Dr. Suleman Alvi

What is a Channel

Supply chain consist of all parties and their activities that help a

manufacturer create and a marketer deliver the product to the final

customer. A marketer is mainly concerned with the front end i.e.

the Distribution Channels

All independent organizations and their activities that help move

the goods from manufacturer/marketer to the end user are

collectively called Distribution channel

2

Channel Members

Marketer Marketing company / Supplier / Manufacturer

Specialist Organization:

Resellers take ownership of products from marketing company with the intention of selling to others

Retailers sell direct to end users

Wholesaler / Distributors buy from marketer and sell to retailers

Industrial Distributors B2B (buy from industrial suppliers)

Specialty Service Firms:

Agents & brokers bring suppliers and buyers together for a fee

Distribution Service Firms offer services aiding in the movement of products (assistance with transportation, storage and order processing)

Others provide additional service (e.g. insurance and routing)

3

Channel Activities Ordering

Packaging

Handling

Shipping

Sorting

Storage

Display / Merchandising

Promotion

Bundling

Selling / Invoicing

Informing / Educating

Information feedback

After Sales Service

Others

4

Why we need Channels ? Specialization

Reduce Time to reach customers

Convenience / add variety

Larger number of transactions with smaller denominations

(small value per transactions)

Increase reach and coverage

Sales creation

Information flow

Customer Service

Financial support

5

Demand-Side factors Facilitation of Search

Addressing Assortment Discrepancy - natural miss-match between goods/service made by a manufacturer and good/service demanded by an end user. Manufacturer produce a large quantity of a small variety of goods, while end user require small quantities of larger variety

Sorting breaking down a heterogonous supply into separate stocks that are relatively homogenous

Accumulation bring together similar stocks from a number of manufactures into a homogenous supply

Allocation Breaking down a homogenous supply into smaller and smaller lots. Allocation at Wholesale level is terms as Breaking Bulk

Assorting building up an assortment of products for resale in association with each other

6

Channel Development & Change

Supply-Side factors

Routinization of transactions

Transactions are made routine to decrease cost and bring

Standardization in the process

Continuous Replenishment Program (CRP) is a classic example of

routinization process.

In CRP manufacturing and retailing partners share inventory and

stocking information to avoid under/over stock.

In CRP transactions are more frequent but smaller resulting in lower

turnaround time and lower inventories in the system

7

Channel Development & Change

8

Marketing Flows in Channels

Producer End- User

Retailer Whole-

saler

Physical possession

Ownership

Negotiation

Promotion

Financing

Risk taking

Ordering

Payment

Physical possession

Ownership

Negotiation

Promotion

Financing

Risk taking

Ordering

Payment

Physical possession

Ownership

Negotiation

Promotion

Financing

Risk taking

Ordering

Payment

Identifying Channels

Industry / Sector

Manufacturer / Suppliers

Category Potential Members of Distribution channel

Pharmaceuticals GNC Vitamins (OTC) ?

Pharmaceuticals Abbott Antibiotics (on Prescription)

?

FMCG Colgate Palmolive Oral Care (Toothpaste) ?

Information / Knowledge

Oxford University Press

Books Non Fiction

?

Automobiles Indus Motors / Toyota

Sedan Corolla

?

Chemicals BASF Dyes / colors for textiles ?

Insurance EFU Life Life assurance ?

Insurance EFU General Vehicle insurance ?

9

Identifying Channels (2)

Industry / Sector

Manufacturer / Suppliers

Category Potential Members of Distribution channel

FMCG P&G Diapers ?

Natural elements ICI Soda Ash ?

Telecom Mobilink Pre-paid mobile phone packages

?

Print media Jang group National Daily / Newspaper

?

Dairy products Nestle Low Fat Milk ?

Pest/Insect control

R&B Flying Insect Killer ?

Aviation Emirates Long Haul International Travel

?

Computing Dell Laptops ?

10

11

Channel length = number of levels in a distribution channel.

Manufacturer Manufacturer Manufacturer Manufacturer

Consumer Consumer Consumer Consumer

Retailer Retailer Retailer

Wholesaler Wholesaler

Agent

2 level 3 level 4 level 5 level

Length of Channel

12

Intensity of Channel

Channel intensity: the number of intermediaries at each level of the marketing channel.

All Possible Intermediaries

Relatively Few Intermediaries

Just One Intermediary

Intensive Exclusive Selective

13

Technology and Channels

Technology has impacted the way channels are structured and

evaluated

Flow of good and information through Channels is now driven by

level of technology employed

Impact on speed and cost of transit

Internet / e-Commerce

Business Process Management

SAP / ORACLE