Channel of Distribution

Name
Channel of Distribution and Logistics
Course
Instructor
Date

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Abstract

Distribution channels are not just physical conduits through which products flow; they
are primarily a way to connect with customers and to provide a means of delivering the value
that customers seek. Distribution channels should work in both directions, i.e. serving the
customer on the one hand and provide a means of capturing customer insight and enabling
market understanding on the other. In order to ensure the smooth running of this two-way flow of
products and information, there is a requirement for the creation of aligned and seamless
connections between all of the entities in the channel. The problem is that often because these
players are independent of each other and with low levels of shared information between them,
there is little alignment with a consequential impact on the effective and effective working of the
channel.

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Channel of Distribution and Logistics

A channel of distribution can be either direct or indirect. In a direct channel, there are no
intermediariesthe product goes directly from producer to user. An Indirect channel of
distribution has one or more Intermediaries between producer and user. E-commerce (online
merchandising) and mail-order marketing are direct channel systems for distributing consumer
goods. Amazon.com is an example of an online merchandiser that uses a direct channel to final
consumers. As a final consumer, you are naturally familiar with retailers. Industrial purchasers
are equally familiar with industrial distributors. Channels with two or three stages of
intermediaries are probably the ones most typically used by small firms producing products with
geographically large markets. It is important to note that a small firm may use more than one
channel of distributiona practice called dual distribution. Firms that successfully employ a
single distribution channel may switch to dual distribution if they find that an additional channel
will improve overall profitability. For example, the Boston Book Company, in business since
1979 in downtown Boston, Massachusetts, now also maintains a website where books can be
purchased online. A logical starting point in structuring a distribution system is to observe
systems used by competing businesses. Such an analysis should reveal some practical
alternatives, which can then be evaluated. The three main considerations in evaluating a channel
of distribution are costs, coverage, and control (Gourdin, K. 2006).
Costs
The absence of intermediaries does not make a direct channel inherently less expensive
than an indirect channel. The least expensive channel may be indirect. For example, a firm
producing handmade dolls need not purchase trucks and warehouses to distribute its product
directly to customers but can instead rely on established intermediaries that own such facilities.

Channel of Distribution

Small firms should look at distribution costs as an investmentspending money in order to

make money. They should ask themselves whether the amount of money they "invest" in
intermediaries (by selling the product to them at a reduced price) would still get the Job done If
they used direct distribution (Gourdin, K. 2006).
Coverage
Small firms can often use indirect channels of distribution to increase market coverage.
Suppose a small manufacturer's internal sales force can make 10 contacts a week with final users
of the firm's product. Creating an indirect channel with 10 industrial distributors, each making 10
contacts a week, could expose the product to 100 final users a week.
Control
A direct channel of distribution is sometimes preferable because it provides more control.
Intermediaries may not market a product as desired. An entrepreneur must carefully select
intermediaries that provide the desired support. A small business that chooses to use
intermediaries to help distribute and market its product must be sure that the intermediaries have
a good understanding of how the product is best used and why it's better than competitors'
offerings. Additionally, if a wholesaler carries competing products, an entrepreneur must be sure
that her or his product gets its fair share of marketing efforts. Distributors must know what
makes the product special and how best to market it. Sloppy marketing efforts and insufficient
product knowledge by intermediaries can undermine the success of even the best product
(Gourdin, K. 2006).
The Scope of Physical Distribution

Channel of Distribution

In addition to the intermediary relationships that make up a channel, there must also be a
system of physical distribution. The key components of physical distribution is transportation
and storage.
Transportation
The major decision regarding physical transportation of a product is which method to use.
Available modes of transportation are traditionally classified as airplanes, trucks, railroads,
pipelines, and waterways. Each mode has unique advantages and disadvantages. The choice of a
specific mode of transportation is based on several criteria: relative cost, transit time, reliability,
capability, accessibility, and traceability. Transportation intermediaries are legally classified as
common carriers, contract carriers, and private carriers. Common carriers, which are available
for hire to the general public, and contract carriers, which involved in individual contracts with
shippers, are dependent on regulations by state and/or federal agencies. Lines of transport owned
by the shippers are called private carriers (Bowersox, D. J., Closs, D. J., & Cooper, M. B. 2002).
Storage
For small businesses, the absence of space is a common problem. When a channel system
uses merchant middlemen or wholesalers, title to the goods is transferred, as is responsibility for
the storage function. On other occasions, the small business must plan for its own warehousing
((Bowersox, D. J., Closs, D. J., & Cooper, M. B. 2002).
Logistics
The ultimate aim of a company is to make its products available to the customers at the
right place, right time and right cost. This requires an efficient system of logistics management or
supply chain management (SCM). Logistics management or supply chain management involves
the planning, implementation and control of the flow of raw materials and finished goods from

