Channels of Distribution, Physical Distribution and Logistics
Channels of distribution and physical distribution/logistics are the focus here. You should distinguish channel levels, intensity choices and logistics components, and explain channel functions.
Core rules
- A channel moves goods and ownership from producer to consumer. Zero level: direct selling or e-commerce. One level: retailer. Two levels: wholesaler-retailer. Three levels: agent-wholesaler-retailer.
- Functions: buying, selling, assorting, bulk breaking, storage, transport, financing, risk bearing and market information.
- Intensity: intensive (FMCG), selective (appliances) and exclusive (luxury or premium).
- Logistics components: order processing, warehousing, inventory management, transportation and reverse logistics. Customer service level is the trade-off among cost, speed and reliability.
- Channel conflict can be vertical (different levels) or horizontal (same level).
Worked example
A pickle maker sells jars online in its home city and through a distributor in nearby districts. Reasoning: direct online gives margin and feedback but only where delivery is cheap; the distributor adds reach, credit and retail relationships. A two-level channel raises the final price, so the firm uses smaller packs for distant markets. If the online store undercuts the distributor, vertical conflict arises; the firm can offer different pack sizes or a channel-specific price.
Traps
Do not equate physical distribution with the whole channel; logistics is one part. More channel levels are not automatically inefficient if they add reach and service. Do not choose exclusive distribution for a low-value convenience good.