Innovative Marketing in Turbulence and Sustainability

HYBRID DISTRIBUTION CHANNELS – THE FUTURE

OF DISTRIBUTION CHANNELS IN INDIA

Discipline: Marketing

Sub-theme: Emerging Trends in Marketing

Authored by

Dr. Ramkishen Y.

Mr. Saurin K. Gandhi

K. J. Institute of Management Studies and Research, Vidyavihar East, Mumbai 400077

 HYBRID DISTRIBUTION CHANNELS – THE FUTURE OF DISTRIBUTION
CHANNELS IN INDIA

EXECUTIVE SUMMARY:

Increasing competition and ever-changing demands of the consumers is forcing companies to

rethink their distribution strategies. Profitability, Sustainability and Caring for the Customers will
be the new buzz words on the way how distribution channels would be redefined. Scaling up the
distribution channels in domestic, national and international markets and penetrating into these
deeper pockets of the market landscape would mean extensive market coverage by minimizing
the cost.

Co-existence of multiple distribution channel systems which are managed by a company for
incremental returns and extensive coverage of the products is known as Hybrid Distribution
Channel. Several distribution channels are already being used by the companies. The challenge,
therefore, is to design an effective hybrid distribution channel to balance between minimizing the
costs and maximizing the customer satisfaction.

This research paper will explore the concept of Hybrid Distribution Channels and explain how
they can be used as a strategic advantage by companies in order to sustain in the competitive
market place. It will also highlight the conflicts which may arise due to functioning of these
channels and how to overcome them.

Key Words: Hybrid Distribution Channels, Multiple Channels, Channel conflicts, Strategic
Framework for Hybrid Distribution Channels, Online Distribution

Contd…

INTRODUCTION:
Distribution or Place is the fourth traditional element of marketing mix. The other three are
Product, Price and Promotion. Distribution acts as a bridge between customer and manufacturer.
Most business use third parties or intermediaries to bring their products to market. They try to
forge a Distribution channel. Even though intermediaries mean losing partial control, it might
increase efficiency of Distribution costs. Distribution is all about getting the product/service to
the right people at the right time with special consideration for profit and effectiveness.
When a product/service is purchased by a consumer, it may have been bought directly from the
business (Direct Distribution), or it may have been through a number of intermediaries like
wholesaler, retailer, etc (Indirect Distribution). These are known as Distribution channels.
Channel selection and deployment is one of the most critical issues faced by marketers today.
Hybrid Distribution systems are characterized by the existence of multiple distribution channel
systems, belonging to the same entity and created to deliver products/service to one or several
market segments. Hybrid marketing channels talks from the point where producers sell their
products through several methods: both through mediators and directly to consumers through
personal effort.
The name ‘Hybrid Distribution Channel’ was coined by Moriarty and Moran (1990) and Stern
(1996). Other name for Hybrid Distribution is Multiple Distribution Channel.
Mainly in industry, banking, mass-media and music where a considerable part of the production
could have a digital format, the new electronic Distribution channels are combined with the
traditional channels resulting in fundamental changes in the structure of marketing channels.
Hybrid Distribution recognizes that users are not brand loyalists. They have their own choice of
activity which they like to experience. Brands will need to have a two tiered strategy for reaching
even the scattered yet profitable targeted audiences by their Distribution reach. With a Hybrid
Distribution model companies do what it can to attract core users as well as other targeted users
through these additional Distribution channels.
With the advent of internet, the strategy for Distribution has changed. Internet provides a new
channel to reach any prospect, anywhere in the world. The effect of using internet will need to be
understood on case basis and used wisely.

LITERATURE REVIEW:

Companies are facing many challenges including the operating cost of the distribution networks
(Bob Mcintyre, 2009). Adding to that, Distribution has gained enormous importance since it
accounts for a large portion of the total cost for a product to the company. Companies can greatly
improve their efficiency by creating and maintaining the right Distribution Channel.

