturer and consumer.
      2. Consumer goods like soaps, clothes, rice,
3. Manufacturer-Agent-Wholesaler-Retailer-Consumer (Three Level Channels):
   1. 1. Manufacturers use their selling agents or brokers who connect them with wholesalers and then the retailers.

Factors Determining Choice of Channels

1. Product Related Factors:

• Industrial products/consumer product is
  • Usually technical, made on order, and expensive products purchased by few buyers.   short channels
  • Consumer products usually standardized, less expensive, frequently bought products. by long channels
• Unit value
  • Value of a product is low long channels
  • High-value products, shorter channels
• Nature of products
  • Complex products require technical details as in the case of most industrial or engineering products, short channels
  • Simple Products sold through a long channel

2. Related to Company’s

    Financial strength

• • Direct selling involves a lot of funds in fixed assets that can be used only by the financial sound company (reliance on the fresh, easy day)

Degree of Control

• • Greater control on the channel members, short channels are used (Bata India)
  • Less control over the middlemen longer channel (Colgate, nestle)

3. Issue Regarding Competitors

• Go In line with the competitors (Maruti, Tata Motors, Hyundai)
• Use Different lines from competitors( dell laptop sales through direct selling)

4. Market Factors:

• No of buyers

• Number of buyers is small, industrial products, short channels
• Number of buyers is large, soft drinks, toothpaste etc., longer channels

• Size of order

• Order is small, for example consumer products, longer channels
• Size of the order is large, with short channels.

5. Environmental Factors:

• Economic condition
• Depressed economy marketers use shorter channels to reduce the cost due to limited sales
• Legal constraints:-Govt may fix certain channels(petrol pumps)

Physical Distribution: - Activities required to physically move goods from manufacturers to the customers.

Creates place utility and time utility by the provision of goods at the appropriate place and at the appropriate time

Activities involved in physical distribution

1. Transportation (movement of goods):
   • Helps in the movement of goods from the place of production to the place of consumption
   • There are various means of transportation i.e., rail, road, air, pipeline, water transport, etc.
   • Modes are evaluated and compared based on speed, frequency, flexibility, and cost, and the best-suited mode is selected by the company.
2. Stock/Inventory:
   • Inventory refers to the maintenance of a stock of goods. The inventory needs to be maintained so that goods can be supplied whenever demanded.
   • The firm must consider the benefits of inventory and the cost involved and accordingly, the optimum level of inventory should be maintained.
3. Warehousing:
   • Whatever is produced is not sold off immediately. Therefore every company needs to store the finished goods until they are sold in the market.
   • Storage of goods is necessary because some goods like crops are seasonal in production.
4. Order processing:

• The time and steps involved between taking order from customer and delivery of goods as per order.
  • There is a direct relationship between the time taken in order processing and the satisfaction of customers.
  • Fast order processing gives more satisfaction to customers (Dominos 30 minutes home delivery)