Channels of Distribution

A channel of distribution or trade channel is defined as the path or route along which goods move from producers or manufacturers to ultimate consumers or industrial users. In other words, it is a distribution network through which producer puts his products in the market and passes it to the actual users. This channel consists of :- producers, consumers or users and the various middlemen like wholesalers,selling agents and retailers(dealers) who intervene between the producers and consumers. Therefore,the channel serves to bridge the gap between the point of production and the point of consumption thereby creating time, place and possession utilities. A channel of distribution consists of three types of flows:-

Downward flow of goods from producers to consumers

Upward flow of cash payments for goods from consumers to producers

Flow of marketing information in both downward and upward direction i.e. Flow of information on new products, new uses of existing products,etc from producers to consumers. And flow of information in the form of feedback on the wants,suggestions,complaints,etc from consumers/users to producers.

An entrepreneur has a number of alternative channels available to him for distributing his products. These channels vary in the number and types of middlemen involved. Some channels are short and directly link producers with customers. Whereas other channels are long and indirectly link the two through one or more middlemen. These channels of distribution are broadly divided into four types:-

Producer-Customer:- This is the simplest and shortest channel in which no middlemen is involved and producers directly sell their products to the consumers. It is fast and economical channel of distribution. Under it, the producer or entrepreneur performs all the marketing activities himself and has full control over distribution. A producer may sell directly to consumers through door-to-door salesmen, direct mail or through his own retail stores. Big firms adopt this channel to cut distribution costs and to sell industrial products of high value. Small producers and producers of perishable commodities also sell directly to local consumers.

Producer-Retailer-Customer:- This channel of distribution involves only one middlemen called 'retailer'. Under it, the producer sells his product to big retailers (or retailers who buy goods in large quantities) who in turn sell to the ultimate consumers.This channel relieves the manufacturer from burden of selling the goods himself and at the same time gives him control over the process of distribution. This is often suited for distribution of consumer durables and products of high value.

Producer-Wholesaler-Retailer-Customer:- This is the most common and traditional channel of distribution. Under it, two middlemen i.e. wholesalers and retailers are involved. Here, the producer sells his product to wholesalers, who in turn sell it to retailers. And retailers finally sell the product to the ultimate consumers. This channel is suitable for the producers having limited finance, narrow

product line and who needed expert services and promotional support of wholesalers. This is mostly used for the products with widely scattered market.

Producer-Agent-Wholesaler-Retailer-Customer:- This is the longest channel of distribution in which three middlemen are involved. This is used when the producer wants to be fully relieved of the problem of distribution and thus hands over his entire output to the selling agents. The agents distribute the product among a few wholesalers. Each wholesaler distribute the product among a number of retailers who finally sell it to the ultimate consumers. This channel is suitable for wider distribution of various industrial products.

An entrepreneur has to choose a suitable channel of distribution for his product such that the channel chosen is flexible,effective and consistent with the declared marketing policies and programmes of the firm. While selecting a distribution channel, the entrepreneur should compare the costs,sales volume and profits expected from alternative channels of distribution and take into account the following factors:-

Product Consideration:- The type and the nature of products manufactured is one of the important elements in choosing the distribution channel. The major product related factors are:-

Products of low unit value and of common use are generally sold through middlemen. Whereas,expensive consumer goods and industrial products are sold directly by the producer himself. Perishable products; products subjected to frequent changes in fashion or style as well as heavy and bulky products follow relatively shorter routes and are generally distributed directly to minimise costs. Industrial products requiring demonstration, installation and aftersale service are often sold directly to the consumers. While the consumer products of technical nature are generally sold through retailers. An entrepreneur producing a wide range of products may find it economical to set up his own retail outlets and sell directly to the consumers. On the other hand, firms producing a narrow range of products may their products distribute through wholesalers and retailers. A new product needs greater promotional efforts in the initial stages and hence few middlemen may be required.

Market Consideration:- Another important factor influencing the choice of distribution channel is the nature of the target market. Some of the important features in this respect are:-

If the market for the product is meant for industrial users, the channel of distribution will not need any middlemen because they buy the product in large quantities. short one and may as they buy in a large quantity. While in the case of the goods meant for domestic consumers, middlemen may have to be involved. If the number of prospective customers is small or the market for the product is geographically located in a limited area, direct selling is more suitable. While in case of a large number of potential customers, use of middlemen becomes necessary. If the customers place order for the product in big lots, direct selling is preferred. But,if the product is sold in small quantities, middlemen are used to distribute such products.

