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QUESTION - WHAT IS CHANNELS OF DISTRIBUTION? DISCUSS THE

DIFFERENT CHANNELS AVAILABLE FOR CONSUMER GOODS.

ANSWER - The primary purpose of trade is to supply goods to the consumers living in far

off places. As goods and services move from producer to consumer they may have to pass

through various individuals.

A channel of distribution or trade channel is the path or route along which goods move from

producers to ultimate consumers or industrial users. In other words, it is the distribution

network through which a producer puts his product in the hands of actual users. The channel

of distribution includes the original producer, the final buyer and any middlemen-either

wholesaler or retailer. The term middleman refers to any institution or individual in the

channel which either acquires title to the goods or negotiates or sells in the capacity of an

agent or broker. But facilitating agencies that perform or assist in marketing function are not

included as middlemen in the channel of distribution. This is because they neither acquire

title to the goods nor negotiate purchase or sale. Such facilitating agencies include banks,

railways, roadways, warehouses, insurance companies, advertising agencies etc.

Let us take an example. A farmer in Srinagar has an apple orchard. Once the apples are

ripened he sells the apples to an agent of Delhi. The agent collects the apples from Srinagar,

packs them, and sells them to a wholesaler at New Delhi Sabzimandi. The wholesaler then

distributes them to various retail fruit vendors throughout Delhi by selling smaller quantities.

Finally, we purchase apples from those vendors as per our requirement. Thus, we find that

while coming from the producer at Srinagar, the product reaches the consumers by passing

through several hands like an agent, a wholesaler and a retailer. All these three are called

middlemen.

(i) ProducerAgentWholesalerRetailer Consumer(ii) ProducerWholesalerRetailerConsumer(iii) ProducerAgentConsumer

(iv)ProducerWholesalerConsumer(v) ProducerRetailerConsumer(vi)ProducerConsumerThe above chart indicates that the number of middlemen may vary. If there is direct sale by

the produce to the consumers then there is no middleman. As the chart shows the producer

may sell goods to retailer who may then sell the same to consumers. The producer may sell

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goods to wholesalers who may in turn sell to retailers and the retailer may sell to consumers.

Another alternative channel of distribution is when any agent/dealer intervenes between the

producer and retailers and acts as a middlemen. The agent is appointed by the producer for

the sale of goods to the retailers. Another alternative channel is there when producers agent

sells goods to wholesalers who sell to retailers. Agent/dealer is an independent person/firm

buying goods and selling them to retailers. Agent/dealer may also sell to wholesalers who

may then sell to retailers and goods are thus made available to consumers. In the channel of

distribution there may be more than one agent/dealer and wholesaler.

Role of middlemenin the distribution of goods-

I. Searching out buyers and sellers (contacting & Merchandising), matching goods tothe requirements of market.

II. Offering goods in the form of assortments or packages.III. Persuading and influencing the prospective buyers to favor a certain product and its

maker (personal selling/sales promotion).

IV. Providing feed back information, marketing intelligence and sales forecasting servicesfor the regions to their suppliers.

V. Communicating the use of technique of the product to the users.Role of Wholesalerin the distribution of goods-

I. A wholesaler forecasts the demand for goods and assembles different varieties ofgoods from several manufacturers.

II. A wholesaler breaks the bulk so that retailers and users can buy them in small lots.His representatives regularly call on retailers and industrial users/buyers to distribute

the goods among widely scattered people.

III. A wholesaler arranges transportation of goods from producers to his godowns andfrom there to retailers.

IV. He holds large stocks and serves as a reservoir and supplies to retailers.V. A wholesaler packs and repacks goods in convenient lots.VI. A wholesaler performs advertising and sales promotion activities to increase the sale

of products.

Role of Retailersin the distribution of goods-

I. The retailer anticipates needs of consumers. Thus, he offers a wide choice to consumers.II. A Retailer ensures uninterrupted and fresh supply of goods; he saves consumers from

botheration of buying goods in bulk and storing them.

