Overview of Distribution Channels

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Table of Contents

Direct versus Indirect Distribution
Channel Organizations
Analysis of the target markets
Appropriate Channel members
Number of channel members to use
Recommended channel organization
References

Distribution channels are the pathways that companies use to sell their products to end-users or the consumers. It can also be defined as a path through which goods and services flow in one direction (from vendor to the consumer), and the payments generated by them flow in the opposite direction (from consumer to the vendor).

Distribution is among the classic “4 Ps” of marketing i.e. product, promotion, price and placement. It is worth noting that distribution is a significant element that requires critical review in this dynamic business environment (Rosenbloom, 2004).

Many organizations face the challenges of choosing the appropriate channels of distribution. Most businesses use third parties or intermediaries to bring their products to the end-users or the consumers. Both B2C and B2B businesses can sell through direct or indirect distribution channels (Machado & Cassim, 2004). With direct channels, the consumers buy or acquire goods directly from the manufacturer while indirect channels goods and services pass through intermediaries.

Direct versus Indirect Distribution

Direct distribution channel involves direct contact between the manufacture and the consumer. The intermediaries are excluded in this kind of channel.

An example of the direct marketing channel is a factory outlet store. Through direct distribution, the manufacturer benefits from numerous factors usually unmanaged or unexplored when left in the hands of the intermediaries. Through this form of direct channel of distribution, there is certainty of maintaining relevant factors such as communication control, revenue and product importance.

According to empirical evidence obtained by most researches, more revenue lost with the use of intermediaries. This is because the manufacture sells his products to the intermediaries at costs lower than the price at which these intermediaries sell to the final customer. If the manufacturer sells directly to the consumer, he will benefit from the final price hence greater profits. Alongside that, communication control is a significant element that requires close observation.

Some products are technical and needs special attention and skill, elements possessed by the manufacturers only. In addition, product importance given tom the manufacturer’s product by the members of the distribution channel is under the producer’s control. This greatly enables the manufacturer to control and monitor all activities the product undergoes before reaching the final consumer. Controlling and monitoring of these activities is best when the channel is shorter hence direct distribution channel.

In a different study, Rosenbloom (2004) suggested that direct distribution channel alongside cost saving, time of delivery is also reduced due to the direct contact. When a customer is considering buying a product, he weighs various options, which surrounds the product. Price, delivery, availability etc are some of the factors that conquer his mind.

For example, horticultural products when passed through a long channel, easily damages on the way before reaching the final consumers. This puts direct channel as the best way of delivering this kind of goods.

However, William & Ferrell (2010) notes that indirect channel has its advantages and disadvantages that benefit both the consumer and the manufacturer. In indirect distribution channel, the product path is wide. Goods and services go through a detailed channel to reach the final consumer.

Though this channel poses some danger, it constituents number of benefits that are enjoyed by both parties involved. Some of the benefits include bulk breaking, cost saving, and customer convenience. Some goods are limited to certain customers who can purchase in bulk. These pose a problem to those customers that cannot afford these bulk products. Wholesalers and retailers solve this problem by buying in bulk or breaking the bulk and in turn resell them to customers in small and required quantities.

The customers therefore have the benefit of buying in smaller quantities and they get a share of the profit the retailer makes when he buys in bulk from the manufacturer. According to Krishna & Cavale (2007), different members of distribution channel are specialized in their activities, thus incur low costs compared to companies trying to run the entire distribution channel.

In so doing, the intermediaries saves the manufactures from extra costs incurred during the process of distribution. Including intermediaries in the distribution chain provides customers with a lot of convenience in their shopping. Indirect channels provide accumulating and assorting services, which means they purchase from many manufacturers various goods that a customer may need.

Channel Organizations

Channel organization is significant since it demonstrates how efficiently and effectively channels are organized. They are different ways in which the channels are managed. These include conventional, vertical, horizontal and multichannel marketing systems.

Conventional

This type of channel organization comprises of isolated and autonomous units. Coordination is achieved by bargaining and potential negotiations. The network is unstable due to the easy entry and low index of member loyalty.

Vertical

This is a well-coordinated and planned distribution channel structure in which producers, wholesalers, and retailers act as a unified system. One channel member owns the other, has contracts with them or has so much power that they all cooperate.

Horizontal

Horizontal marketing systems exist when two or more companies at one level join to follow a new marketing opportunity. The two or more companies enter into a bidding agreement that see them receive mutual benefit from each other.

Multichannel marketing system

Multichannel marketing system refers to a hybrid marketing channels. It is achieved when a single firm set up two or more marketing channels to reach one or more customers segments.

Analysis of the target markets

Marketing opportunities increase when a distributer categorizes customers in homogeneous groups with similar needs and wants. Firstly, markets surveillance should help to identify various differences in customer needs in order to successfully subdivide the market with an aim to offer customized products and services. Various factors necessitating this categorization include age, gender, location geographical factors demographic characteristics, life cycle, income or time pressure.

A business must analyze the needs and wants of various customers before determining its niche. My target market should consider the accessibility of the business and large enough to provide a solid customer base. It should also consider the location and geographical factors. These will enhance time delivery of the products and accessibility to the customers. In this market target, consideration of customer’s sought benefit will be of the highest interest.

The analysis of the market reveals that the target customers always seek benefits such as convenience, time saving, cost, and independence from chores or buying. The customers in this market are potential and frequent buyers. In addition, the survey shows that attitudes toward the products greatly shape the development of a given brand.

They desire distribution channels that provide timely delivery to ensure availability of the product. A low price, convenience, quality are some of the main factors that motivate the customers in market to purchase the product. Knowing customers needs and wants is basic to successful.

Appropriate Channel members

This market segmentation or target would find it significant to utilize wholesalers and retailers. Wholesalers and retailers would meet the customers sought benefits of ensuring that the product is delivered in time. Moreover, they are convenient and reliable thus making sure the product is readily available when needed by the customers (Rolnicki, 1998).

Number of channel members to use

Based on the analysis of the target market, the supply chain should involve three members of the distribution channels. These will include the manufacturer, wholesaler and retailer. This kind of distribution channel is a bit shorter and reduces the cost of the product, hence low price in the final stage.

In addition, this distribution channel is appropriate in providing intensive distribution because it constitutes retailers who are very close to the customers. The problem of bulk breaking will be also solved by the presence of the wholesalers and retailers.

Recommended channel organization

Marketers face several strategic decisions in choosing channels and marketing intermediaries for their products. Selecting a specific channel is the most basic of these decisions. In recommending channel organization, multichannel distribution system will be appropriate. This system offer many advantages to companies facing large and complex markets with each new channel, the company expands its sales and market coverage hence gains opportunities to tailor its product to the specific needs of diverse customers.

In adopting this form of distributed, the business will benefit from the innate characteristic of insensitivity of the customers to prices through provision of the best-of-breed products (Rolnicki, 1998). This will ensure that the business appeals to all product preferences of a wide range of different groups of customers. In the end, the business will develop itself as a strong market brand capable of fulfilling differentiated customer needs.

References

Krishna, K., & Cavale, M. (2007). Sales and Distribution Management. 7 West Patel Nagar, New Delhi: Tata McGraw-Hill Education.

Machado, R., & Cassim, S. (2004). Marketing for Entrepreneurs. Lansdowne: Juta and Company Ltd.

Rosenbloom, B. (2004). Marketing channels: a management view .Pennsylvania State University: Thomson/South-Western.

William, M., & Ferrell, O. (2010). Foundations of Marketing.south-western Mason, OH: Cengage Learning.

Rolnicki, K. (1998). Managing channels of distribution. New York, NY: AMACOM Div American.

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