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Table of Content

Sl.No.

Titles of Content Pageno.

1. Distribution Channel 1

2. Common Member of Distribution Channel 1 – 2

3. Selecting members within a channel 2 – 3

4. Benefits Offered by Channel Members 3 – 4

5. Importance of Distribution Channel in Marketing 4 – 5

6. About BAT Bangladesh 6 – 8

7. Brands of BAT Bangladesh 9

8. The Distribution Channel of BATB 10

9. Description of Channel Members 10 –12

10. Relation between Members 12 –14

11. Intensive Distribution: Dose BATB maintaining anintense distribution channel?

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12. Reference 16

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Distribution ChannelThe chain of businesses or intermediaries through which a good orservice passes until it reaches the end consumer is called adistribution channel. A distribution channel consists of the setpeople and firms involved in the transfer of title to a productas the product move from producer to ultimate consumer orbusiness user. The channel for product extends only to the lastperson or organization that buys it without making anysignificant change in form. When its form is changed or alteredand another product emerged, a new channel is started.1

Common Member of Distribution ChannelChannel activities may be carried out by the marketer or themarketer may seek specialist organizations to assist with certainfunctions. We can classify specialist organizations into twobroad categories: resellers and specialty service firms.

Resellers

These organizations, also known within some industries asintermediaries, distributors or dealers, generally purchase ortake ownership of products from the marketing company with theintention of selling to others. If a marketer utilizes multipleresellers within its distribution channel strategy the collectionof resellers is termed a Reseller Network. These organizationscan be classified into several sub-categories including:

Retailers – Organizations that sell products directly tofinal consumers.

Wholesalers – Organizations that purchase products fromsuppliers, such as manufacturers or other wholesalers, andin turn sell these to other resellers, such as retailers orother wholesalers.

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Industrial Distributors – Firms that work mainly in thebusiness-to-business market selling products obtained fromindustrial suppliers.2

Specialty Service Firms

These are organizations that provide additional services to helpwith the exchange of products but generally do not purchase theproduct (i.e., do not take ownership of the product):

Agents and Brokers – Organizations that mainly work to bringsuppliers and buyers together in exchange for a fee.

Distribution Service Firms – Offer services aiding in themovement of products such as assistance with transportation,storage, and order processing.

Others – This category includes firms that provideadditional services to aid in the distribution process suchas insurance companies and firms offering transportationrouting assistance.2

Selecting members within a channelHaving decided to go through intermediaries the next question iswhether to use agents or distributors and also how many. Unlikedistributors, agents don't hold stocks - they only act as salesagents finding customers, collecting orders and passing them onto the supplier in return for a percentage commission.

How would you select a distributor or an agent? Here are somecriteria:

1. Market Coverage: - does the profile of existing customersmatch your target market profile? - is the number of customersbig enough to meet the required distribution penetration? - isthe existing sales force big enough to cover the territory? -

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are they dependant on a single individual? - are the existingdelivery fleet and warehouse facilities adequate?

2. Sales Forecast: How many can they sell? What are theirforecasts based upon? Do they give a 'best, worst and average'forecast? Will they invest in large stock commitment? Do theyhave budgets to run promotions? Some suppliers even ask theirdistributors for a marketing plan showing how they intend tomarket the supplier's products.

3. Cost: What will it cost in terms of discounts, commissions,stock investment and marketing support?

4. Other Resources: Does the target market require anythingspecial such as technical advice, installation, quickdeliveries and instant availability? If so can the distributorprovide it?

5. Profitability: How much profit will the distributor generatefor the supplier?

6. Control: Do they have a reporting system in place? How do theydeal with problems? How often is review meetings scheduled?Can you influence the way they present your products?

7. Motivation: Does the agent or distributor convey a sense ofexcitement and enthusiasm about the product? What about itssales force - what's their reaction?

8. Reputation: Has it got a good track record? This includes thenumber of years in business, growth and profit record,solvency, general stability and overall reliability. Is itdepending on one key player?

9. Competition: Do they distribute any competitor's products?10. Contracts: Some distributors demand exclusivity. Some

agreements tie the supplier in for certain periods of time.Check for flexibility in case things go wrong.

