UNIT 11:

Distribution Decisions

Logistics & Channel Decisions

(Retail, Ecommerce, etc.) 
• Distribution decisions focus on establishing a system that,
at its basic level, allows customers to gain access and
purchase a marketer’s product
• Marketers may find that getting to the point at which a
customer can acquire a product is complicated, time
consuming, and expensive\
• Marketer’s distribution system must be both effective (i.e.,
Delivers a good or service to the right place, in the right
amount, in the right condition) and efficient (i.e., Delivers
at the right time and for the right cost). Yet, as we will see,
achieving these goals takes considerable effort.
• Distribution decisions are relevant for nearly
all types of products
• While it is easy to see how distribution
decisions impact physical goods, such as
laundry detergent or truck parts, distribution is
equally important for services (e.g., income
tax services) and for digital goods (e.g.,
television programming, online music).
• In order to facilitate an effective and efficient distribution
system many decisions must be made including (but certainly
not limited to):
– Assessing the best distribution channels for getting products to
customers
– Determining whether a reseller network is needed to assist in the
distribution process
– Arranging a reliable ordering system that allows customers to place
orders
– Creating a delivery system for transporting the product to the customer
– Establishing facilities for product storage for tangible and digital goods
 Place
• Another element of Neil H.Borden's
Marketing Mix is Place. Place is also known
as channel, distribution, or intermediary.
• It is the mechanism through which goods
and/or services are moved from the
manufacturer/ service provider to the user or
consumer
 Channels
• A number of alternate 'channels' of distribution
may be available:
• Distributor, who sells to retailers
• Retailer (also called dealer or reseller), who
sells to end customers
• Advertisement typically used for consumption
goods
 The Distribution Channel

• Chain of intermediaries, each passing the product

down the chain to the next organization, before it
finally reaches the consumer or end-user.
• This process is known as the 'distribution chain'
or the 'channel.'
• Each of the elements in these chains will have
their own specific needs, which the producer
must take into account, along with those of the
all-important end-user.
 Distribution Channel

• Path or pipeline through which goods &

services flow in one direction (from vendor to
the to the consumer), and the payments
generated by them flow in the opposite
direction (from consumer to the vendor).
• A distribution channel can be as short as being
direct from the vendor to the consumer or may
include several inter-connected (usually independent
but mutually dependent) intermediaries such as-
• Wholesalers
• Distributors
• Agents
• Retailers .
• Each intermediary receives the item at one pricing
point and moves it to the next higher pricing point
until it reaches the final buyer.
• Distribution channels may not be restricted to
physical products alone.
• They may be just as important for moving a
service from producer to consumer in certain
sectors, since both direct and indirect channels
may be used.
• Hotels, for example, may sell their services
(typically rooms) directly or through travel
agents, tour operators, airlines, tourist boards,
centralized reservation systems, etc.
 Distribution Channel Functions
• The distribution channel moves goods and services from
producers to consumers.
• It overcomes the major time, place, and possession gaps
that separate goods and services from those who would use
them.
• Members of the marketing channel perform many key
functions:
• Information: gathering and distributing marketing
research and intelligence information about actors and
forces in the marketing environment needed for planning
and aiding exchange.
 Distribution Channel Functions
• Promotion: developing and spreading
persuasive communications about an offer.
• Contact: finding and communicating with
prospective buyers.
• Matching: shaping and fitting the offer to the
buyer's needs, including activities such as
manufacturing, grading, assembling, and
packaging.
 Distribution Channel Functions
• Negotiation: reaching an agreement on price and other
terms of the offer so that ownership
or possession can be transferred.
Others help to fulfill the completed transactions:
• Physical distribution: transporting and storing goods.
• Financing: acquiring and using funds to cover the
costs of the channel work.
• Risk taking: assuming the risks of carrying out the
channel work.
Channel structure has three basic dimensions:-

• The length of the channel,

• The intensity at various levels, and
• The types of intermediaries involved.
• Channel intensity ranges from intensive to
selective to exclusive.
– Intensive means that there are many intermediaries.
– Selective means that there are a smaller number of
intermediaries.
– Exclusive refers to only one.
 Intensive distribution
• Intensive distribution aims to provide saturation
coverage of the market by using all available outlets.
• For many products, total sales are directly linked to
the number of outlets used (e.g. cigarettes).
• Intensive distribution is usually required where
customers have a range of acceptable brands to chose
from.
• In other words, if one brand is not available, a
customer will simply choose another.
 Selective distribution
• Selective distribution involves a producer using a
limited number of outlets in a geographical area to
sell products.
• An advantage of this approach is that the producer
can choose the most appropriate or best-performing
outlets and focus effort (e.g. training) on them.
• Selective distribution works best when consumers
are prepared to "shop around" - in other words -
they have a preference for a particular brand or
price and will search out the outlets that supply.
 Exclusive distribution 
• Exclusive distribution is an extreme form of
selective distribution in which only one
wholesaler, retailer or distributor is used in a
specific geographical area.
 There are six basic 'channel' decisions:

• Do we use direct or indirect channels? (e.g. 'direct' to a

consumer, 'indirect' via a wholesaler).
• Single or multiple channels.
• Cumulative length of the multiple channels.
• Types of intermediary (see later).
• Number of intermediaries at each level (e.g. how many
retailers in Southern India ).
• Which companies as intermediaries to avoid 'intra
channel conflict' (i.e. infighting between local
distributors).
Why Are Marketing Intermediaries Used?

