1.0 INTRODUCTION
Placing goods and services where they are required and when they
are wanted is the area of concern of this note. Marketing channel decisions are
among the most important decisions that management
faces. A company’s channel
decision directly affects every other marketing decision. For example, the
company’s pricing depends on whether it uses mass merchandise or high quality
specialty stores. The firm’s sales force and advertising decisions depend on
how much persuasion, training and motivation the dealers need.
Whether a company develops or acquires certain new products, may
depend on how well those products fit the abilities of its channel members.
Most producers use intermediaries to bring their products to the market. They
try to forge a distribution channel either using the existing channels or
creating a new independent channel. The use of intermediates has become
necessary in making goods available to target markets, since they cannot have
access to the producers directly.
2.0 OBJECTIVES
At the end of this note, you should be able to:
explain marketing channels
explain types of channels
describe the role of distribution channels in the overall
marketing of products
state the factors involved in selection of an appropriate channel mix.
3.0 MAIN CONTENT
3.1 Channels of
Distribution
The term channel of distribution is used to refer to the various intermediaries
who help in moving products from the producer to consumers. There are a variety
of middlemen and merchants who act as intermediaries between the producers and
consumers. Stanton (1981:283) defines a channel of distribution for a product
as ‘the route taken by the title to the ultimate consumer or industrial users’.
A channel always includes both the producer and the final customer for the product,
as well as all middlemen involved in the title transfer. Even though agent
middlemen do not take actual title to the goods, they are included as part of a
distribution channel. This is because they play such an active role in the
transfer of ownership. A channel of distribution is also defined as ‘a system
designed to move goods and services from producers to customers, which consists
of people and organizations supported by various facilities, equipment, and information
resources’. However, Armstrong and Kotler (1994) reports that distribution
channel is ‘a set of interdependent organizations involved in the process of
making a product or service available for use or consumption by the consumer or
industrial user’.
Channels of distribution are the most powerful element among marketing
mix elements. Many products which were intrinsically sound have died in their
infancy because they never had the right road to the market. However, by
developing a sound distribution network and launching aggressive advertisement
campaigns, a company can carve out a niche for itself. Many Nigerian
manufacturers took advantage of the distribution network built by erstwhile
companies. This may be attributed to costs and time and goodwill of the
distributors concerned. However, it is better to study the distribution network
before launching a product.
Channels of distribution help movement of goods from one place to another
and thus create place utility. They make it possible for the consumer to get
the goods when he wants them and thus create time utility. They bring goods to
the consumer in a convenient shape, note, size, style and package and thus
create convenient value. They make it possible for the consumer to obtain goods
at a price he is willing to pay and under conditions which bring him
satisfaction and pride of ownership and thus create possession utility. It
should however be noted that the concept of marketing channels is not limited
to the distribution of physical goods alone. Producers of services and ideas
also face the problem of making their goods accessible to their target
consumers. Channels of distribution can be grouped under two major headings
namely, Direct Selling by Manufacturers and Indirect Selling through Middlemen.
3.1.1 Distribution
The functions performed by the members of the marketing channels include:
(a) Information: Gathering and distributing marketing research and intelligence
information about actors and forces in the marketing environment, needed for
planning and aiding exchange.
(b) Promotion: Developing and spreading persuasive communications about an offer.
(c) Contact: Finding and communicating with prospective buyers and suppliers.
(d) Matching: Shaping and fitting the offer to the buyer’s needs, including such
activities as manufacturing, grading, assembling and packaging.
(e)Negotiation: Reaching an agreement on price and other terms of the offer
so that ownership or possession can be transferred.
(f)Physical distribution: Transferring and storing goods.
(g) Financing: Acquiring and using funds to cover the costs of the channel work.
(h) Risk-taking: Assuming the risks of carrying out the channel work.
3.2 Types of Marketing Channels
Marketing channels can be described by the number of channel
levels involved. Each layer of middlemen that perform some work in bringing the
product and its ownership closer to the final buyer is a channel level. Because
the producer and the final consumer both perform some work, they are part of
every channel. We use the number of intermediary levels to indicate the length
of a channel. All of the institutions in the channel are connected by several
types of flows. These include the physical flow of products, the flow of
ownership, the payment flow, the information flow, and the promotion flow. We
shall now take a look at two types of marketing channels – channels for
consumer goods and channels for industrial goods. 
Fig. 1: A Channel for Consumer Goods
(1)Producer to the Consumers: When there are no intermediaries
between the producer and the consumer, the channel is direct. This type of
channel is most commonly used with organizational products, especially where
the product is new. This is aimed at creating awareness and to gain access to
target consumers.