The bottom line is: Can the agent or distributor be motivated,controlled and trusted? Motivated to sell your product among arange of others? Controlled to feed back results or change

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strategy if requested. And trusted to act as a reliableambassador of your product? 7

Benefits Offered by Channel MembersWhen choosing a distribution strategy a marketer must determinewhat value a channel member adds to the firm’s products.Customers assess a product’s value by looking at many factorsincluding those that surround the product (i.e., augmentedproduct). Several surrounding features can be directly influencedby channel members, such as customer service, delivery, andavailability. Consequently, for the marketer selecting a channelpartner involves a value analysis in the same way customers makepurchase decisions. That is, the marketer must assess thebenefits received from utilizing a channel partner versus thecost incurred for using the services. These benefits include:

Cost Savings in Specialization – Members of the distributionchannel are specialists in what they do and can oftenperform tasks better and at lower cost than companies who donot have distribution experience.

Reduce Exchange Time – Not only are channel members able toreduce distribution costs by being experienced at what theydo, they often perform their job more rapidly resulting infaster product delivery.

Customers Want to Conveniently Shop for Variety – Marketershave to understand what customers want in their shoppingexperience. Referring back to our grocery store example,consider a world without grocery stores and instead eachmarketer of grocery products sells through their own stores.As it is now, shopping is time consuming, but consider whatwould happen if customers had to visit multiple retailerseach week to satisfy their grocery needs. Hence, resellerswithin the channel of distribution serve two very importantneeds: 1) they give customers the products they want by

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purchasing from many suppliers (termed accumulating andassortment services), and 2) they make it convenient topurchase by making products available in single location.

Resellers Sell Smaller Quantities – Not only do resellersallow customers to purchase products from a variety ofsuppliers, they also allow customers to purchase inquantities that work for them. Suppliers though like to shipproducts they produce in large quantities since this is morecost effective than shipping smaller amounts.

Create Sales – Resellers are at the front line when it comesto creating demand for the marketer’s product. In some casesresellers perform an active selling role using persuasivetechniques to encourage customers to purchase a marketer’sproduct. In other cases they encourage sales of the productthrough their own advertising efforts and using otherpromotional means such as special product displays.

Offer Financial Support – Resellers often provide programsthat enable customers to more easily purchase products byoffering financial programs that ease payment requirements.These programs include allowing customers to: purchase oncredit; purchase using a payment plan; delay the start ofpayments; and allowing trade-in or exchange options.

Provide Information – Companies utilizing resellers forselling their products depend on distributors to provideinformation that can help improve the product. High-levelintermediaries may offer their suppliers real-time access tosales data including information showing how products areselling by such characteristics as geographic location, typeof customer, and product location (e.g., where locatedwithin a store, where found on a website). If high-levelinformation is not available, marketers can often count onresellers to provide feedback as to how customers areresponding to products. This feedback can occur eitherthrough surveys or interviews with reseller’s employees or

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by requesting the reseller allow the marketer to surveycustomers.4

Importance of Distribution Channel in Marketing:As noted, distribution channels often require the assistance ofothers in order for the marketer to reach its target market. Butwhy exactly does a company need others to help with thedistribution of their product? Wouldn’t a company that handlesits own distribution functions be in a better position toexercise control over product sales and potentially earn higherprofits? Also, doesn’t the Internet make it much easier todistribute products thus lessening the need for others to beinvolved in selling a company’s product?

While on the surface it may seem to make sense for a company tooperate its own distribution channel (i.e., handling all aspectsof distribution) there are many factors preventing companies fromdoing so. While companies can do without the assistance ofcertain channel members, for many marketers some level of channelpartnership is needed. For example, marketers who are successfulwithout utilizing resellers to sell their product (e.g., DellComputers sells mostly through the Internet and not in retailstores) may still need assistance with certain parts of thedistribution process (e.g., Dell uses parcel post shippers suchas FedEx and UPS). In Dell’s case creating own transportationsystem makes little sense given how large such a system wouldneed to be in order to service Dell’s customer base. Thus, byusing shipping companies Dell is taking advantage of the benefitsthese services offer to Dell and to Dell’s customers.2

Distribution is important because:

Firstly, it affects sales - if it's not available it can't besold. Most customers won't wait.

