Alternative channels
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1. Physical distribution channels refer to the methods used to transfer products from production to customers. 2. Companies have a variety of alternative channels to choose from to reach customers, often using a mix to target different buyer segments. 3. Alternative channels are described by the type and number of intermediaries used as well as the terms of responsibilities between members. Common alternatives include manufacturer direct to retail, manufacturer to wholesaler to retail, mail order, internet shopping, and factory direct to home or business.
Alternative channels
- 2. Channel: Physical distribution channel is the term used to describe the method and means by which a product or a group of products are physically transferred, or distributed, from their point of production to the point at which they are made available to the final customer.
- 3. Alternative: 5km 7km 20km 8km 8 km 3km 3km 4km 8km A B F C D E
- 4. Identifying channels alternative: Company can choose from a wide variety of channels from reaching customers. Most companies use a mix of channels. So that the product reaches a different segment of buyers.
- 5. A channel alternative is described by three elements: 1. Type of intermediaries 2. No. of intermediaries Exclusive distribution Selective distribution Intensive distribution
- 6. 3. Terms and responsibilities of channels members: Price policy Condition of sale Mutual services and responsibilities
- 7. Evaluating alternatives: Economic criteria Control criteria Adaptive criteria
- 8. Economic criteria: Firms tries to align customer and channels to maximise demand at the lowest overall cost.
- 9. Rs .10 Rs.14 Rs.5 Rs.8 Rs.6 Rs. 9 Rs.6 Rs.10 C B A F E D
- 10. Control Criteria : Firm tend to achieve proper control over the channel. Adaptive Criteria : In rapidly changing , volatile or uncertain product markets, the producer needs channel structures and policies that provide high adaptability.
- 12. Alternative Channel Systems for Consumer Products
- 13. Manufacturer Direct To Retail Store. The manufacturer or supplier delivers direct from the production point to the retail store. As a general rule, this channel is only used when full vehicle loads are being delivered.
- 14. Advantages : Loyalty, pride in company/product Control brand image, positioning Disadvantage : ● Limited coverage ● Cannot call on large customer base
- 15. Manufacturer Via Retailer Distribution Centre to Retail Store. Manufacturers supplying their products to National Distribution Centers (NDCs), which are sites run by the retail organizations. The retailers then deliver full vehicle loads of all the different manufacturers products to their own stores. Most retailers now use third parties to run these final delivery operations.
- 16. Advantage : Focused customer base Assume financial and inventory risk Disadvantage : Carry competitive products, less loyal Unmanageable; have own agenda
- 17. Manufacturer to Wholesaler to Retail Shop. Wholesalers acted as the intermediaries in distribution chains, providing the link between the manufacturer and the small retailers' shops. Ex. Biscuit, grocery items.
- 18. Advantage : ● Good relationships with customers ● Minimal distribution costs. Disadvantage : Expensive commissions If they leave, you lose the customer
- 19. Mail order. Goods are ordered by catalogue, and delivered to the home by post or parcels carrier. The physical distribution channel is thus from manufacturer to mail order house as a conventional trucking operation, and then to the consumer's home by post or parcels carrier, bypassing the retail store.
- 20. Advantage: Relatively inexpensive Can reach a large customer in lesser time . Disadvantage: Postage costs rising Catalog shopping is fun
- 21. Internet and shopping from home.Initial physical distribution channels were similar to those used by mail order operations - by post and parcels carrier. The move to internet shopping for grocery products has led to the introduction of specialist home delivery distribution operations. These are almost all run by third- party companies. In addition, it is now possible to distribute some products, such as music, software and films, directly, computer to computer.
- 22. Advantage: Instantly global if desired, wide exposure Open 24/7/365, access growing wireless Disadvantage: Limited audience (not everyone has it or will use it for shopping) Lack of one-to-one interaction, impersonal
- 23. Factory direct to home. It can occur by direct selling methods, often as a result of newspaper advertising. It is also commonly used for one-off products that are specially made and do not need to be stocked in a warehouse to provide a particular level of service to the customer.
- 24. Some other specific channels: Manufacturer via broker to retail shop. Manufacturer via small parcels carrier to retail shop. Manufacturer via third-party distribution service to retail shop. Manufacturer to cash-and-carry wholesaler to retail shop
- 25. Alternative Channel Systems for Industrial Products
- 26. Factory to factory/business to business. The factory-to-factory or business-to- business channel is an extremely important one, as it includes all of the movement of industrial products, of which there are very many. This may cover raw materials, components, part-assembled products, etc. Options vary according to the type and size of product and order, may range from full loads to small parcels, and may be undertaken by the manufacturers themselves or by a third party.