Distribution Channels

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DISTRIBUTION

DEFINITION
A distribution channel is a set of independent organizations involved in the process of making a product or service available to the consumer or a business user.

IMPORTANCE OF DISTRIBUTION CHANNELS
The main function of a distribution channel is to provide a link between production and consumption. Organisations that form any particular distribution channel perform many key functions: InformationGathering and distributing market research and intelligence - important for marketing planning PromotionDeveloping and spreading communications about offers ContactFinding and communicating with prospective buyers

MatchingAdjusting the offer to fit a buyer's needs, including grading, assembling and packaging NegotiationReaching agreement on price and other terms of the offer Physical distributionTransporting and storing goods

FinancingAcquiring and using funds to cover the costs of the distribution channel Risk takingAssuming some commercial risks by operating the channel (e.g. holding stock) All of the above functions need to be undertaken in any market. The question is - who performs them and how many levels there need to be in the distribution channel in order to make it cost effective. CHANNEL LEVELS OF DISTRIBUTION

Each layer of marketing intermediaries that performs some work in bringing the product to its final buyer is a "channel level". The figure below shows some examples of channel levels for consumer marketing channels:

In the figure above, Channel 1 is called a "direct-marketing" channel, since it has no intermediary levels. In this case the manufacturer sells directly to customers. An example of a direct marketing channel would be a factory outlet store. Many holiday companies also market direct to consumers, bypassing a traditional retail intermediary - the travel agent. The remaining channels are "indirect-marketing channels".

Channel 2 contains one intermediary. In consumer markets, this is typically a retailer. The consumer electrical goods market in the UK is typical of this arrangement whereby producers such as Sony, Panasonic, Canon etc. sell their goods directly to large retailers such as Comet, Dixons and Currys which then sell the goods to the final consumers. Channel 3 contains two intermediary levels - a wholesaler and a retailer. A wholesaler typically buys and stores large quantities of several producers’ goods and then breaks into the bulk deliveries to supply retailers with smaller quantities. For small retailers with limited order quantities, the use of wholesalers makes economic sense. This arrangement tends to work best where the retail channel is fragmented - i.e. not dominated by a small number of large, powerful retailers who have an incentive to cut out the wholesaler.

INTERMEDIARIES FOR HOSPITALITY INDUSTRY
1.TRAVEL AGENTS: One way of reaching a geographically diverse marketplace is through travel agents. Hotels interested in travel agency business are listed in airline reservation systems and hotel guides. Hotels also send packages to travel agents that include collateral material and hotel news, including updates about hotel; packages, promotions and special events. 2.TOUR WHOLESALERS: Tour wholesalers assemble travel packages usually targeted at the leisure market. These generally include transportation and accommodations, but may include meals, ground transportations and entertainment. In developing a package, a tour wholesaler contracts with airlines and hotels for a specified number of seats and rooms, receiving a quantity discount. 3.HOTEL REPRESENTATIVES: Hotel representatives sell hotel rooms and hotel services in a given market area. It often more effective for hotels to hire a hotel representative than to use their own salesperson. The hotel representatives receive a straight commission, a commission plus salary, or a combination of both. 4.TOURIST AGENCIES: National, state and local tourist agencies are an excellent way to...
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