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Secondly, distribution affects profits and competitiveness sinceit can contribute up to 50 percent of the final selling price ofsome goods. This affects cost competitiveness as well as profitssince margins are squeezed by distribution costs.

Thirdly, delivery is seen as part of the product influencingcustomer satisfaction. Distribution and its associated customerservice play a big part in relationship marketing.

Decisions about physical distribution are key strategicdecisions. They are not short term. Increasingly it involvesstrategic alliances and partnerships which are founded on trustand mutual benefits. We are seeing the birth of strategicdistribution alliances. You can see Southwestern Bell in the HallOf Fame explain how marketing marriages provide new ways ofgetting products and services in front of customers.

Channels change throughout a product's life cycle. Changinglifestyles, aspirations and expectations along with the ITexplosion offer new opportunities of using distribution to createa competitive edge.

Controlling the flow of products and services from producer tocustomer requires careful consideration. It can determine successor failure in the market place.

The choice of channel includes choosing among and betweendistributors, agents, retailers, franchisees, direct marketingand a sales force.

Deciding between blanket coverage or selective distribution,vertical systems or multi-channel networks, strategic alliancesor solo sales forces, requires strong strategic thinking.

Decisions about levels of stock, minimum order quantities,delivery methods, delivery frequency and warehouse locations have

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major cash flow implications as well as customer satisfactionimplications.7

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Exploring the distribution channel of a company will help to havea better understanding. Now, I’m going to describe thedistribution channel of British American Tobacco Bangladesh (BATBangladesh) brands. I think you will find it interesting.7

About BAT Bangladesh:

The British American Tobacco Company Ltd. is one of the prominentcompanies in Bangladesh. BritishAmerican Tobacco Bangladesh isone of the largest multinationalcompanies in the country and hasbeen operating for over 100years. This is what it saysabout itself.

After the partition of India in1947, our company was established in 1949. It then becameBangladesh Tobacco Company Limited in 1972 immediately afterBangladesh’s independence. In 1998, the Company changed its nameand identity to British American Tobacco Bangladesh Company Ltd.3

ShareholdersWe were one of the first companies listed on Dhaka and Chittagongstock exchanges. The British American Tobacco Group holds 65.91%

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of the shares in British American Tobacco Bangladesh. Othershareholders are the Investment Corporation of Bangladesh,Shadharan Bima Corporation, Bangladesh Shilpa Rin Shangstha,Government of People’s Republic of Bangladesh, Sena KalyanShangstha and other members of the public.3

ContributionsBritish American Tobacco Bangladesh is one of the largestmultinational companies in Bangladesh. Consequently, we are alsothe largest private sector tax payer in Bangladesh. In 2010, wecontributed Tk 46.27 billion in the form of Supplementary Duty,Value Added Tax (VAT) and other taxes to the national exchequer.Over time, we have successfully established ourselves as thecompany contributing to economic, social and human resourcedevelopment. We continue to move forward to deliver higherpromises.3

BeliefsAt British American Tobacco Bangladesh, we strive to be aresponsible company wherever we operate - that may be to ourshareholders, employees, business partners or any other relevantinternal and external stakeholders. To us, responsibility is away of life and that is why we believe “success andresponsibility go together”.3

People (Distribution)At British American Tobacco Bangladesh, difference is ouradvantage and diversity is our strength. We employ more than1,186 people directly and about 50,000 people indirectly asfarmers, distributors and local suppliers. Moreover, around900,000 retailers in the country sell our brands to earn theirliving. We take great pride in saying that we are one of the mostpreferred employers in the country. Having people from a wide

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variety of cultures and backgrounds who support each other’ssuccess makes us unique. It is our pool of talented people whogive this place the wonderful and pleasant working environmentthat takes us forward every day.3

RegulationIn Bangladesh, we support sensible regulation of the tobaccoindustry and believe strongly that we should participate andsupport the government with developments, enactments andcompliance with future laws. Broadly speaking, ‘sensible’ means‘balanced’.