In recent years, companies have been adding new channels to existing ones according to
Rowland T Moriarty and Ursula Moran (1990). This can be accounted for multiple reasons like
increasing the customer reach, cutting cost, meeting requirements of different segments and
many more. Companies have been adapting to the changing nature of business to stay ahead in
competition. Adding new channels gives them an edge over the competitors, especially during
the recent turbulent times when the economies worldwide were falling. The need of the hour is to
have a sustainable business which can sail through such difficult phase of global recession.

India has become a hot spot for business for many countries (Vikram Bhalla, Arindham
Bhattacharya, Abheek Singhi, Sharad Verma, 2007) due to its large customer base and increasing
demands. India being the second highest populated country and with their disposable income has
increased in recent years. There is a huge scope for any country to set up its business in India,
provided it is able to cope up with issues like poor infrastructure apart from the culture,
bureaucracy and other issues.

Making a Hybrid Distribution work effectively can be a difficult task (John W. Hayden, 2000).
Success lies in understanding and managing the channels rather than to randomly experiment
with them. Hybrid Distribution Channels may result in problems of conflict and control
according to Gila E. Fruchter (2005). Difference of margin, preference, and other factors leads to
dissatisfaction among the channel members and may result in shut down of a channel, thus
negating the very purpose of Hybrid Distribution Channels.

Thus, companies would need to develop a Distribution network that would suit their nature of
business. This would require great amount of thought with respect to Channel Design.

DEFINITION OF HYBRID DISTRIBUTION CHANNELS:

Hybrid Distribution Channels are “created by companies to channelize their products and
services in multiple ways so as to touch as many customer contact points as possible, in order to
create a value for the channel partner as well as the company.”
- Dr. RamKishen Y.

From the above mentioned definition, we can infer that

1. Hybrid Distribution Channels are also called as multiple Distribution channels
2. Hybrid Distribution Channels create multiple touch points for customer contact
3. Hybrid Distribution Channels have to create value, both to the channel partner as well as
to the company.
Hybrid marketing channels talks from the point where producers sell their products through
several methods: both through mediators and directly to consumers through personal effort. The
name was coined by Moriarty and Moran (1990) and Stern (1996). Other names for Hybrid
distribution are dual channels, multiple channels, plural governing systems and tapered
integration.
 Fig 1: Process Flow of Hybrid Distribution Channel:

The analysis of the constituents associated in the above diagram proves the existence of four
distinct channels. The first two are created in order to satisfy the needs of two segments of final
consumers: the first one is short and implies specific methods of the direct marketing and the
second one is a long channel including retailers. The two latter channels are created so as to serve
two segments of organizational customers but we must also match this time with a short channel,
which uses selling power with a long one including two mediating links.

HYBRID DISTRIBUTION CHANNELS – AN INDIAN PERSPECTIVE:

