DL - Channels of Distribution [LESSON]

Channels of Distribution

The specific avenue a seller uses to make a finished good or service available for purchase—for example, whether you are able to buy it directly from the seller, at a store, online, from a salesperson, and so on—is referred to as the channel of distribution.

Today, marketing channel decisions are as important as the decisions companies make about the features and prices of products. Consumers have become more demanding. They are used to getting what they want. If you can't get your product to them when, where, and how they want it, they will simply buy a competing product. In other words, how companies sell has become as important as what they sell.

The firms a company partners with to actively promote and sell a product as it travels through its marketing channel to users are referred to by the firm as its channel members (or partners).

The simplest marketing channel consists of just two parties—a producer and a consumer. Your haircut is a good example. When you get a haircut, it travels straight from your hairdresser to you. No one else owns, handles, or re-markets the haircut to you before you get it. A channel such as this is a direct channel. By contrast, a channel that includes one or more intermediaries—say, a wholesaler, distributor, or broker or agent—is an indirect channel. In an indirect channel, the product passes through one or more intermediaries. When products and services pass through multiple organizations before they get to you these organizations are called intermediaries (''middlemen or resellers'').

The image above shows the typical channels in business to consumer markets.

Companies partner with intermediaries because the intermediaries can help them sell the products better than the company could working alone.

Intermediaries' capabilities the producer needs like:

• Contact with many customers or the right customers
• Marketing expertise
• Shipping and handling capabilities
• Ability to lend the producer credit

Intermediaries also create efficiencies by streamlining the number of transactions an organization must make, each of which takes time and costs money to conduct. By selling the tractors it makes through local farm machinery dealers, the farm machinery manufacturer John Deere can streamline the number of transactions it makes from eight to just two.

"Using Intermediaries to Streamline the Number of Transactions"

Channel Members

The two types of channel members that are talked about most frequently are wholesalers and retailers. In recent years, the lines between wholesalers, retailers, and producers have begun to blur considerably. For example:

• Microsoft is a producer of goods, but recently it began opening up its own retail stores to sell products to consumers, much as Apple has done.
• Walmart and other large retailers now produce their own store brands and sell them to other retailers.
• Many producers have outsourced their manufacturing, and although they still call themselves manufacturers, they act more like wholesalers.

Wherever organizations see an opportunity, they are beginning to take it, regardless of their positions in marketing channels.

View this presentation on channel members.

 

 

 

 

Factors that Affect a Product's Intensity of Distribution:

An intensive distribution strategy tries to sell their products in as many outlets as possible.

• Used for convenience offerings—products customers purchase on the spot without much shopping around. Soft drinks and newspapers are an example.
• Sold in all kinds of different places.
• Example: Redbox, rents DVDs out of vending machines, has made headway using a distribution strategy that's more intensive than Blockbuster's: the machines are located in fast-food restaurants, grocery stores, and other places people go frequently.

Selective distribution involves selling products at select outlets in specific locations.

• By selling different models with different features and price points at different outlets, a manufacturer can appeal to different target markets.
• Example: Sony TVs can be purchased at a number of outlets such as Best Buy, or Walmart, but the same models are generally not sold at all the outlets.

Exclusive distribution involves selling products through one or very few outlets.

• To purchase a product you need to go to a specific retailer.
• Examples:
• Supermodel Cindy Crawford's line of furniture is sold exclusively at the furniture company Rooms To Go.
• Designer Michael Graves has a line of products sold exclusively at Target.
• TV series are distributed exclusively. A company that produces a TV series will sign an exclusive deal with a network like ABC, CBS, or Showtime, and the series will initially appear only on that network. Later, reruns of the shows are often distributed selectively to other networks.

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