What Is a Direct Distribution Chain?

WHAT IS A DIRECT DISTRIBUTION CHAIN?

Distribution chains refers to the series of entities, individuals and organizations that ensure any product or service reach consumers from the producers. It is covered under ‘Place’ part of the famous 4-P model as marketing channel.  To reach a target market, the marketer uses three kinds of marketing channels viz: communication channel, distribution channel and service channel (Kotler, 2016). According to Kotler, 2016 -

Distribution channels help display, sell or deliver the physical product or service(s) to the buyer or user. These channels maybe direct via internet, mail etc. or indirect with distributors, wholesalers, retailers and agents as intermediaries.

The term distribution chain and distribution channel has been used interchangeably in the literature. Distribution can be classified as direct shipping to customer or indirect shipping containing one or more intermediaries (Chopra, 2010). Dent, 2011 further describes a typical distribution structures as:

1. Direct distribution: where resources are managed by supplier directly to the customers,
2. One-tier distribution: where there are set of intermediaries between company and customers,
3. Two-tier distribution: where there are two set of intermediaries to increase service area such as across the country, and
4. Multiple-tiered distribution: more than two set of intermediaries.

In other words, a direct distribution channel can be defined as a distribution channel in which there are no intermediaries. This includes face-to-face sales, or online sales with the use of mails or any other platform with the absence of the distributor. So, a company which sells its own products at retail outlets, which are operated by them, are using a direct channel of distribution.  

DIRECT DISTRIBUTION AND THE FMCG SECTOR

The FMCG sector, in India, is one of the longest supply chain any industry could truly have. Sometimes, there exist as many as 5 levels of intermediaries (Retailers, Wholesalers, Distributors and Dealers, Franchisees and Agents) in the distribution channel. The sector, around 2 decades back, decided to experiment with the distribution channel strategy by adopting the direct distribution channel as a key mode of product and services distribution. The advent of the use of such a distribution channel by the FMCG companies started in the early 1990s with HUL coming up with the “Operation Bharat”  which was followed by numerous initiatives from Coca-Cola,

P&G, ITC and Marico, to name a few. By 1999, "Operation Bharat" had its spread across more than 13 million rural household. The operation involved fleets of HUL vans touring through villages across the nation distributing low unit price pack each of shampoo, talcum powder, toothpaste and skin cream priced at 15rs. The intention behind the whole operation was to create awareness of the company's product categories and of its affordability. In 2000, a similar initiative was seen by ITC wherein they tried to create and maintain direct contact with the farmers in the remote villages of Madhya Pradesh. The E-choupal was an outcome of this initiative and was a game changer for ITC. (Thakor, 2013)