The supply chain of products in India is one of the longest supply chains an industry could really
have. There could be as many as 5 levels of intermediaries involved in the entire supply chain
through which a product passes before reaching the end consumer. What has been observed is
that even though many companies are big multinationals they but face a major challenge of
making their products available in the market in the right quantities and in the right time. This is
simply because these companies don’t really have an efficient Distribution Network which is
required and is ideal for catering their products to the markets. This aspect is taken over by
distributors, wholesalers and retailer whose margins on these products actually double the price
of these products when a final consumer buys it. The margins kept by these intermediaries range
from 2% to 5%.
The products in this industry are transported from manufacturing units via C & F agencies or
warehouse to distributors who further sell the same to wholesalers or stockiest who finally sell it
to the retailers in the market. These products are transported either via roadways or railways
within the domestic markets and normally don’t take more than a week to reach the retailers.
FMCG products are normally a high volume ball game and products have to essentially be
available in the market at all given points of time and at all given points of purchase and
therefore the Distribution activities are highly volatile and dynamic.
All criteria are taken into consideration before the quantum of products being dispatched to the
next level of intermediary. Since it’s a volume game, manufacturers make all possible efforts to
boost sales and promote their distributors to earn more and more orders from the retailers and
wholesalers. A close check is maintained on the flow of the products on a daily, weekly,
fortnightly and monthly basis to determine the trend in the business and flow of products and
consumption. This activity also helps to find out drawbacks of the Distribution system, if any,
and rectify them within time.
All this stresses on the fact that having an optimum Distribution Channel is very essential,
especially in Indian scenario. The highly scattered customer demands higher levels of
Distribution and at the same time, different nature of Customer demand different Distribution
ranging from Multilevel to Direct Channels. The diversity has, thus, added to the complexities of
forming an efficient Distribution network.
No single Distribution Channel can be pointed out to be the best for a particular product. Lack of
Infrastructure, diversified customer demands, scattered audience and many other unique factors
has lead to a conclusion that Hybrid Distribution Channels has become a must in India.
Some companies have already started implementing Hybrid Distribution Channels. Belkin has
launched a range of digital lifestyle products that can facilitate connectivity and content
Distribution across TV, mobile and computer screens at work, at home and in the car. The
company is following a Hybrid Distribution Channel model, including national and regional
distributors, to make the products easily available to the customers. Similarly, Pepsi has a tie up
with HUL to distribute its snack category products.

WHY COMPANIES ARE ADOPTING HYBRID DISTRIBUTION CHANNEL?

The main reasons why Companies are adopting Hybrid Distribution Channels are:
• Reach more number of customers
It has become difficult to reach out to all the potential customers with a single channel
due to various constraints like time, distance, knowledge, etc. Hence, additional channels
are being applied to reach out to those customers who could not be reached with the
existing channel. For instance, HUL has developed an innovative Distribution Channel to
reach out the rural customers (Eg: Project Shakti).
• Cutting cost
There is a chance of reaching a same customer at a much lower cost using an alternative
channel. This not only allows companies to reduce their cost but also provides the
product to the customer at a lower price. For instance, companies have started to sell
products online, thus avoiding all the intermediaries cost (Eg: Dell Computers).
 Fig 2: Reasons for adopting Hybrid Distribution Channels

• Spreading Risk
Dependence on a single Distribution Channel may be risky since any obstruction in the
channel will lead to complete stoppage of the supply to the customers. Obstruction may
arise due to events like Channel Obsolescence or even discrepancies between any two
Channel Partners. Such an obstruction may prove fatal as a large number of customers
might shift to a competitor’s product and never return. Thus, by having more than one
Distribution Channel, companies can spread the risk and ensure continuous supply of
products to the customer. For instance, sensing the increasing coercive power of the
retailers, the apparel companies have started to open up their own factory outlets and
exclusive showrooms to spread the risk of a single channel (Eg: Arvind Mills – Mega
Mart).
• Cater to different segments
Companies are sometimes using different Distribution Channels to reach out different
segments of customer based on their preferences. Different segments of customer may
have different expectations which cannot be fulfilled by a same channel. Their needs
differ and so does the mode to reach them. For instance, Insurance companies will use
DSAs for an ordinary prospect but will prefer to use direct sales force for a High Income
customer (Eg: Max New York Life).
• Cater to different products
Companies manufacture a set of products which may or may not be in a same product
category. As such, the Distribution Channel needed for the products may be different or
the end user may expect the different products at different touch points. It would then
become mandatory to implement Hybrid Distribution Channels. For instance, beverage
companies use a different Distribution Channel for the Cold Drink category products and
their Snacks category products (Eg: PepsiCo and HUL Syndicated Distribution
Partnership).
• Fight competition effectively
Adopting the best Distribution Channel by avoiding unpleasant conflicts and being able
to serve the customer in the best way possible can be a Strategic Advantage for a
company. This can be achieved by adopting Hybrid Distribution Channels. For instance,
FMCG companies are adding newer Channels of Distribution to increase the reach and
visibility of its products in the market to fight off the competition of other players (Eg:
ITC uses pan shops to sell its Bingo Potato Chips, which the competition doesn’t have
access to).

