To enable students to analyse and understand the configuration of distribution channels.
- Definition of “distribution channel”.
- Concept of distribution channel: type channel, enterprise channel, unit channel.
- Technical and economic assumptions underlying creation of channels: specialisation of operations, variations in scale, discrepancies in assortment between production and consumption.
- Supply chains.
- Stages in the distribution process: production, wholesale commerce, retail commerce and consumption.
- Factors influencing choice of distribution process: nature of product, market structure, environmental factors.
- Consumer behaviour, the retail business and distribution process.
“The group of institutions that work together to move goods from the factory to the market”.
“A group of operational, interdependent units, arranged in sequence to ensure that the necessary operations are carried out to transfer property or ownerhsip of a product from the producer to the consumer or end user, generating a flow of logistics, information, promotion and money”.
Two categories can be identified depending on the product or owner:
- ownership channel;
- transaction channel.
Concept of distribution channel
Type channel (ownership channel)
Production – Wholesale – Retail – Consumer
Manufacturer – Wholesaler – Representative – Retailer – Consumer.
Unit Channel (transaction channel)
Factory – Local warehouse – Wholesaler – Representative – Local deposit – Retailer – Consumer.
Technical economic assumptions
Certain assumptions underly distribution channels.
- Operations are specialised:
- transaction costs are reduced for suppliers and customers alike.
- Variation in scale of operation:
- these are necessary in any distribution cycle to cope with changes in the quantity of merchandise and they keep costs down
- Discrepancy of assortment between production and consumption:
- in terms of place, time, quantity and variety and this means that an intermediary unit is required in the channel.
A channel, as a concept is superceded by that of the Supply chain:
“the group of operators with common directives and goals that make the distribution process happen”.
Stages and actors in the distribution process
the role of the wholesaler has been revalued thanks to the way management of the wholesaling business has been modernised:
- concentration and warehousing of merchandise;
- publicity and marketing roles (creating product range, communication, etc.);
- logistics (transport, warehousing, quantitative adaptation);
- auxiliary role (financing, technical and marketing consultancy).
Dispersion and assortment
Stages in distribution process and types of channel
Stages in distribution process and types of channel (cont.)
Factors affecting decision
Characteristics of product
- nature and technical (perishability and complexity);
- physical (volume and ease of handling);
- economic (unit value, elasticity and seasonal nature of demand).
- consumer behaviour (convenience, shopping and speciality goods);
- structure of competition (concentration).
- distribution fabric in country;
Characteristics of company
- financial and organisational capacity;
- assortment and product differentiation.