• Why do producers give some of the selling job to

intermediaries?
• Does it means giving up some control over how
and to whom the products are sold.
• The use of intermediaries results from their greater
efficiency in making goods available to target
markets.
• Through their contacts, experience, specialization,
and scale of operation, intermediaries usually offer
the firm more than it can achieve on its own.
• From the economic system's point of view, the role of
marketing intermediaries is to transform the assortments
of products made by producers into the assortments
wanted by consumers.
• Producers make narrow assortments of products in large
quantities, but consumers want broad assortments of
products in small quantities.
• In the distribution channels, intermediaries buy large
quantities from many producers and break them down
into the smaller quantities and broader assortments
wanted by consumers.
• Thus, intermediaries play an important role in matching
supply and demand.
 Intermediaries/Selling Methods

• The following explains the different types of

intermediaries that are used in the distribution channels.
• Direct
• Direct mail
• Telemarketing
• Internet
• Agents
• Wholesalers
• Retailers
 Direct (on-site) 

• Very common for small businesses, products/services

can be sold directly to the consumer on-site i.e. directly
from your shop, office or home by consumers physically
coming into the premises to make a purchase.
• This can be related with, for example, a baker or a hand
made furniture business where the products are made
and sold at the same place.
• This type of distribution works only when your target
consumers are within the local region and are not based
on a wide geographical area.
 Telemarketing

• Selling your product/service through telemarketing is

becoming increasingly popular.
• Similar to direct mail, telemarketing allows sales to be made
on a local, national and global scale, although the costs will
increase with the time and distance of phone calls.
• Extra skills may also be required creating the need for more
staff.
• Alternatively, a professional service can be consulted to
carry out the task: with an increased cost and/or commission.
 Internet (E-commerce)

• With the popularity of the Internet ever increasing, it has

now become one of the most common ways of doing
business: e-commerce. Although e-commerce was often
associated more with the larger companies, small businesses
have now benefited from joining the bandwagon.
• The Internet acts a shop window for your business where
your particular web site will allow consumers to view or
purchase your product(s)/service(s) on-line. 
• The Internet can also be used as a marketing tool, purely
promoting your products, which will aim to result in more
sales from other distribution channels.
• The Internet can help target consumers worldwide
although it may be more feasible for consumers to
purchase from within the nation (due to costs of
postage or feasibility of using the service).
• The obvious cost of using the Internet for sales is
the original set-up and consistent maintenance, as
well as the administration.
• Like ourselves, some small businesses are purely
Internet orientated selling services and products
completely via their web site i.e. at any time, they
will have no personal contact with the consumers
 Agents/Brokers
• An agent or broker will help sell your
product/service, but will not take ownership of what
they are selling at any time. They usually work on
commission taking a percentage of the total sales
made by themselves.
• An agency or brokerage will sell your product or
service, for example insurance, tickets for
entertainment, accommodation, etc. This can be
directly to the consumer or to retailers and
wholesalers.
• Agents/brokers can sell your product on a scale than
extends from your business premises and are very
useful for expanding your business into foreign
markets.
• Perhaps the most common example of an agent
would be a travel agency. They never own the
holidays or credit the full amount of the sale to their
business.
• Instead, they act as a link between the holiday resort
and the consumer, taking a commission on the sales.
 Wholesalers
• It may be that you only sell to a wholesaler if you
manufacture your own products: possibly
evidencing a larger small business.
• If this is the case, a wholesaler can be used to
distribute your products reaching a potentially large
number of consumers.
• The main function of a wholesaler is to provide a
link between the producer (you) and the retailer.
• The advantage of selling to a wholesaler is that they
often buy in bulk, splitting the purchase into smaller
manageable quantities for further selling to retailers.
• Once selling to a wholesaler, there are three
ways that your product will reach the consumer.
Firstly, the consumer will purchase directly from
the wholesaler: this is the less common route out
of the three. Alternatively, your products will be
sold on by the wholesaler to retailers.
• The other advantages of selling to a wholesaler
are that they may have strong links with quality
retailers: research will help discover this fact.
• In addition, because they buy in bulk, it
reduces the burden of on-site storage at your
premises reducing overhead costs.
• Further, wholesalers will also take away the
burden of transportation, as they often have
their own network of transport delivering
goods directly to retailers, which would
normally be your responsibility.
• The disadvantage of using a wholesaler to
distribute your products is that they cannot
market your products extensively.
• Further, because they buy in bulk, it is often you
will sell at a price much lower than the final
retail price.
• Therefore, the wholesaler will take some of the
profit because they will sell on your products in
smaller quantities at a higher price.
 Retailers

• Like for wholesalers, it may be that you only

use retailers if you manufacture your own
products: again, evidencing the larger smaller
business.
• Retailers can promote your product by making
consumers aware of its availability and by
passing on technical information that could
encourage the sale. 
• Because there are thousands of retailers located
all around the country, they are an excellent
intermediary for distributing your product to a
wide geographical range of consumers.
• Today, many retailers prefer to buy their
products directly from producers (you) instead of
going through wholesalers: this is typical of
supermarkets. By selling directly to retailers, the
added expense of transportation is the only issue.
• Small businesses account for a high proportion
of retailers and so they can often find
themselves at the end or in the middle of a
distribution channel, where their own channel
of selling to a consumer would be direct. 
• Consequently, a small business retailer may use
the diagram to work backwards to identify the
best channel of buying in stock to sell at their
own premises.
Conventional vs. Vertical Marketing System

• Vertical Marketing System (VMS)-

• A 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.
 Channel Structure
Length of marketing channel
1 2 3 4
level level level level
Manufacturer Manufacturer Manufacturer Manufacturer

Agent

Wholesaler Wholesaler

Retailer Retailer Retailer

Consumer Consumer Dr. Rosenbloom

Consumer Consumer