Distribution channel | Marketing Concepts.

Distribution channel

It is a structure of business and interdependent organizations ranging from the point of origin of the product to the consumer.
A channel of distribution is made up of people and companies involved in the transfer of ownership of a product, as it passes from manufacturer to the end consumer or industrial user.
A product channel extends only to the last person or organisation who buys it without introducing important changes in its form. When the form is modified and is born another product, it comes into play a new channel. (madera-aserradero - runner-manufacturer furniture; muebles-muebleria manufacturer - consumer).
There are other institutions that are involved in the distribution process such as: banks, insurance, storage and transport companies. But since they do not have the property of products or are actively involved in the activities of purchase or sale, not included formally in the distribution channels.

Functions of distribution channels

A distribution channel runs the job of moving bin them from producers to consumers. Save the main gaps of time, space and possession that separate the goods and services of those who use them. The members of the distribution channel running a number of key functions:
  • Research: gather information needed to plan and facilitate the Exchange.
  • Promotion: create and disseminate persuasive messages about the product.
  • Contact: find potential buyers and communicate with them.
  • Adaptation: model and adjust the product to the user's requirements. Activities such as manufacturing, sorting, Assembly and packaging are required for this.
  • Negotiation: try to find a mutually satisfactory price that will make the transfer of ownership or possession.
  • Physical distribution: transport and store goods.
  • Financing: get and use the funds to cover the costs of its activities.
  • Acceptance of risks: run the risk posed to perform the functions of the distribution channel.
The first five functions are used to carry out transactions; the last three, to complete them.

Criteria for the selection of the channel of distribution

Distribution decisions must be taken based on the objectives and strategies of general marketing of the company.
Take these decisions most producers, who are guided by three managerial criteria:
  • Coverage of the market. In the selection of the channel, it is important to consider the size and value of the potential market that you want to provide. As she is already mentioned intermediaries reduce the amount of transaction that needs to be done to come into contact with a certain size market, but it is necessary to take into account the consequences of this fact; for example, if a producer can do four direct contacts with consumers, but it makes contact with four retailers who in its ves does it with consumers the number total of contacts in the market will have increased to sixteen, which indicates how they have increased the coverage of the market with the use of intermediaries.
  • Control. Used to select the appropriate distribution channel, i.e. it is control of the product. When the product comes out of the hands of the producer, the control is lost since it becomes property of the purchaser and this can do what he wants with the product. This means that you can leave product in a store or presented differently on their shelves. Therefore it is more convenient to use a short distribution channel since it provides more control.
  • Costs. Most consumers think. That when shorter Canal, the lower the cost of distribution, and therefore lower the price to be paid. However, it has been shown that intermediaries are specialists and that perform this function in a more efficient way than would a producer; Therefore, distribution costs are generally lower when using intermediaries in the distribution channel.
From the above we can deduce that use a distribution channel shortest gives a result usually, very limited market coverage, products control more high and costs higher; Conversely, a longer channel gives you more extensive coverage, less control of the product and lower costs.
The more economic it seems a distribution channel, it is less likely conflicts and rigidity. To make the assessment of the alternatives is to start by considering its impact on sales, costs and profits. The two alternatives of distribution channels are: selling the company and agency producer sales force. As it is known the best system is that produces the best relationship between sales and costs. The analysis begins with a calculation of sales that are made in each system, since some costs depend on the same level.

Factors affecting the selection of distribution channel

If a company is aimed at consumers, purchasing of these habits will govern their channels. The nature of the market will be the decisive factor in the choice of channels by managers. Other factors are the product, intermediaries and the structure of the company.

Market factors

A logical starting point is to examine the market goal: your needs, your structure and buying behavior
( 1) market rate: final consumers behave differently to industrial users, will reach them through other distribution channels.
( 2) number of potential buyers: a manufacturer with few potential customers can use their own sales force directly to consumers or end users. When there are many prospects, would the manufacturer use intermediaries.
( 3) geographical concentration of the market: where most of the potential buyers are concentrated in a few geographic regions, should be used for direct sale. When consumers are widely dispersed direct sales would be impractical for such high costs of travel.
( 4) size of orders: when the size of the order or the total volume of business are great direct distribution would be economic.

Factors of the product

  • Unit value: The price attached to each unit of a product influences the amount of funds available for distribution.
  • Perishable nature: Some goods, including many agricultural products deteriorate physically very quickly. Other goods, such as clothing, are perishable in terms of fashion. Perishable products require direct or very short channels.
  • Technical nature of a product: A very technical industrial product is often distributed directly to industrial users. Manufacturer sales force should provide a complete service before sale and after it. Technical consumer products pose a real challenge of distribution manufacturers.

Factors of intermediaries

( 1) services that intermediaries: each manufacturer should choose intermediaries offering services of marketing than not you can give or they would be uneconomic.
( 2) availability of qualified intermediaries: maybe not available intermediaries wishing to manufacturer. It is possible to sell rival products and therefore do not want to add another line more.
( 3) attitudes of intermediaries to the policies of the manufacturer: when intermediaries do not want to join a channel when they think that the policies of the manufacturer are unacceptable, and left few options.