Contd…
STRATEGIC FRAMEWORK FOR HYBRID DISTRIBUTION CHANNELS

In order to avoid the Channel conflicts and design the optimum Hybrid Distribution Channels, a
Strategic Framework for Hybrid Distribution Channels is suggested.

Fig 3: Strategic Framework for Hybrid Distribution Channels

The above framework will help in designing an optimum Hybrid Distribution Network. The steps
involved in the design as follows:-

• Objectives:
First step towards effective design is to understand the actual need for Hybrid Distribution
Channels. Companies must define its objective for the design. It could be to reach out to more
number of customers or it could be to cut cost by introducing a new Channel or any other reason.
But the objective should be made clear and should be consistent throughout the process.
 • Strategy Selection:
Based on the market characteristics and structure, the Distribution Channels needs to be decided.
For example, in case of a perishable good, multiple intermediaries would not be a viable option.
Similarly, for a consumer good, direct Distribution as well as intermediaries may be used as per
situation. Also, for sending a greeting card, online Channel may be employed as an alternative to
courier or direct delivery. As such, the most viable Distribution Channel available needs to be
decided upon before its selection.

• Channel Type Selection:

Based on the options available for a particular product category, select the Channels which will
suit the nature of business. For instance, for a consumer durable, multiple levels of Distribution
would suit since it would increase its reach. In multiple levels of Distribution, the company must
select the optimum level at which it can operate efficiently. Similarly, for a two level
Distribution, the company must decide whether to have a Distributor and a Retailer or have a
Wholesaler and a Retailer or some other option.

• Channel Selection:
Mere selection of various Channels of Distribution and implementing will not lead to a success.
Various implications of one Channel on the other Channels employed should be considered.
Different Channels with same customer might lead to internal conflicts and also confusion
among the customers. Hence, careful evaluation of the interrelation of various Channels must be
understood and the best mix of Channels must be deployed in order to avoid any Channel
Conflicts and thus, loss of Trust and Revenue.

• Implementation:
Once the Hybrid Distribution Channels are finalized and Channel Conflicts resolved, the next
step is to implement it in the market place. The implementation must be in tune with the
objectives of Hybrid Distribution Channels. Any conflicts arising must be settled to have a
smooth and efficient functioning of all the Channels.

• Feedback:
Problems might arise after Hybrid Distribution Channels is implemented due to minor issues not
thought of or not taken care of. The issues would need to be sought out dynamically without
interrupting the Distribution flow. Also, any changes required due to Internal or External
environment would have to be catered to in order to reap the benefits of Hybrid Distribution
Channels.
SCOPE FOR FUTURE RESEARCH:
There appears to be little published research work on Hybrid Distribution Channels. We have
made an attempt to understand the nature of Hybrid Distribution Channels and its impact on
Marketing. The topic has a lot of scope for further research. While the nature of distribution is
changing, understanding and implementing an effective Distribution Network leaves much to be
desired. Research can be conducted more on issues like sustaining Hybrid Distribution Channels
by avoiding Conflicts or Redundancy of any Channel. This would enable Companies to sustain
their competitive advantage brought about by Hybrid Distribution Channels.
Different nature of products and customers would need different type of Hybrid Distribution
Channels. Thus, more research can be carried out on customizing Hybrid Distribution Channels
to adapt to various sectors. Also, the behavior of consumer about various touch points will have
to be understood and their acceptance of multiple channel be tested. Another aspect which would
be important to understand would be the cost attached with an additional channel as its affect of
the profitability of the company as a whole. Further research on this area of study would provide
more insights into complexity involved in implementation of Hybrid Distribution Channels.

