Most businesses use third parties or intermediaries to bring their products to market. They try to forge a “distribution channel” which can be defined as “all the organisations through which a product must pass between its point of production and consumption” Why does a business give the job of selling its products to intermediaries? After all, using intermediaries means giving up some control over how products are sold and who they are sold to. The answer lies in efficiency of distribution costs.
Intermediaries are specialists in selling.
They have the contacts, experience and scale of operation which means that greater sales can be achieved than if the producing business tried run a sales operation itself. Channel levels consist of consumer marketing channels or the industrial marketing channels. A factor common among both channel levels is that both include the producer as well as the end customer.
1) Zero Level channel / Direct Marketing Channel – Consists of a manufacturer directly selling to the end consumer.
This might mean door to door sales, direct mails or telemarketing. Dell online sales is a perfect example of a zero level channel marketing. 2) One Level channel – As the name suggests, the one level channel has an intermediary in between the producer and the consumer. An example of this can be insurance in which there is an insurance agent between the insurance company and the customer. 3) Two level Channel – A widely used marketing channel especially in the FMCG( fast moving consumer goods are products which are sold at a relatively low cost and are sold quickly) and the consumer durables industry which consists of a wholesaler and a retailer.
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Three level channel – Again observed in both the FMCG and the consumer durables industry, the three level channel can combine the roles of a distributor on top of a dealer and a retailer. The distributor stocks the most and spreads it to dealers who in turn give it to retailers. Number of intermediaries There are three broad options – intensive, selective and exclusive 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. igarettes, beer). 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. Intensive distribution is appropriate for products such as chewing gum, candy bars, soft drinks, bread, film, and cigarettes where the primary factor influencing the purchase decision is convenience. Industrial products that may require intensive distribution include pencils, paperclips, transparent tape, file folders, typing paper, transparency masters, screws, and nails.
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. Selective distribution may be used for product categories such as clothing, appliances, televisions, stereo equipment, home furnishings, and sports equipment.
Exclusive distribution is an extreme form of selective distribution in which only one wholesaler, retailer or distributor is used in a specific geographical area. Products such as specially automobiles, some major appliances, certain brands of furniture, and lines of clothing that enjoy a high degree of brand loyally are likely to be distributed on an exclusive basis. This is particularly true if the consumer is willing to overcome the inconvenience of traveling some distance to obtain the product.
Usually, exclusive distribution is undertaken when the manufacturer desires more aggressive selling on the part of the wholesaler or retailer, or when channel control is important, exclusive distribution may enhance the product’s image and enable the firm to charge higher retail prices. Terms and Responsibilities of Channel Members * Price policies: This out the price at which middlemen will get the product from the manufactures and the discount schedule. It also mentions the price at which middlemen may sell the product.
Condition of sales: The manufacturing firm stipulates mode or payment terms. For example, some firms ask middlemen to put a deposit with them. Some other firms insist payment to reach them on the day the intermediary takes physical possession of the goods. Others may accept a letter of credit as a payment mode . Credit policy of the manufacturer stipulates the period in which it must get paid. * Territorial Rights: The manufacturer should spell out the territorial jurisdiction of each of the distributor to avoid any territory jumping. This will also help in the distributor’s evaluation.
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