Truly effective tobacco regulation needs co-operation between thegovernment and the industry. We believe we have much experienceand expertise to contribute. As manufacturer of the products, weare uniquely involved with and knowledgeable about their design,manufacture, distribution and sale.

Bangladesh’s tobacco industry is mainly regulated by the Smokingand Using of Tobacco products (Control) Act, 2005 and the Smokingand Using of Tobacco Products (Control) Rules, 2006.

All activities of British American Tobacco Bangladesh are in fullcompliance with the Act and Rules.3

Health and scienceWe have long accepted that smoking is risky. Our business is notabout persuading people to smoke; it is about offering qualitybrands to adults who have already taken the decision to smoke. Westrongly believe that smoking should only be for adults who areaware of the risks.

The risks associated with smoking are primarily defined byepidemiological studies (statistical studies in largepopulations) that show groups of lifetime smokers have a far

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higher incidence of certain diseases than comparable groups ofnon-smokers. These risks tend to be greater in groups that startsmoking younger, smoke for longer, and smoke more cigarettes perday.

The statistics, however, do not tell us whether a particularindividual smoker will avoid an associated disease by smokingless, and all smoking behaviors are associated with significantlyincreased health risks. Studies show that the only way to avoidsmoking-related risks is not to smoke in the first place, and thebest way to reduce the risks is to quit.

What people should consider about the risks

Smoking is a cause of various serious and fatal diseases. 

The health risks in groups vary by the amount smoked, beinghighest in those that smoke for more years and smoke morecigarettes per day. 

The risks reduce in groups of people who quit smoking, andthe reductions increase from quitting earlier. 

Experts advise no smoking during pregnancy. 

The only way to be certain of avoiding the risks of smokingis not to smoke.

Harm reduction

The use of tobacco products poses real and serious risks tohealth. The only way to avoid these risks is not to consumetobacco at all. However, the concept of harm reduction isincreasingly being considered in relation to tobacco use andit is a key element of British American Tobacco’s businessstrategy.

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Harm reduction and tobaccoBritish American Tobacco thinks it’s important to work towardsproducing consumer-acceptable, potentially reduced risk products.It believes there could be further public health gains if tobaccoregulatory policies included harm reduction, for the millions ofadults globally who will continue to consume tobacco products.

Some regulators and tobacco control advocates actually reject theconcept of reduced risk tobacco products altogether, suggestingthat the approach is inappropriate, as such products maydiscourage smokers from quitting, or lead people to becometobacco consumers who would not otherwise have done so.

Brands of BAT Bangladesh:They manufacture and market high quality and well establishedinternational cigarette brands. Their current brands are Benson &Hedges, John Player Gold Leaf, Pall Mall, Capstan, Scissors,Star, Pilot and Bristol, which are positioned in four segments inthe Bangladesh cigarette market.

Benson & Hedges

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Launched in 1997, Benson & Hedges maintains our prime marketshare in the Premium segment. Within a short time Benson & Hedgesbecame a successful brand in our portfolio.

John Player Gold Leaf, Pall Mall and Capstan

John Player Gold Leaf, Pall Mall and Capstan are positioned inthe High segment. Launched in 1980, John Player Gold Leaf is oneof the highest selling brands of our company, enjoying largemarket share in the High segment. Pall Mall was the Group’s firstGlobal Drive Brand to be launched in Bangladesh in 2006.

Star and Scissors

Star and Scissors are positioned in the Medium segment. Star,launched 40 years ago, is still a leading brand in this segment.Currently, it is the highest volume generating brand for thecompany.

Pilot and Bristol

Pilot was launched in 2009 in the Low segment, which is growingrapidly in Bangladesh. Bristol was launched also in the Lowsegment in October 2010.