CONCLUSION:
Channels generally are defined by customer preference. Some customers are motivated by the
immediate and convenient availability of a product, others look for the least expensive option,
and still others value service. The task is to best identify customer preference and satisfy them
with the cost effective options. In addition to understanding the motivations of each customer
channel, it is critical to identify the products and services that are unique to each.
The current economic crisis scenario highlights the fact that only those businesses with strong
fundamentals can sustain in the long run. Having a strategic framework for Distribution forms
the base for a company, especially when the customer is exposed to multiple product offerings
from other companies. In most of the businesses, out of sight is out of mind. And no business can
survive without demand from its customers. Thus, to remain in sight and in the minds of the
customer becomes very important during such turbulent times. Hybrid Distribution Channels
network will assist companies to reach the customers in as many ways as possible.
From the Strategic Framework which has been developed in this paper it is very clear that
designing of an apt Distribution Network will need great precision which can come only with
experience. Mere selection of more than one channel will not serve the purpose. Careful
evaluation of the costs involved in each channel along with the conflicts and other implications
like consumer attitude, relations with other channel members has to be performed to benefit from
Hybrid Distribution Channels.

ANNEXTURE:
AIRTEL – A CASE STUDY
Until mid 1980s, telecommunication industry in India was a monopoly, managed and controlled
by Government. In 1991, Government invited private players to enter the market. Since then, the
industry has seen tremendous growth and has become one of the largest telecom markets
globally. Services like 3G and WiMax have further augmented the growth.
Bharti Airtel, today, is the leading telecom player in the market today with over 110 million
subscribers in 23 telecom circles. It offers multiple products and services like Mobile
Connections, Home phones, calling cards, broadband & internet, Conferencing, DTH and many
other services.
In order to meet the demands of such a large customer base and also look for further growth
opportunity, the company needed a strong Distribution Network and equally strong sales force.
Airtel employed Hybrid Distribution Channels to cater to the needs of its varied customers.
The objective of Airtel was to create value to the customers and the company in as many ways as
possible using Distribution Channels. In order to meet the objectives, Airtel used following
channels to serve the customers:-
1. Company-owned outlets
2. Franchisee Selling Associates
3. Retail outlets
4. Corporate Selling Associates
5. AIRTEL Relationship Centre
6. Company’s website

Company-owned outlets
Company-owned outlets are the exclusive brand outlet (EBO) for Airtel. They act as a direct link
between Airtel and the customers. A customer can visit this outlet for multiple purposes like
details regarding any new schemes, bill payment, new connection, recharge options and many
more. This channel maintains utmost quality of customer service by employing well trained
professionals.
Franchisee Selling Associates
This channel includes the franchisees of Airtel who serve in those places where a company
owned outlet is not able to reach. For the company, this helps reduce its overheads whereas for a
customer, it is another touch point added for his convenience.
Retail outlets
Even a franchisee model will not be able to reach the vast customer base of Airtel. Hence, some
frequently used services like top up or recharge are made available at the local retail stores which
will include the pan walahs also. This is in sync with its matchbox distribution strategy –
wherever a match is sold, Airtel's services will also be sold.
Corporate Selling Associates
A new segment of customer which has evolved with years is the corporate customer. This
segment is highly profitable since the deal is usually done is bulk where all the employees of an
organization get the best tariffs with Airtel connection. This saves a lot of time and energy spent
in finding those numbers of customer elsewhere. Hence, a dedicated distribution is been set up
for them under Corporate Selling Associates. They help the customers with new connections,
new schemes and queries or complaints or any other requirement.
AIRTEL Relationship Centre
This is the call centre for Airtel customers where they provide all the services provided by Airtel
but is primarily used as an interaction between the customer and the company. Any complaints,
queries, services and much more is catered to through a toll free number (121 from an Airtel
connection) which is well trained to help the customers.
Company’s website
Tech savvy people have been increasing preferring online model for communication. Airtel
provides this through its company website. The website helps the customers to pay bills, check
their usage, know about new schemes, and many other functions. Customers who do not have
time are finding this channel extremely useful.
In spite of few of the functions overlapping between some channels, any conflict is avoided by
defining the role of each of them. Consider the following instances:-