Factors of the company

Before selecting a channel of distribution for a product, the company should study their own situation.
( 1) desire to control channels: some manufacturers establish direct channels because they want to control the distribution of their products, while a direct channel can be more expensive than an indirect. In this way, they achieve a more aggressive promotion and are better able to control the freshness of the merchandise and retail prices.
( 2) services given by seller: some manufacturers make decisions regarding its channels based in functions that the middlemen want to distribution.
( 3) capacity of executives: experience, marketing and managerial capabilities of the manufacturer influence decisions on that channel use.
( 4) financial resources: a business with financial resources can hire their own sales force, grant credit to clients and have storage for your products. Instead a company with few resources of this type will use intermediaries to provide these services.
Importance of distribution channels
Decisions on distribution channels give products the benefits of the place and the benefits of the time to the consumer.
The benefit of place refers to the fact of bringing a product close to the consumer so that this does not have to travel long distances to obtain it and thus meet a need. The benefit of place can be seen from two points of view: the first considers the products whose purchase is favored when they are close to the consumer, which is not willing to make a major effort to get them. The second point of view considers the exclusive products, which must be only in certain places not to lose its character of exclusivity; in this case, the consumer is willing to make any effort, greater or lesser degree, to obtain it according to the product that concerned.
The benefit of time is result of the above since if there is the benefit of place, nor it can be given. It consists in bringing a product to the consumer at the time most suitable. There are products that must be available to the consumer at a time after which purchase is not carried out; others have to be looked for some time so seek greater satisfaction to the consumer.

Main distribution channels

1) distribution of consumer goods

( to) (producer - consumer) direct channel: the channel more brief and simple to distribute consumer goods and not includes intermediaries. (avon)
( b) channel retailer (producer - retailer - consumer): many large retailers buy directly from manufacturers and agricultural producers. (wal-mart, PH)
( c) (producer-wholesaler-retailer - consumer) wholesale channel: only traditional channel for consumer goods. (central supply)
( d) producer - actor - retailer - consumer: instead of using wholesalers, many producers prefer to use intermediary agents to get retail oriented market, especially to the retailers on a large scale.
( e) channel agent/broker (producer - actor - wholesaler - retailer - consumer): manufacturers sometimes resort to forwarding agents who in turn used to wholesalers who sell to large chain stores or small shops.

(2) distribution of industrial goods

( to) direct channel (producer - industrial user): represents the highest turnover in industrial producers than any other distribution structure. (manufacturers and facilities such as aircraft).
( b) industrial distributor (producer - distributor industrial - industrial user): supplies operation and small accessory equipment makers frequently resort to industrial distributors to reach their markets. (materials of construction and air-conditioning manufacturer).
( c) channel agent/broker (Productor-agente - industrial user): is a channel useful for companies that do not have their sales Department (if a company wants to introduce a product or entering a new market may prefer to use agents and not its own sales force.
( d) channel agent/broker - dealer industry (producer - actor - distributor industrial - industrial user): is used when it is not possible to sell the industrial user directly through agents. Unitary sale may be too small for a direct sale or perhaps decentralized inventory is needed to supply the users quickly.

3) distribution of services

( to) producer - consumer: given the intangibility of services, the process of production and sale activity requires retail a personal contact between the producer and the consumer, therefore, used a direct channel. (medical care, haircut)
( b) producer - actor - consumer: contact between the producer and consumer in the distribution activities is not always required. Agents attend of producer services in the transfer of ownership or other related functions. (travel agencies, accommodation)

4) multiple channels of distribution

Many producers are not content with a single distribution channel. On the contrary, due to reasons such as achieve broad market coverage or not depend completely on a single structure, they use multiple channels of distribution.
Multiple channels are sometimes called dual distribution, are used in well defined situations. A manufacturer will need to use multiple channels to reach different types of market when it sold:
  • The same product to the market of users and the industrial market (computer, printer)
  • Unrelated products (butter and painting)
Multiple channels are also used to reach different segments of the same market when:
  • The size of buyers varies greatly (travel agency - office - consumer).
  • Geographical concentration differs between the parts of the market.

5) non-traditional channels

They help to differentiate the product from a company from its competitors. Although non-traditional channels limited coverage of a brand, offer the manufacturer serving a niche a way to gain access to the market and to gain the attention of the client without having to establish channel intermediaries.

6) reverse channels

When products are moved away from traditional channels: consumer back to the manufacturer. (repair or recycling).

Legal considerations in the administration of channels

Attempts to control the distribution are subject to legal restrictions.
Control methods that providers apply:
  • Exclusive marketing When a manufacturer prohibits its stores sell products from the competition. If stipulated that any store that sells your product may not sell rival brands. This type of agreement tends to be illegal when:
    • The volume of sales of the manufacturer is an important part of the total volume of which are obtained on a market. Thus, competitors are excluded from an important part of the market.
    • Contract concluded between a great producer and a smaller intermediary, is considered the power of the topic is inherently coercive and that therefore limited to trade.
However, in some decisions of the courts found that the exclusive distribution is permissible when:
    • There are equivalent products on the market either manufacturer competitors have access to such distributors. In such cases, the exclusive distribution shall be unlawful if the competition does not decrease considerably.
    • A manufacturer is entering the market or its total market share is so small that it is insignificant. A contract of exclusive distribution strength competitive distribution, where brokers decide to support the product with a great marketing effort.
  • Restrictive contract When a manufacturer sells a product to an intermediary to also buy you another product, the two parties have held a restrictive contract. It is thought that these contracts violate antitrust laws. 2 exceptions are given. They may be legal when:
    • A new company is trying to enter a market
    • An exclusive distributor is obliged to sell the complete line of products from the manufacturer, but it is not forbidden to sell the competition.
Refusal to distribute with such select their channels, a producer may refuses to sell them.
Exclusive territory policy producer requires all intermediaries to sell only to customers located within the assigned territory. It ruled that exclusive sales territories are illegal, because they reduce competition and limit trade. The courts tried to stimulate competition among brokers that handled the same brand.
Exclusive territories can afford when:
    • A company is small or just entering the market
    • A manufacturer establishes a corporate vertical marketing system and retains ownership of the product while this does not reach the end user.
    • A manufacturer uses independent intermediaries so that they distributed the product under consignment, system in which the intermediary does not pays the provider before selling the goods.
Published for educational purposes
Concepts of Leadership and Marketing

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