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The Distribution Channel of BATB:

Ref: 3, 5, 6

BATBDistributorLocal SuppliersBig RetailersSmall RetailersConsumersStreet HawkersConsumersConsumersSmall RetalersConsumers

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Description of Channel Members:

BATB itself

Distributors: Normally distributors are individual firms. They are independentbut follow and work under regulations of companies with whichthey connected contractually. BAT Bangladesh enlisted a largenumber of people as their distributors in different parts of thecountry. They work exclusively for BATB by hiring and managinglocal suppliers. They are the first people who receive cigarettesfrom company.

Local Suppliers:Local suppliers are mainly employeesof the distributors. We foundtypical local suppliers of variousproducts in our localities wearing aT-shirt or uniform identifying a particularcompany with a three-wheel van. They supply cigarettes inlocalities. They provide products to main retail points(retailers) of a zone. But sometimes they provide products tosmall retailers too. Local also sell products to street hawkersif they (hawkers) can build up a communication with them.

Big Retailers:Here comes a confusion what a bigretailer means. Retailers are theclosest members to the ultimateconsumers in the distribution channel.‘Big retailers’ means who sell a largevariety of products and are financiallystrong. In case of BATB they get

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product from local suppliers. They like to store a large amountof products. They sell products to consumers mainly. But in manyareas these retailers also sell products to small retailers andstreet hawkers.

Small Retailers:Small retailers are seller ofonly one or a few products.They run their business in avery small store or sometimesthey have no store but a fixedplace where they are found with their products every day. Teastalls are the best example for small retailers. They getcigarettes both from big retailers and local suppliers. Actually,this varies from place to place and situation to situation. Itwill be discussed in the later part of the paper.

Street Hawkers: Street hawkers are people who sell fewproducts by moving place to place. Mostoften they walk to the customers ratherthan customers come to them. They have nofixed place but usually they move in aparticular zone. They buy cigarettes forsale from the big retailers. They aremostly found in bus depots, rail stations and areas where a largenumber of people gather.

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Consumers:

British American Tobacco Bangladesh’s target market is only

Smokers who are more than eighteen (18) year old and above.4

Relation between Members:The figure shows that distribution channel of BATB is intense andcomplicated. There are 7 members including the consumers. Butthey are connected in an irregular way. We can see the smallretailers are getting products both from big retailers and localsuppliers. Actually different areas and situations are liable forthese confused relationships. To remove confusion I’m describingthe relations below.

Relation 1:

Here products flow from BATB to distributors. Distributors passproducts to local suppliers. Local suppliers reach products todifferent popular or relatively big retailers of an area and theconsumers get cigarettes from these retailers.5&6

Relation 2:

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Here products flow from BATB to distributors. Distributors passproducts to local suppliers. Local suppliers sell products tosmall retailers. This happens under these situations.

a) A small retailer buys cigarettes bundles from local supplierwhen he is affluent enough to buy the minimum amount that alocal supplier can buy.

b) Sometimes a number of small retailers gather their money andbuy products from the local suppliers.

Small retailers sell cigarettes to ultimate consumers.5&6

Relation 3:

BATB sells products to distributors. Distributors give productsto local suppliers. Local suppliers sell cigarettes bundles tobig retailers. Big retailers sell products to small retailers.

Small Retailers buys cigarettes from big retailers usually. Thishappens under these situations.

a) If the small retailer can’t afford buying the minimum amountthat a local supplier can sell.

b) If his storage is finished and local suppliers are notavailable at that time.

c) If his store is positioned in a remote area where localsuppliers aren’t available.

d) If he doesn’t have enough customers to sell that the amountof cigarettes which is the minimum selling amount of localsuppliers.5&6

BATBDistributorsLocal suppliers Big Retailers Small Retailers Consumers

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Relation 4:

BATB sells products to distributors. Distributors give productsto local suppliers. Local suppliers sell cigarettes bundles tobig retailers. Big retailers sell products to street hawkers.Street hawker can’t afford buying from local suppliers. Usuallythey don’t have enough money to purchase cigarettes from localsuppliers. Street hawkers sell cigarettes to consumers by movingaround.5&6

Intensive Distribution: Dose BATB maintaining an

intense distribution channel?

