the objectives and usefulness of different channels of distribution

3.3 The Marketing Mix – Place (Distribution)

Learning Objective

To understand the objectives of distribution channels, to analyse the usefulness of different channel types (including digital channels), and to evaluate how channel design, power and management support a firm’s overall marketing strategy.

Why Distribution Matters

Place (distribution) links the producer with the consumer. An effective distribution strategy ensures that the right product reaches the right customer, at the right time, in the right quantity, and at an acceptable cost while supporting the overall marketing‑mix objective of “Place” in the Cambridge 9609 syllabus.

Key Objectives of Distribution Channels

• Make products available where and when customers want them.
• Reduce the total cost of moving goods from producer to consumer.
• Provide specialised services such as storage, financing, risk‑taking, and market information.
• Facilitate market coverage, penetration and brand positioning.
• Allow the firm to focus on its core competencies while specialists handle logistics.
• Enhance brand image through selective or exclusive channel choices.

Channel Functions (Explicit)

Distribution channels perform three groups of core functions. A concrete example follows each function to aid recall.

1. Transactional functions – buying, selling, risk‑taking, financing.
   Example: A retailer assumes the risk of unsold inventory (risk‑taking) and provides credit to the consumer (financing).
2. Logistical functions – assorting, storing, sorting, transporting.
   Example: A wholesaler assembles a range of snack products (assorting), stores them in a warehouse (storing) and delivers pallets to retail outlets (transporting).
3. Facilitating functions – market information, promotion, after‑sales service.
   Example: An agent gathers local market trends and passes the information to the manufacturer (market information) and arranges in‑store promotions (promotion).

Channel Design – Length and Structure

Channel length is the number of intermediaries between producer and consumer.

• Short channel – direct sale or only one intermediary.
  Illustration: Apple → Apple Store (one retailer).
• Long channel – two or more intermediaries.
  Illustration: Farmer → regional wholesaler → supermarket chain → consumer.

Steps in Channel Design (Checklist)

1. Identify the target market and its buying behaviour.
2. Determine the required level of market coverage (intensive, selective, exclusive).
3. Choose the optimal channel length and type of intermediaries.
4. Select specific channel members based on reputation, coverage, service capability, and cost.
5. Negotiate contracts, set performance standards and establish monitoring systems.

Classification of Distribution Channels

1. By Number of Intermediaries

• Direct channel – Producer sells straight to the end consumer (e.g., own retail store, company website, mobile app).
• Indirect channel – One or more intermediaries are involved (wholesalers, retailers, agents, brokers).

2. By Market Coverage

• Intensive distribution – Product stocked by as many outlets as possible.
  Brand example: Coca‑Cola (soft drinks).
• Selective distribution – Product sold through a limited number of carefully chosen outlets.
  Brand example: Dyson (high‑end vacuum cleaners).
• Exclusive distribution – Only one or a very few intermediaries are given the right to sell the product.
  Brand example: Rolex (luxury watches).

3. By Channel Type (Physical vs. Digital)

• Physical (Traditional) Channels – Brick‑and‑mortar retailers, wholesalers, distributors, agents.
• Digital Channels – E‑commerce websites, online marketplaces, mobile apps, social‑media shops.

Digital Distribution – Key Features & Examples

• Direct‑to‑Consumer (D2C) e‑commerce – Manufacturer’s own website or app (e.g., Nike.com, Tesla online configurator).
• Online Marketplace – Third‑party platform where many sellers list products (e.g., eBay, Etsy, Amazon).
• Omni‑channel Integration – Combines online and offline touch‑points (click‑and‑collect, in‑store returns of online purchases).
• Digital Logistics – Real‑time tracking, automated warehouses, robotics, drones or crowd‑sourced couriers, and last‑mile delivery services (e.g., DHL eCommerce, Amazon Prime, JD.com’s “smart warehouse”).

Digital channels can reduce physical intermediaries, lower entry barriers, provide rich customer data, and enable rapid market entry, but they also require robust IT infrastructure and can increase competition on price.

Usefulness of Different Channels – Summary Table

Factors Influencing Channel Choice

1. Product characteristics – perishability, size, complexity, need for after‑sales service.
2. Target‑market profile – geographic spread, buying habits, price sensitivity.
3. Competitive environment – rival channel strategies and market saturation.
4. Company resources – financial strength, logistics capability, managerial expertise.
5. Desired level of control – over price, promotion, service standards and brand image.
6. Regulatory and legal considerations – licensing, import/export restrictions.

Channel Power, Conflict and Management

• Sources of channel power
  • Economic power – size of purchases or sales volume.
  • Legal power – exclusive contracts, franchising agreements.
  • Technical power – superior product knowledge or market information.
  • Co‑ordinative power – ability to organise activities across the channel.
• Typical channel conflicts
  • Vertical conflict – producer vs. retailer over pricing or promotion.
  • Horizontal conflict – competition between retailers or between distributors.
  • Multi‑channel conflict – online sales cannibalising brick‑and‑mortar sales.
• Managing channel relationships
  • Clear contracts and performance standards.
  • Channel incentives – margin allowances, co‑operative advertising, exclusive territories.
  • Regular communication and joint planning.
  • Conflict‑resolution mechanisms – mediation, arbitration.
  • Monitoring through KPIs and periodic reviews.

Evaluating Channel Effectiveness

Businesses should continually assess whether their distribution channels meet the set objectives. Key performance indicators (KPIs) include:

• Sales volume, market share and growth rate.
• Distribution cost per unit (logistics, handling, margin to intermediaries).
• Inventory performance – stock‑out frequency, inventory turnover, order‑fill rate.
• Customer‑related measures – satisfaction, repeat purchase rate, service quality.
• Channel partner performance – sales targets, compliance with brand standards, reliability of delivery.
• Digital metrics (for online channels) – website traffic, conversion rate, average order value, cart abandonment.

Strategic Implications of Channel Choice

• Channel decisions must align with the overall marketing strategy (price positioning, promotion mix, product differentiation).
• Intensive distribution supports a cost‑leadership strategy; exclusive distribution reinforces a differentiation or luxury positioning.
• Digital channels enable rapid market entry and data‑driven product development, vital for firms pursuing an innovation strategy.
• Effective channel management can create a sustainable competitive advantage through superior service, faster delivery, or stronger brand control.