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III.A retailer transports goods from wholesalers to ultimate consumers. Some retailersprovide free home delivery service to their consumers.

IV.He maintains adequate supply of goods so that consumers are sure of getting regularsupply at the time of their need.

V.

A retailer brings new products to the notice of customers and educates them in their uses.

CHOICE OF A CHANNEL OF DISTRIBUTION

The factors to be considered before choosing a suitable channel of distribution are listed

below:

1. Product considerations: The nature and type of product have an important bearing on the

choice of distribution channels. For examples, perishable goods need speedy movements and

hence shorter channel or route of distribution; For durable goods, longer and diversifiedchannels may be used; Similarly, for technical products requiring specialized selling and

serving talents, the shortest channel should be used.

2. Market considerations: The nature and type of customers and size of market are

important considerations in the choice of a channel of distribution. For example, if the market

size is large, there may be long channels, whereas in a small market direct selling may be

profitable. The nature and type of consumers include factors such as desire for credit,

preference for the stop shopping, demand for personal services, amount of time and effort the

customer is willing to spend. It also includes factors like age, income group, sex, and religion

of customers.

3. Company considerations: The nature, size and objectives of the business firm also play

an important role in the selection of distribution channel. It includes financial resources,

market standing, volume of production, desire for control of channel, services provided by

manufacturers', etc. For example a company with substantial financial resources need not rely

too much on the middlemen and can afford to reduce the levels of distribution.

4.Middlemen consideration: The cost and efficiency of distribution depends largely on the

nature and type of middlemen. It includes characteristics of middlemen such as availability,

attitudes, services, sales potential, costs etc. For example, if the terms and conditions of

engaging wholesalers are unfavorable, a manufacturer may like to channelize his products

through semi wholesalers or retailers, thereby, bypassing wholesalers. However, the

determining factor would be the differential advantage involved in the choice. To conclude,

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the channel generating the largest sales volume at lower unit cost will be given top priority.

This will minimize distribution cost.

TYPES OF DISTRIBUTION CHANNELS-

Normally goods and services pass through several hands before they come to the hands of the

consumer for use. But in some cases producers sell goods and services directly to the

consumers without involving any middlemen in between them, which can be called as direct

channel. So there are two types of channels, one direct channel and the other, indirect

channel. From the above diagram it can be found that there is just one direct channel i.e.

from producer to the consumer.

(i) Direct Channel- In this channel, producers sell their goods and services directly to the

consumers. There is no middleman present between the producers and consumers. The

producers may sell directly to consumers through door-to-door salesmen and through their

own retail stores. For example,Bata India Ltd, HPCL, Liberty Shoes Limited has their own

retail shops to sell their products toconsumers. For certain service organizations consumers

avail the service directly. Banks, consultancy firms, telephone companies, passenger and

freight transport services, etc. are examplesof direct channel of distribution of service.

(ii) Indirect Channel- If the producer is producing goods on a large scale, it may not be

possible for him to sell goods directly to consumers. As such, he sells goods through

middlemen. These middlemen may bewholesalers or retailers. A wholesaler is a person who

buys goods in large quantities from producers; where as a retailer is one who buys goods

from wholesalers and producers and sellsto ultimate consumers as per their requirement. The

involvement of various middlemen in the process of distribution constitutes the indirect

channel of distribution. Let us look into some of the important indirect channels of

distribution.This is the common channel for the distribution of goods to ultimate consumers.

Selling goodsthrough wholesaler may be suitable in case of food grains, spices, utensils, etc.

and mostly ofitems, which are smaller in size.Under this channel, the producers sell to one

or more retailers who in turn sell to the ultimateconsumers. This channel is used under the

following conditions

(i) When the goods cater to a local market, for example, breads, biscuits, patties, etc.(ii) When the retailers are big and buy in bulk but sell in smaller units, directly to the

consumers. Departmental stores and super bazaars are examples of this channel.