• When a customer would want to recharge with a small denomination, he would rather go
to a retail shop which would be a couple of blocks away than go to an Exclusive outlet which
is further away.
• But when the same customer wants a new connection or wants to pay his bills, he would
prefer to go to the exclusive outlet or even visit the website.

• If the customer is travelling and needs some information urgently, then he would prefer
calling the toll free call centre rather than look for an outlet.

There will obviously be some intersecting functions and that would need expertise of Airtel to
deal with any kind of conflicts. But as seen from the success, Airtel has been able to deal with
the requirements of its internal customers (channel members) as well as its external customers
(end users) with its high quality service through its widespread distribution network.
Conclusion:
From this case study, it can be inferred that Airtel still reigns the Numero Uno in the mobile
communication market in India and its success lies in understanding the consumer hot buttons
and immediately responding to his needs by effectively administering the various channels so
that the customer can be services better (Hybrid Distribution Channels).
REFERENCES:
1. Devavrat Purohit “Dual Distribution Channels: The competition between Rental Agencies
and Dealers” (1997)
2. Gila E. Fruchter “Dynamic online and offline Channel pricing for heterogeneous customers
in virtual acceptance” (2005)
3. John R Hall “Using the Hybrid Distribution Model” (July 2008)
4. John W. Hayden “Managing Multiple Channels” (2000)
5. Madhup M Paturkar “Bench Marking in Automotive Industry Distribution Process: Case
Study of Luxury Car Maker” (2007)
6. Michael Grotticelli, “Interview with Bob Mcintyre” (2009)
7. Mika Gabrielsson, V.H. Manek Kirpalani, and Reijo Luostarinen “Multiple Channel
Strategies in the European Personal Computer Industry” (September 2000)
8. Mike Reynolds “A Net with Island Flavor” (September 2007)
9. Paul R. Murphy, James M. Daley “An Empirical Study of Internet Issues among
International Freight Forwarders” (2000)
10. Peter Broderick, Declaration of Independence: The Ten Principle of Hybrid Distribution
(2009)
11. Rowland T Moriarty and Ursula Moran “Managing Hybrid Marketing Systems” (1990)
12. Sarah Taylor “Managing at the speed of reality” (October 2008)
13. Steve Smith “Roll that Beautiful B2B Footage” (May 2007)
14. Tecău Alina Simona, and Chińu Ioana Bianca “Hybrid Distribution system – strategic
methods applied more and more in the context of new markets extended through the
European union”
15. Vikram Bhalla, Arindham Bhattacharya, Abheek Singhi, Sharad Verma “Creating a
Distribution Advantage in India” (2007)
16. www.airtel.co.in

About the Authors:

*Dr. RamKishen Y. is Faculty of Marketing at K J Somaiya Institute of Management Studies
and Research, Mumbai. He has close to 6 years of teaching experience and 4 years of corporate
experience. He holds a PhD. in the area of Rural Marketing. His consulting areas are – Rural
Marketing, Retail Management, Sales and Distribution and Brand Management. He has written
two books: Rural and Agricultural Management and Management of Co-operatives both
published by Jaico Books
Mobile: 9821820059 E-mail: ramkishen123@rediffmail.com
**Mr. Saurin K. Gandhi is a student at K.J.Somaiya Institute of Management Studies and
Research, doing Masters in Management Studies (MMS) approved by University of Mumbai with
specialization in Marketing. He has 2 years of prior work experience with Infosys Technologies
Limited. His research interest lies in Channel Management and Marketing Research
Mobile: 9987599511 E-mail: gsaurin@gmail.com