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Distribution Channel

Essay by   •  April 18, 2012  •  Research Paper  •  975 Words (4 Pages)  •  1,778 Views

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Distribution Channels

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Abstract

Distribution channel is the path followed by a product from the manufacturer to the final consumer. This paper proposes to explore on the various channels of distribution available, it also discusses the best channel of distribution to a manufacturer. Patterns of distribution channel like intensive, exclusive and selective distributions are also discussed.

Distribution Channel

Distribution is the process of bringing product from the location of production to the consumer. As a part of the marketing process, it has to satisfy the needs of the customers and must help develop a stable and predictable market of the product. The distribution channel is therefore the path through which products flow from the producer to the consumer. When choosing the channel of distribution to follow the manufacturer must consider which channel of distribution is most effective at lowest cost (Ramanan, 2005).

Direct and Indirect channels of distribution

Indirect channel are employed when the manufacturers markets their products through another firm that acts as the manufacturers' sales intermediary. There are several advantages to be gained by the manufacturer for employing this channel of distribution. First the channel is simple and inexpensive. The manufacturer incurs no start-up cost and is relieved of the cost of physically moving the goods to the market. Since the intermediary also represents other clients, the distribution cost is further reduced by sharing cost. However this distribution channel also has some limitations. The manufacturer has to give up the control over the marketing of its product and the intermediary can terminate the distribution of the product at any time.

Direct channel of distribution is employed when the manufacturer deals directly with the consumers. The manufacturer does this by hiring a sales force to get the product on the shelves or into the hands of the consumer. One advantage the manufacturer enjoys for employing this channel is the active market exploration. Another advantage is the control of the marketing strategies and eliminates the possibilities of the product being sold alongside the competitors' product. However, direct distribution is time consuming and expensive. If the manufacturer is unfamiliar with the market it can be hard to manage.

Channel Organization

Vertical Marketing Systems

A vertical marketing system (VMS) is a distribution channel in which producers, wholesalers and retailers act as one system. One channel member owns the others, has contracts with the other or possesses so much power that they all cooperate. This marketing system has become a major mode of distribution in many countries.

Conventional Marketing channel

The conventional marketing system consists of a producer, a wholesaler and a retailer but unlike the Vertical Marketing System they are independent. No channel member has complete or substantial control over the other members.

Horizontal marketing system

This is a channel arrangement in which two or more companies at one level join together to follow new marketing opportunity. By working together, companies

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