School of studies of Management,
Jiwaji university Gwalior (M.P.)
Bba3rd Sem.
Subject: Fundamentals of Marketing Management
Unit-4th
Learning outcomes
L01: Understand the concept of distribution channel.
L02: Describe the objectives of distribution channel.
LO3: Describe the types of distribution channel.
L04: Define the physical distribution.
L05: Describe the wholesaler.
A distribution channel
is the route through which goods or services move from the company to the customer or
the transfer of payment happens from the customer to the company.
Distribution channels can mean selling of products directly or selling through wholesalers,
retailers etc. The same applies for payment transfer from customers to company; it can
move through a path or can be sent directly to the company.
Functions of Distribution Channels
Distribution channels basically function to deliver goods from the manufacturer to the
customer.
The following are the functions of distribution channels −
Facilitate selling by being physically close to customers
Gather information about potential and current customer competitions, other factors
and forces of the environment
Provide distributional efficiency by bridging the gap between the manufacturer and
the user efficiently and economically
Assemble products into assortments to meet buyers’ needs
Match segments of supply with segments of demand
Assist in sales promotion
Assist in introducing new products
Assist in implementing the price mechanism
Assist in developing sales forecast
Provide market intelligence and feedback
Maintain records
Take care of liaison requirements
Standardize transaction
Objectives of Distribution Channels
Objectives of a distribution channel are planned as per the target of the enterprise and
executed respectively. The following are the various objectives behind the planning of
distribution channels −
To ensure availability of products at the point of sale
To build channel member’s loyalty
To stimulate channel members to put greater selling efforts
To develop management efficiency in channel organization
To identify the organization at the level
To have an efficient and effective distribution system for making the products and
services available readily, regularly, equitably and fresh.
Major Channels of Distribution
Here is a list of some of the major channels of distribution –
Manufacturer → Consumer
Manufacturer → Retailer → Customer
Manufacturer → Wholesaler → Customer
Manufacturer → Wholesaler → Retailer → Customer
Manufacturer → Agent → Retailer → Customer
Manufacturer → Agent → Wholesaler → Customer
Manufacturer → Agent → Wholesaler → Retailer → Customer
Profit distribution decreases as the channel length increases.
Designing Distribution Channels
We have seen what a distribution channel is. Let us now see the designing process of a
distribution channel.
The following steps are involved in the designing of a channel system −
Formulating the channel objectives
Identifying the functions to be performed by the channel
Analyzing the product and linking the channel design to the product characteristics
Evaluating the distribution environment, including legal aspects
Evaluating competitor’s channel designs
Evaluating company resources and matching the channel design to the resources
Generating alternative designs, evaluating them and selecting the one that suits the
firm best
Classification of Wholesalers
A wholesaler purchases from the manufacturer and further distributes the product to
customers or retailers. Wholesalers can be classified into the following categories as per
area of functioning −
Merchant wholesalers
Agents and brokers
Manufacturer’s sales branches and offices
The planning, implementation, and controlling of the physical flow of material or product
from one point to another to meet the customer requirements in the market is known as
physical distribution.
Importance of Physical Distribution
The importance of physical distribution becomes significant when the manufacturers and
market are geographically far from each other. The following points highlight the importance
of physical distribution −
Execute physical flow of product from the manufacture to the customers.
Grant time and place for the product
Build customer for the product
Cost reduction
Fulfill the demand of the product in the market so that business takes place
Steps in Designing a Physical Distribution System
To design a physical distribution system for a product, following steps need to be followed −
Step 1 − Defining distribution objective and services required for product distribution
Step 2 − Articulating customer requirement
Step 3 − Comparing the strategy with market competitors
Step 4 − Managing the cost of distribution to decrease cost without compromising on
the quality of service
Step 5 − Building physical distribution system that is flexible for implementation of
changes, if required
Designing of a physical distribution system involves these steps. It is necessary to consider
all steps involved for smooth distribution of goods and services.
Components of a Physical Distribution System
Physical distribution can be controlled and monitored by its different components. Each
component should be evaluated and managed in order to accomplish physical distribution
without any problems.
The following are the different components of the physical distribution system −
Planning of physical distribution system
Storage planning in plant
Logistics
Warehousing on field
Receiving
Handling
Sub distribution of product
Management of inventory at various levels
Execution of order
Accounting transactions
Communication at different levels
Supply Chain Management (SCM)
Supply Chain Management (SCM) involves managing of goods and services. It includes
different stages like storage of goods, logistics and supply of goods to the customer after
manufacturing.
It can also be referred as the combination of materials management and product distribution
of an enterprise.
Advantages of SCM
Supply chain management increases the flexibility and efficiency for the logistics of a
product. The following are the advantages of supply chain management −
It increases the efficiency to deliver on time by approximately 20 %.
It reduces inventory requirement by approximately 50 %.
It increases the sales of product from 3 to 6 %.
It provides integrated controlling for the function of logistics at the front and back end
of business.
Disadvantages of SCM
The following are the disadvantages of supply chain management −
It considers material management important and customer requirement for logistics
as superfluous for the supply cycle.
Consequently, customer requirement for logistics is not executed with high
importance.
Thus, supply chain management has both advantages and disadvantages and both have to
be considered for implementation in an organization.
