CHANNELS OF DISTRIBUTION

 INTRODUCTION

Placing goods and services where they are required and when they are wanted is the area of concern of this unit. Marketing channel decisions are among the most important decisions that management faces. A company’s channel decision directly affects every other marketing decision. For example, the company’s pricing depends on whether it uses mass merchandise or high quality specialty stores. The firm’s sales force and advertising decisions depend on how much persuasion,

training and motivation the dealers need. Whether a company develops or acquires certain new products, may depend on how well those products fit the abilities of its channel members. Most producers use intermediaries to bring their products to the market. They try to forge a

distribution channel either using the existing channels or creating a new independent channel. The use of intermediates has become necessary in making goods available to target markets, since they cannot have access to the producers directly.

table of content B

1. labelling 
2. management functions and behaviour
3. market segmentation
4. marketing communication
5. marketing environment
6. marketing mix
7. marketing research and its applications 
8. packaging
9. pricing policies and practices
10. product classification
11. product life cycle and new product development
12. principles of marketing 
13. the directing and leading function
14. the role of middlemen in marketing activities

OBJECTIVES

At the end of this unit, you should be able to:

1. explain marketing channels
2. explain types of channels 
3. describe the role of distribution channels in the overall marketing of products 
4. state the factors involved in selection of an appropriate channel mix. 

 MAIN CONTENT

Channels of Distribution

The term channel of distribution is used to refer to the various intermediaries who help in moving products from the producer to consumers. There are a variety of middlemen and merchants who act as intermediaries between the producers and consumers. Stanton

(1981:283) defines a channel of distribution for a product as ‘the route taken by the title to the ultimate consumer or industrial users’. A channel always includes both the producer and the final customer for the product, as well as all middlemen involved in the title transfer. Even though agent middlemen do not take actual title to the goods, they are included as part of a distribution channel. This is because they play such an active role in the transfer of ownership. A channel of distribution is also defined as ‘a system designed to move goods and services from producers to customers, which consists of people and organizations supported by various facilities, equipment, and

information resources’. However, Armstrong and Kotler (1994) reports that distribution channel is ‘a set of interdependent organisations involved in the process of making a product or service available for use or consumption by the consumer or industrial user’.

Channels of distribution are the most powerful element among

marketing mix elements. Many products which were intrinsically sound have died in their infancy because they never had the right road to the market. However, by developing a sound distribution network and launching aggressive advertisement campaigns, a company can carve out a niche for itself. Many Nigerian manufacturers took advantage of the distribution network built by erstwhile companies. This may be attributed to costs and time and goodwill of the distributors concerned. However, it is better to study the distribution network before launching a product. Channels of distribution help movement of goods from one place to another and thus create place utility. They make it possible for the consumer to get the goods when he wants them and thus create time utility. They bring goods to the consumer in a convenient shape, unit, size, style and package and thus create convenient value. They make it possible for the consumer to obtain goods at a price he is willing to pay and under conditions which bring him satisfaction and pride of ownership and thus create possession utility.

It should however be noted that the concept of marketing channels is not limited to the distribution of physical goods alone. Producers of services and ideas also face the problem of making their goods accessible to their target consumers. Channels of distribution can be grouped under two  major headings namely, Direct Selling by Manufacturers and Indirect Selling through Middlemen.

Distribution

The functions performed by the members of the marketing channels include:

1. Information: Gathering and distributing marketing research and intelligence information about actors and forces in the marketing environment, needed for planning and aiding exchange. 
2. Promotion: Developing and spreading persuasive communications about an offer. 
3. Contact: Finding and communicating with prospective buyers and suppliers. 
4. Matching: Shaping and fitting the offer to the buyer’s needs, including such activities as manufacturing, grading, assembling and packaging. 
5. Negotiation: Reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred. 
6. Physical distribution: Transferring and storing goods. 
7. Financing: Acquiring and using funds to cover the costs of the channel work. 
8. Risk-taking: Assuming the risks of carrying out the channel work. 

Types of Marketing Channels

Marketing channels can be described by the number of channel levels involved. Each layer of middlemen that perform some work in bringing the product and its ownership closer to the final buyer is a channel level. Because the producer and the final consumer both perform some work, they are part of every channel. We use the number of intermediary levels to indicate the length of a channel. All of the institutions in the channel are connected by several types of flows. These include the physical flow of products, the flow of ownership, the payment flow, the information flow, and the promotion flow.

1. Producer to the Consumers: When there are no intermediaries between the producer and the consumer, the channel is direct. This type of channel is most commonly used with organisational products, especially where the product is new. This is aimed at creating awareness and to gain access to target consumers. 
2. Producer to Retailer to the Consumer: The channel from producer to retailer to the consumer is common when the retail establishments involved are relatively large. 
3. Producer to Wholesaler to Retailer to the Consumer: The most common channel for consumer goods. It employs a wholesaler to take care of the shipping and transportation needs. Wholesalers offer the accumulating and allocating functions that allow small producers to interact with large retailers, and vice versa. 
4. Producer to Wholesaler to Jobber to Retailer to the Consumer: the producer chooses to use agents (Jobbers) to assist the wholesalers in marketing goods. The use of Jobbers could be attributed to their specialised experiences. 

