A startup consultant, dreamer, traveller, and philomath. Aashish has worked with over 50 startups and successfully helped them ideate, raise money, and succeed.
When not working, he can be found hiking, camping, and stargazing. Contents show. The competitor uses the direct channels and the manufacturer is satisfied with its performance. The competitor uses the indirect channels and the manufacturer is satisfied with its performance. The competitor uses indirect channels and the manufacturer thinks choosing short channels would be more beneficial. The competitor uses the direct channel and the manufacturer thinks choosing indirect or long channels would be more beneficial.
Aashish Pahwa. The offering is targeted to business users. The offering is targeted to consumers and non-business users. The customers are geographically concentrated. The customers are geographically dispersed. Customers require extensive technical knowledge.
Regular servicing is required for the offering to operate. Regular servicing is not required for the offering to operate. The order quantity is large. The order quantity is small. Increasing the number of ways a consumer is able to find a good can increase sales.
But it can also create a complex system that sometimes makes distribution management difficult. Longer distribution channels can also mean less profit each intermediary charges a manufacturer for its service. Channels are broken into two different forms—direct and indirect. A direct channel allows the consumer to make purchases from the manufacturer while an indirect channel allows the consumer to buy the goods from a wholesaler or retailer. Indirect channels are typical for goods that are sold in traditional brick-and-mortar stores.
Generally, if there are more intermediaries involved in the distribution channel, the price for a good may increase. Conversely, a direct or short channel may mean lower costs for consumers because they are buying directly from the manufacturer. While a distribution channel may seem endless at times, there are three main types of channels, all of which include the combination of a producer, wholesaler, retailer, and end consumer.
The first channel is the longest because it includes all four: producer, wholesaler, retailer, and consumer. The wine and adult beverage industry is a perfect example of this long distribution channel. In this industry—thanks to laws born out of prohibition—a winery cannot sell directly to a retailer.
It operates in the three-tier system, meaning the law requires the winery to first sell its product to a wholesaler who then sells to a retailer. The retailer then sells the product to the end consumer. The second channel cuts out the wholesaler—where the producer sells directly to a retailer who sells the product to the end consumer. This means the second channel contains only one intermediary.
Dell, for example, is large enough to sell its products directly to reputable retailers such as Best Buy. The third and final channel is a direct-to-consumer model where the producer sells its product directly to the end consumer.
Amazon, which uses its own platform to sell Kindles to its customers, is an example of a direct model. This is the shortest distribution channel possible, cutting out both the wholesaler and the retailer. A distribution channel, also known as placement, is part of a company's marketing strategy, which also includes the product, promotion, and price.
Not all distribution channels work for all products, so it's important for companies to choose the right one. The channel should align with the firm's overall mission and strategic vision including its sales goals. The method of distribution should add value to the consumer. Retailers may be individual shop owners or large retail stores, departmental stores, retail chain stores that purchases goods from the manufacturer and resell it to final consumer.
Retailers are sometimes referred to as dealers or authorised representatives. Sale through Wholesaler :.
In this method a manufacturer sells the material to a wholesaler also called stockist or distributor, the wholesaler to the retailer and then the retailer sells to the consumer. Here, the wholesaler after purchasing the material in large quantity from the manufacturer sells it in small quantity to the retailer.
Then the retailers make the products available to the consumers. This medium is mainly used to sell FMCG etc. This channel is more clarified in the following diagram:. Sale through Agent :. Big manufacturing firms in order to avoid the complex responsibilities of marketing may appoint an agent who acts as a link between the manufacturer and the wholesaler. The agents may be sole selling agents who have a wide distribution network, wide network of sales person, wholesaler and retailer.
These agents perform the marketing and distribution functions on behalf of the manufacturers and earns a large margin. They only act as an agent and transfer the goods on behalf of manufacturer. A direct channel is said to exist when there are no intermediaries between the supply organisation and its customers. The last is also an example of vertical integration.
In these examples the supplier will decide all aspects of the contact with the customer. This could include how often the sales person should contact the customer or how frequently to send out a catalogue. In this type of direct channel there is no doubt who has control of the many decisions regarding the exchange.
The situation is more complicated in indirect channels. There are many reasons for using direct channels, but equally there are a number of reasons why such channels are not always used.
The roles of wholesaler and retailer could be filled by any of the intermediaries relevant to a particular market. The links are important with a marketing exchange taking place at each stage. The link provided by negotiation is not necessarily formal, but it certainly takes place in the legal sense of an offer and acceptance. It is important to realise the effect of the indirect nature of the channel, and the supply pipe line, on these indirect channels.
One well-known British company launched its product into the USA with apparently great success. In year 2, sales did not increase. In fact they fell.
However, the retailers and consumers were not buying, and so the pipeline was blocked by large stocks of the old product. It was an expensive lesson as the British company attempted to sort out the problems. It also illustrates the problem of loss of control that a supplier can have in an indirect channel. If a product is not available when required it could lead to a lost sale. This again emphasises the need for monitoring all levels of any indirect channel.
There is no reason why a supplier should stay with a single channel. Educational toy supplier, Early Learning, started with most sales via its mail order catalogue. It carefully monitored sales in large areas of population and, when it considered the time was appropriate, a retail outlet was opened in a secondary shopping area.