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the hands of suppliers to the hands of consumers. In simple words, logistics management
includes the entire gamut of activities beginning with the flow of raw materials from their
sources of supply to the production line (called inbound logistics), and the movement of finished
goods from the end of the production line to the final users' locations (called outbound logistics).
Intensive or mass distribution:
The company following a policy of mass distribution obtains maximum sales exposure by
securing distribution through all those outlets from which end users might expect to purchase the
product. This is the policy used in distributing many consumer convenience items. Cigarettes,
candy, and chewing gum, for instance, can be bought by consumers in food stores, drug stores,
cigar stores, candy shops, variety stores, restaurants, theater and hotel lobbies, at news-stands
and from vending machines in numerous other types of locations. Often, the manufacturer using
this policy needs not one but several marketing channels (Stock, J. R., & Lambert, D. M.
2001). Unfortunately, for the small manufacturers, the access to intensive distribution may well
be limited. Most retailers desire to stock only the four or five fastest-selling brands. Neither
wholesalers nor retailers are likely to promote a product that every competitor also handles.
Therefore, all advertising and sales promotion is solely in the hands of the manufacturer (Cooper,
M. C., Lambert, D. M., & Pagh, J. D. 1997).
Selective distribution:
Selective distribution involves selecting only those outlets that can best serve the
manufacturer's interests. It involves the use of more than one but less than all the intermediaries
who are willing to carry a particular product. Selective distribution is generally used for
shopping goods such as radios, refrigerators, etc. Customers seldom buy the first product they
look at. They generally shop around, examine the competing brands and compare their product

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features, price, etc. The policy of selective distribution is preferred by manufacturers because it
may well result in lower marketing costs. better control over product distribution and better
working relationships within the channel. Other advantages of selective distribution are cooperation on advertising between the middlemen and the manufacturer: avoiding marginal
wholesalers and retailers and a lack of price-cuffing since fewer middlemen are competing for
the consumer's money purse with a manufactured product (Cooper, M. C., Lambert, D. M., &
Pagh, J. D. 1997).
Exclusive distribution:
Exclusive agency distribution is an extreme form of selective distribution. To implement
a policy of exclusive agency distribution, the manufacturer makes an agreement, either written or
oral, with a middleman in each market area, stipulating that the distribution of the manufacturer's
product or products within that area is to be confined solely to that middleman. Exclusive
agencies are common in marketing such lines as automobiles, musical instruments, household
appliances, machine tools, high-quality men's and women's shoes and branded men's clothing
and furnishings. In return for the exclusive right to sell the product line, the middleman is
expected to provide more aggressive selling (and sometimes product service, as in the case of
appliances) than under milder forms of selective distribution or under mass distribution (Cooper,
M. C., Lambert, D. M., & Pagh, J. D. 1997).
The consideration of the above-outlined factors clearly demonstrates that the choice of a
channel of distribution is not very simple and can never be final. It must be remembered that
channels, like so many other marketing variables (like price, product, promotion, etc.) change.
And today's ideal channel may prove disastrous in a few years. However, the right choice is

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essential insofar as it determines the competitive edge for the manufacturer (Christopher, M.
2016).

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References

Bowersox, D. J., Closs, D. J., & Cooper, M. B. (2002). Supply chain logistics management (Vol.
2). New York, NY: McGraw-Hill.
Gourdin, K. (2006). Global logistics management: a competitive advantage for the 21st century.
Wiley-Blackwell.
Christopher, M. (2016). Logistics & supply chain management.
Pearson Higher Ed.
Cooper, M. C., Lambert, D. M., & Pagh, J. D. (1997). Supply chain management: more than a
new name for logistics. The international journal of logistics management, 8(1), 1-14.
Moore, C. W. (2008). Managing small business: An entrepreneurial emphasis.
Cengage Learning EMEA.
Stock, J. R., & Lambert, D. M. (2001). Strategic logistics management (Vol. 4).
Boston, MA: McGraw-Hill/Irwin.