The Importance of Channels of Distribution

The importance of channels of distribution is summarised below:

1. Channels of distribution are the most powerful element among marketing mix elements. Many products which were intrinsically sound died in their infancy because they never found the right road to the markets. 
2.  Channels take care of the transaction aspects of marketing, including the selling, the financing and the risk taking associated with strong products in anticipation of future sales. 
3. They perform the logical function of moving products from the point of production to the point of purchase. 
4. They help producers promote goods and services. 

Selecting an Appropriate Channel

The channel decisions are important (for two reasons). The costs involved in the use of a channel entail the price that the consumer has to pay. The channel decision also has a bearing on other marketing decisions like pricing and product line. Through proper market feedback, an appropriate selection of channels can reduce fluctuations in production. A rational decision regarding choice of channels of distribution should ensure:

1. maximum geographical coverage of the markets 
2.  maximum promotional efforts, and 
3.  minimum cost. 

The following factors usually govern the selection of channels:

The Type of Product

For selling perishable products like bread and milk or vegetable, it is important to have a short channel of distribution which facilitates quick movement from the factory to the consumers. Limited channels may also be employed where the movement of goods involves heavy freight and poses problems of transportation for such goods as furniture,

refrigerators, and air conditioners. But distribution of products having lower units and high turnover involves a large number of middlemen as in the case of products matches, soap, and toothpaste. When the product requires after-sale service as in the case of television, air conditioners, and automobiles, the choice of middlemen may be limited to only those who are in a position to provide these services. Since not many middlemen may be capable of providing such services, again their number may be limited.

Nature and Extent of the Market

If the number of consumers is small as in number … is the case of bulky and expensive machinery, the manufacturer may approach the customer directly through his own sales force; so also, if the consumers are concentrated in a limited geographical area. If the above conditions are not applicable, a longer channel may have to be chosen. However, for industrial goods where such goods are bulky, manufacturers may adopt direct selling/marketing.

Competitive Characteristics

It is a wise policy to study the existing channels of distribution, particularly those used by competitors. Channels design is influenced by the competitors’ channels. Producers may want to compete in or near the same outlets carrying the competition channels. However, where an established channel exists, the manufacturer may make use of customary channels. For example, for soap and toothpaste, grocery stores are commonly used.

Costs Involved in Distribution

Cost, no doubt, is a very important consideration. The longer the channel of distribution, the greater its cost. Thus, manufacturers look for ways to keep down the cost and prefer distribution through middlemen who have their own established sales force as it is more economical and involves less financial commitment. Wholesalers shoulder some of the responsibilities of cost of stocking and transporting goods. But the manufacturers have to provide them with a margin which will either reduce their costs or increase the cost to the buyers.

However, in making a choice, the manufacturer has to consider his objectives, resources and the channels available to him after considering the above factors. He/she would like to use the channel of distribution which will produce the combination of sales volume and cost that yields the maximum amount of profits. There are no set guidelines for channel selection; therefore, manufacturers will have to take their own decisions in the light of their own judgments and experience. But most companies like to use multiple channels of distribution to ensure that their products
the maximum number of people.

The task of manufacturers does not end after the channels have been selected. They have to review the services performed by these agencies involved at fairly frequent intervals. They should keep in close touch with the changes related to the distribution of their products, and seek to improve their marketing methods constantly.

Physical Distribution Tasks

Producers/manufacturers must decide on the best way to store, handle and move their goods and services so that they are available to customers at the right time and place. Producers typically need to employ the services of physical firms – warehouses and transportation companies - to assist in this task. Armstrong and Kotler (1994) observed that physical distribution involves planning, implementing, and controlling the physical flow of materials and final goods, from points of origin to points of use, to meet customer requirements at a profit. The aim of physical distribution is to manage supply chains and value-added flows from suppliers to final users, as shown below: 

1. Physical 
2. Channel Customer 
3. Procurement Manufacturing Distribution 
4. Supplier 

Source:
Armstrong and Kotler (1994). Principles of Marketing. 6th Edition. Englewood Cliffs, New Jersey

CONCLUSION

Distribution is the all-important link between a manufacturer and his customers. The concern is for designing a distribution strategy to facilitate the smooth physical flow of products from the manufacturers to the place where the customers can buy them. Channels of distribution refer to the alternative paths through which the goods can be routed. Direct selling and indirect selling through intermediaries such as wholesalers and retailers are the two alternative channels of distribution to choose from. The final choice will depend on the type of product which you are dealing with, number and location of customers and their buying habits and costs involved. The manufacturers should also consider the specific advantages of each type of intermediary before taking a final decision.