Note that these areas were not in the prime High Street sites. It was considered customers would be prepared to seek out an Early Learning outlet because the company felt they offered a unique type of product. So it was decided there was no point in paying the highest retail rents for prime High Street sites. The catalogue still continued and sales justified both channels running alongside each other.
Intensive, Selective and Exclusive Distribution :. Intensive distribution involves maximising the number of outlets where a product is available. This wide exposure means more opportunities to buy. Selective distribution is used where the choice of outlet or service offered is specifically relevant to the buying situation. Examples are electrical or photographic specialists who can offer professional advice or plumbers who can install purchases.
However, this type of restricted distribution is becoming less common, with supermarkets and chemists, as well as department stores, offering ever wider ranges of household and electrical goods. Exclusive distribution is much more restrictive. They receive the benefit of exclusivity which reduces competition.
In return for acting as the local distributor for Ford or BMW or Rover, the distributor could receive promotional help. Depending on the number of middlemen involved, channels of distribution may be classified as follows:.
This is also known as direct setting because no middleman is involved. A producer may sell directly through his own retail stores e. This is the simplest and the shortest channel. It is fast and economical. It enables the producer to have direct contact with customers and full control over the distribution of his product. But a small-scale manufacturer can rarely afford the investment and expertise required for direct selling. This channel is more common in the distribution of industrial goods like heavy machinery, industrial chemicals, etc.
In this channel, the producer sells to big retailers like departmental stores and chain stores who in turn sell to consumer. This channel is very popular in the distribution of consumer durables such as refrigerators, TV sets, washing machines, type writers, automobiles, etc. This is the traditional channel of distribution. It is widely used in the distribution of consumer products like groceries, drugs, cosmetics, etc.
It is quite suitable for small-scale producers whose product line is narrow and who require the expert services and promotional support of wholesalers. But in this channel the producer loses direct contact with his customers and control over distribution.
The two primary channels through which distribution of products can be made:. Here the vendor of a product or service sells product directly to the customer. The vendor may maintain its own sales force to close deals with clients or sell its products or services through an e-commerce website. The direct sales approach requires vendors to take on the expense of hiring and training a sales team or building and hosting an e-commerce operation.
This is the oldest, shorter and the simple channel of distribution. The producer sells the product directly without involvement of any middle man. The sale can be made door to door through salesman, retail stores and direct mail. It satisfies the desire to reduce dependence on middle men.
Selling goods against orders received, by telephone, email in case of telemarketing. Here the sales activities for individuals and organizations are carried on by third persons, known as intermediaries. Examples of intermediaries include value-added resellers, systems integrators, managed service providers, wholesalers, retailers and distributors.
Each type of intermediary represents a channel, with its own distinct characteristics. A vendor develops a channel strategy to determine what types of intermediaries to target and how to optimize partner relationships to increase sales and improve distribution. According to this method of indirect selling, product is passed on to the customers through intermediaries, known as wholesalers, retailers and agents.
A firm can design any number of channels. Channels are classified by the number of intermediaries between producer and consumer.
As the name implies, this channel does not have an intermediary and is used in direct marketing. This is the simplest and shortest channel in which no middlemen is involved and producers directly sell their products to the consumers. It is fast and economical channel of distribution. Under it, the producer or entrepreneur performs all the marketing activities himself and has full control over distribution.
A producer may sell directly to consumers through door-to-door salesmen, direct mail or through his own retail stores. Big firms adopt this channel to cut distribution costs and to sell industrial products of high value. Small producers and producers of perishable commodities also sell directly to local consumers. Under it, the producer sells his product to big retailers who buy goods in large quantities and who in turn sell to the ultimate consumers.
This channel relieves the manufacturer from burden of selling the goods himself and at the same time gives him control over the process of distribution. This is often suited for distribution of consumer durables and products of high value. This is the most common and traditional channel of distribution.
Under it, two middlemen namely the wholesalers and retailers are involved. Here, the producer sells his product to wholesalers, who in turn sell it to retailers. And retailers finally sell the product to the ultimate consumers. This channel is suitable for the producers having limited finance, narrow product line and who needed expert services and promotional support from wholesalers. This is mostly suited for the products with widely scattered market.
This is a very long channel of distribution in which three middlemen are involved, namely agent, wholesaler and retailer. This is used when the producer wants to be fully relieved of the problem of distribution and thus hands over his entire output to the selling agents. The agents distribute the product among a few wholesalers. Each wholesaler distributes the product among a number of retailers who finally sell it to the ultimate consumers. This channel is suitable for wider distribution of various industrial products.
This is the longest channel, where the goods pass through four intermediaries before they reach the end-user. Mostly, in case of crop, vegetables, wheat, fruits etc. The price of a product tends to be quite high in this channel. A Company must manage a hybrid distribution system to avoid chaos and maximize efficiency, Responsibilities, relationships and compensations among various channel members must be made clear.
A company receives its distribution system in legacy. The company starts its journey with serving a particular type of customers. The company may have targeted big businesses initially, so it set up a team of salespersons to serve and manage these big accounts.
But soon it found that smaller businesses were interested in its product. It used its existing sales force to serve these small accounts as well but soon discovered that it was not economical to serve these small accounts with their existing sales force.
So the company appoints a team of telemarketers to serve these small accounts. Only delegate when you are comfortable that a third party will do the job better at a lower ultimate cost. Always consider E-commerce as a distribution channel. It can easily be diversified, it is the most profitable, and it can be used in addition too your other distribution efforts. E-mail is already registered on the site.
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