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A company’s distribution channel supports its sales programs and activities. The distribution channel is the point to supply the products to the customers. The distributors of Nestle and Konica, for example, supply the goods to dealers, wholesalers, and retailers, who distribute the goods to the end users/consumers. A company or its distributors can also supply the goods or services directly to the consumers. A company might have its awn distribution set up but it may prove costly to run such a set up while if the company hires private distribution channels or agency as an intermediary or middleman to distribute its goods or services, it incurs a small expense called distribution discount or commission. Such discount may vary from 5% to 10% or even 15%.

BENEFITS OF DISTRIBUTION CHANNELS

1 Dissemination of market information on current and potential customers,
competitors, other market forces, etc.
2 Financing: The distributors pay the companies against the stock purchased, thus
they finance the companies.
3 Bulk Selling: Normally, the distributors buy in bulk quantities, which help
companies achieve sales targets.
4 Inventory Storage: Distributors store bulk stock in their warehouse to meet
abrupt market demands.
5 After-sales services: Distributors some times hire technical staff to provide
Technical services to their customers provided the company direct them.

PRINCIPAL FUNCTIONS OF DISTRIBUTION CHANNELS

They include booking and supply of goods to customers and recovery of payment of invoices/ bills. In addition, they cover a specific market for sales, supply the goods on their transport vehicles, store the goods in their warehouse under company-specified temperature, and hold inventories equivalent to fulfill one month’s sale or as instructed by the company, such as 7 or 14 days sales inventory, 1.5 or 2 month’s sales stock.

MULTIPLE DISTRIBUTION CHANNELS

A company might have multiple distribution channels, such as distribution
network plus making direct sales to big customers (big wholesale dealers, retailers, or even big consumers), direct marketing staff that serve postal or online
orders, such as mail-order business, and telemarketing staff to find new customers
and fulfill their demands, a company’s own retail chain of stores, etc.

EVALUATING DISTRIBUTORS’ PERFORMANCE

An agreement of trade partnership takes place between the company and its individual distributors, specifying such terms as, contract validity period; discount; inventory keeping requirement (such as keeping inventory equivalent to one month’s sale); storage conditions/ temperature; order cycle; payment terms; dissemination of periodic sales data and market information, etc. A verbal and written formal communication channel is built between the company and its distributors. The distributors or agents that violate the terms of contract are trained and motivated, or replaced if they do not improve their services.

TYPES OF DISTRIBUTORS

1 National distributors / sole distributors supply a company’s products to
other distributors in a country.
2 Zonal / Regional distributors supply a company’s products to specific areas, such as a province or provinces, as South of Pakistan, including Sindh and Baluchistan.
3 Distributors supply a company’s products to a specific area, such as a district.
4 Sub-distributors supply a company’s products to a specific area, such as a district
under an agreement with either the company, called the principle or its local
distributor.
5 Franchise distributors supply a company’s products to a specific area, such as a district.
6 Franchise is an agreement to license the manufacturing, or manufacturing and marketing, or only selling rights of a company’s products called franchiser to the other company, called franchisee. Another development in franchising is forming franchise distributors, franchise wholesalers and franchise retailers. Franchise retailing is very common in mobile phone service industry, fast food, travel agencies, fitness centers, etc.
7 Brokers and agents: They normally do not themselves purchase the goods or services but bring buyers and sellers together and assist in negotiation. Sometimes they sell the products to the buyers without identifying the seller. They earn a commission of 2 to 6% of the selling price. Some typical examples are real estate brokers, insurance agents, security service agents, etc.

For further insight on the chapter, refer the book, Marketing management by Philip Kotler; read type of wholesalers and retailers; franchising; and determining optimal order quantity method (of cost accounting).