What is an intense distribution channel?Intensity of distribution channel means how many middlemen arebeing used at wholesale and retail level in a territory. Underintensive distribution, a producer sells its product throughevery available outlet in a market where a consumer mightreasonably seek for it. It is actually a marketing strategy underwhich a company sells through as many outlets as possible, sothat the consumers encounter the product virtually everywherethey go, like- supermarkets, drug stores, gas stations. This kindof distribution channels involves a huge number of wholesale andretail members. It gets spread over an area like the widespreadbranches and sub-branches of a big tree. For example, we can findMeril Soap in almost all retail shops around us. So, we can saythey are maintaining an intense distribution channel.

BATBDistributorsLocal suppliers Big Retailers Street HawkersConsumers

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Who needs intensive distribution?Producers whose target customers or consumers are huge anddistributed among a large area, need intense distributionchannel. Mainly producers of consumer goods and especiallyproducers of convenience goods need this as consumers of theseproduct are spread all over in a community. Intensivedistribution is appropriate for products such as chewing gum,candy bars, soft drinks, bread, film, and cigarettes where theprimary factor influencing the purchase decision is convenience.Industrial products that may require intensive distributioninclude pencils, paperclips, transparent tape, file folders,typing paper, transparency masters, screws, and nails. 

Intensive vs. Exclusive DistributionThe extent to which a firm should seek exclusive vs. intensedistribution depends on a number of factors.  One issue is theconsumer’s likelihood of switching and willingness to search. For example, most consumers will switch soft drink brands ratherthan walking from a vending machine to a convenience storeseveral blocks away, so intensity of distribution is essentialhere.  However, for sewing machines, consumers will expect totravel at least to a department or discount store, and premiumbrands may have more credibility if they are carried only in fullservice specialty stores.

Retailers involved in a more exclusive distribution arrangementare likely to be more “loyal”—i.e., they will tend to

 Recommend the product to the customer and thus sell largequantities;

 Carry larger inventories and selections;

 Provide more services

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Thus, for example, Compaq in its early history instituted apolicy that all computers must be purchased through a dealer.  Onthe surface, Compaq passed up the opportunity to sell largenumbers of computers directly to large firms without sharing theprofits with dealers.  On the other hand, dealers were morelikely to recommend Compaq since they knew that consumers wouldbe buying these from dealers.  When customers came in asking forIBMs, the dealers were more likely to indicate that if theyreally wanted those, they could have them—“But first, let’s showyou how you will get much better value with a Compaq.”

Does BATB need an intensive distribution?To know the answer of this question we need to consider thetarget market segment and positioning of BATB. BATB segment theirmarket in three categories. B&H and John Player Goldleaf forbusiness class, PallMall and Capstan are for middle class andStar, Scissors and Pilot are for lower class. British Americantobacco, usually determine their distributional channel based ongeographically economically and also based on sales forecast. Inthe rural area the consumer needs low priced cigarettes so BATBoffers Star, Pilot and scissors for the villagers, especiallyPilot is made for the farmers and other low classedconsumers. B&H and Goldleaf are available everywhere in urban ormetropolitan areas. PallMall positioned for the consumer who areaged between 18 and 25.   But for STAR there distribution is notonly geographically they keep the lower income people in mind.Star is available in all over Bangladesh.4

Does BATB maintaining an intense distribution channel?As the target consumers of BATBare of wide variety and they areliving all over Bangladesh, BATB

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needs an intensive distribution channel. And they are maintainingtheir distribution channel intensively. The intensity of BATBdistribution channel can be compared with widespread rootchannels of an old banyan tree. With a large number distributorsand local suppliers they are providing about 9, 00, 000 retailerswith their products. People are availing BATB brands throughthese retailers at every corner of the country.

Reference:1. Marketing; 13th edition; Michael J. Etzel, Bruce J. Walker,

William J. Stanton; Tata Mc-Graw Hill Publishing CompanyLimited

2. www.knowthis.com/principles-of-marketing-tutorials 3. www.batbangladesh.com4. www.reportbd.com/articles/934/1/British-American-Tobacco-

Bangladesh-BATB-Target-Market-amp-Market-Positioning-Last-Part/Page1.html

5. Interview of a retailer6. Interview of a consumer 7. www.multimediamarketing.com