(2) Producer to Retailer to the Consumer: The channel from producer
to retailer to the consumer is common when the retail establishments involved
are relatively large.
(3) Producer to Wholesaler to Retailer to the Consumer: The most common
channel for consumer goods. It employs a wholesaler to take care of the
shipping and transportation needs. Wholesalers offer the accumulating and
allocating functions that allow small producers to interact with large retailers,
and vice versa.
(4) Producer to Wholesaler to Jobber to Retailer to the Consumer: the producer
chooses to use agents (Jobbers) to assist the wholesalers in marketing goods.
The use of Jobbers could be attributed to their specialized experiences.
Fig. 2: Channels for
Industrial Goods
(1) Manufacturer to Industrial Customer (Buyer): From the diagram
above, manufacturers use direct marketing to distribute their products to the
industrial users. This is mostly associated with complex products that require
a good deal of pre-sale and post-sale support. It should be noted that
post-sale support is often best handled through a direct channel, because the manufacturer
might be the only entity with sufficient expertise to help the customer because
these large accounts generate enough business to support the sales effort
involved, and because large customers have a habit of going through their
economic weight to demand for personalized service.
(2) Manufacturer to Industrial Distributor to Industrial Customer:
This
is the most used channel for industrial products. Distributors take title to
the goods and specialize in different lines of goods. Some of the disadvantages
associated with this channel are that:
(a) Distributors will want access to large accounts that the manufacturer
may try to keep for itself
(b) Distributors try to keep their product selections wide, which
frequently means carrying competing lines
(c) Sometimes distributors do not always respond to manufacturers’
advice regarding promotions, pricing and operational policies.
(3) This channel of
distribution for industrial goods is mostly adopted by manufacturers which
wish to maintain control over their products. It also applies to those goods
that are sold across countries. Other factors include cultural factors, and
government policies, etc.
(4) The fourth channel of
distribution is adopted by manufacturers which wish to have control of
marketing activities of their products. However, some titles to the goods are
given to industrial distributors, who sell to the industrial customers when
needed and at the quantity needed.
3.3 The Importance of Channels of Distribution
The importance of channels of distribution is summarised below:
(1) Channels of distribution are the most powerful element among marketing
mix elements. Many products which were intrinsically sound died in their
infancy because they never found the right road to the markets.
(2) Channels take care of the transaction aspects of marketing, including
the selling, the financing and the risk taking associated with strong products
in anticipation of future sales.
(3) They perform the logical function of moving products from the point
of production to the point of purchase. (4) They help producers promote goods
and services.
3.4 Selecting an
Appropriate Channel
The channel decisions
are important (for two reasons). The costs involved in the use of a channel
entail the price that the consumer has to pay. The channel decision also has a
bearing on other marketing decisions like pricing and product line. Through
proper market feedback, an appropriate selection of channels can reduce
fluctuations in production. A rational decision regarding choice of channels of
distribution should ensure:
(a) maximum geographical
coverage of the markets
(b) maximum promotional efforts, and
(c) minimum cost The
following factors usually govern the selection of channels:
(1) The Type of Product For selling perishable products like bread and milk or vegetable,
it is important to have a short channel of distribution which facilitates quick
movement from the factory to the consumers. Limited channels may also be
employed where the movement of goods involves heavy freight and poses problems
of transportation for such goods as furniture, refrigerators, and air
conditioners. But distribution of products having lower notes and high turnover
involves a large number of middlemen as in the case of products matches, soap,
and toothpaste. When the product requires after-sale service as in the case of
television, air conditioners, and automobiles, the choice of middlemen may be
limited to only those who are in a position to provide these services. Since
not many middlemen may be capable of providing such services, again their number
may be limited.
(2) Nature and Extent of the Market If the number of
consumers is small as in number … is the case of bulky and expensive machinery,
the manufacturer may approach the customer directly through his own sales
force; so also, if the consumers are concentrated in a limited geographical
area. If the above conditions are not applicable, a longer channel may have to
be chosen. However, for industrial goods where such goods are bulky,
manufacturers may adopt direct selling/marketing.
(3) Competitive Characteristics It is a wise policy to study the
existing channels of distribution, particularly those used by competitors.
Channels design is influenced by the competitors’ channels. Producers may want
to compete in or near the same outlets carrying the competition channels.
However, where an established channel exists, the manufacturer may make use of
customary channels. For example, for soap and toothpaste, grocery stores are commonly
used.
(4) Costs Involved in Distribution Cost, no doubt, is a
very important consideration. The longer the channel of distribution, the
greater its cost. Thus, manufacturers look for ways to keep down the cost and
prefer distribution through middlemen who have their own established sales
force as it is more economical and involves less financial commitment.
Wholesalers shoulder some of the responsibilities of cost of stocking and
transporting goods. But the manufacturers have to provide them with a margin
which will either reduce their costs or increase the cost to the buyers. However,
in making a choice, the manufacturer has to consider his objectives, resources
and the channels available to him after considering the above factors. He/she
would like to use the channel of distribution which will produce the combination
of sales volume and cost that yields the maximum amount of profits. There are
no set guidelines for channel selection; therefore, manufacturers will have to
take their own decisions in the light of their own judgments and experience.
But most companies like to use multiple channels of distribution to ensure that
their products reach the maximum number of people. The task of manufacturers
does not end after the channels have been selected. They have to review the
services performed by these agencies involved at fairly frequent intervals.
They should keep in close touch with the changes related to the distribution of
their products, and seek to improve their marketing methods constantly.
3.5 Physical Distribution Tasks Producers/manufacturers must decide on
the best way to store, handle and move their goods and services so that they
are available to customers at the right time and place. Producers typically
need to employ the services of physical firms – warehouses and transportation companies
- to assist in this task. Armstrong and Kotler (1994) observed that physical
distribution involves planning, implementing, and controlling the physical flow
of materials and final goods, from points of origin to points of use, to meet
customer requirements at a profit. The aim of physical distribution is to
manage supply chains and value-added flows from suppliers to final users, as
shown below: 
There are several tasks
that have to be accomplished as part of physical distribution. These are:
There are several tasks
that have to be accomplished as part of physical distribution. These are:
(1) Location of Manufacturing Facilities There are two
interrelated issues. Firstly, where to locate the manufacturing facility and
secondly, how many facilities should be set up. The basic decisional parameters
would be the availability of the basic raw material and the location of the
market. It may decides to locate the manufacturing facility nearer to the
source of supply and ship the finished outputs to the outlying markets or to
erect the production facility near the geographical market to be served and
arrange the shipment of the inputs. The location of NNPC for example, in Port Harcourt
was based on the availability of raw material (crude oil) yonder. The basic
consideration involved obviously is the relative costs of transporting inputs
and outputs, including the economics of different modes of transportation which
may be used to transport raw materials and finished products.
(2) Location of Warehouses One important consideration in this
context is the nature of the product being sold. If the product is a household
item, such as tea, soap, or toothpaste, the retail outlets will be at the
bottom of the distribution channel. A manufacturer of capital equipment on the
other hand, can have only one centralized warehouse for the main product, but
has to maintain a number of service centers to stock spare parts.
(3) Mode and Method of Transportation There are several key
decisional points in this context which for long were considered the heart of
distribution management. These are:
(a) Which mode of transportation would be optimal?
(b) Which method of distribution would be optimal?
(4) Inventory Decisions Inventory holding costs are always on the increase due to all
round increase in prices as well as cost of capital. As a result, very careful attention
has to be paid to how much inventory should be maintained, of what items and
where. Many of these decisions have to be taken, keeping in view the broader
corporate objective of service reliability, i.e. the capacity of the firm to
deliver on time.
(5) Using External Distribution Agencies
Much of what has been discussed above refers to firms which want
to distribute products on their own. However, a firm may decide that because of
resource constraints or lack of in-house expertise, it would like to concentrate
on production and leave the task of distribution to an outside agency such as
Independent Marketers in Nigeria. Whether to contract out distribution or not,
is a major decision and would require an in-depth analysis of the relative
costs and benefits, both tangible and intangible, of the alternative courses of
action.
4.0 CONCLUSION
Distribution is the all-important link between a manufacturer and
his customers. The concern is for designing a distribution strategy to facilitate
the smooth physical flow of products from the manufacturers to the place where
the customers can buy them. Channels of distribution refer to the alternative
paths through which the goods can be routed. Direct selling and indirect
selling through intermediaries such as wholesalers and retailers are the two
alternative channels of distribution to choose from.
The final choice will depend on the type of product which you are
dealing with, number and location of customers and their buying habits and
costs involved. The manufacturers should also consider the specific advantages
of each type of intermediary before taking a final decision.
5.0 SUMMARY
In this note, you
learnt what marketing channels are, the role of distribution channels in the
overall marketing of products, and factors responsible for selecting an
appropriate channel mix. 
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