Other Considerations:- There are several other factors that an entrepreneur must take into account while choosing a distribution channel. Some of these are as follows:-

A new business firm may need to involve one or more middlemen in order to promote its product, while a well established firm with a good market standing may sell its product directly to the consumers. A small firm which cannot invest in setting up its own distribution network has to depend on middlemen for selling its product. On the other hand, a large firm can establish its own retail outlets. The distribution costs of each channel is also an important factor because it affects the price of the final product. Generally,a less expensive channel is preferred. But sometimes, a channel which is more convenient to the customers is preferred even if it is more expensive. If the demand for the product is high,more number of channels may be used to profitably distribute the product to maximum number of customers. But, if the demand is low only a few channels would be sufficient. The nature and the type of the middlemen required by the firm and its availability also affects the choice of the distribution channel. A company prefers a middlemen who can maximise the volume of sales of their product and also offers other services like storage, promotion as well as aftersale services. When the desired type of middlemen are not available, the manufacturer will have to establish his own distribution network.

All these factors or considerations affecting the choice of a distribution channel are inter-related and interdependent. Hence, an entrepreneur must choose the most efficient and cost effective channel of distribution by taking into account all these factors as a whole in the light of the prevailing economic conditions. Such a decision is very important for a business to sustain long term profitability.

Type of marketing channel

1.
Intensive distribution - Where the majority of resellers stock the 'product' with convenience products, for example, and particularly the brand leaders in consumer goods markets (price competition may be evident). 2. Selective distribution - This is the normal pattern (in both consumer and industrial markets) where 'suitable' resellers stock the product.In this case retailers can keep the competitors products in their outlets e.g. furniture etc. 3. Exclusive distribution - Only specially selected resellers or authorized dealers (typically only one per geographical area) are allowed to sell the 'product'. In this retailers are restricted to keep only one manufacturer's products, e.g. exclusive outlets of cars, apparels and jewelry, etc.

What is a channel of distribution.

The channel of distribution is the network of institutions that perform a verity of interrelated and coordinating functions in the movement of goods from produces to consumers. The distribution system involves many process. It is the movement of goods from manufacturers to the end consumers. Many parties are involved in the distribution system. Main parties are (1) Manufactures or producers (2) Distributes (3) Facilitating agencies (4) Consumers. Manufactures produce the goods. It could be manufacturing goods in a factory or other goods which are produced in the farm like grains and fruits.

Distributors distribute the goods to the consumers. They are also called intermediaries. They identify the demand and source of goods. They directly negotiate between the producer and consumers. They also does certain other functions like buying, selling, Packing, Packaging, assembling, grading, risk bearing etc. Facilitating agencies are the agencies who facilitate the transfer of goods from producers to the consumers. Insurance companies, Banking institutions, Warehousing agencies, Transport companies are some of the examples of facilitating agencies. Consumers are the end users of the product. They are the last participants in the distribution system. A Channel of distribution is mainly concerned with the middle men who assist the producers to distribute the good to the consumers. Many companies does not deal with the end users. They use middle men to distribute the goods. These middlemen take the title of the goods and transfer it to the consumer. Some other causes they assist the producer to transfer the title of goods to the consumers. Channel of Distribution mainly concerned with the transfer of title from the producers to the consumers directly or through a chin of intermediates as most producers do not sell goods directly to the consumers. Creates Place Utility: Now a days most companies depend on the channel of distribution to sell their goods to the end users as these distribution channels create place, time and position utilities to the product and effectively does the function of physical distribution. Many products are produced in a manufacturing unit which are used by consumers all over the country. For example, apples are produced in Kashmir and Himachal Pradesh, bur are used by people all over India. Most of the textile mills are located in Mumbai, Ahmedabad and Chennai. But the users of the cloths are spread all over Inida. Nano Cars are produced in a plant at Gujarat. But the end users of the Nano car spread all over India. So distribution channel is the vital part of the business all over the world. A distribution channel helps in the movement of goods from producers to the consumer and thus creates place utility to the product. Creates Time Utility: Some products like Woolen clothes and rain coats are used by the consumer in the winter and rainy season respectively. But these goods are produced through out the year by the manufacturing companies. Some products like food grains are produced by the farmers in the respective season. But the food grains are used by the consumers throughout the year. Distributors facilitate the function of making the good available to the consumer at the time of utility. So Channel of distribution facilitate the time utility. They remove the time barrier i.e. the time of production and the time of consumption. Creates Convenience Utility: Distribution channel make it possible for the consumer to buy products in the convenient shape, size, style and package. Distributors buys goods in bulk quantity and sell the same to the consumers as per their need and size and shape. They also pack the goods properly for the protection and convenience. Small packets and big packets are available at the distributor. Consumer can buy goods as per his need. Creates Possession Utility: Distribution channel also make it possible for the customer to buy goods at a price suitable to him. Quality goods costs more. Goods are available in a cheap rate in low quality. Goods in less quantity costs less money. Likewise bulk quantity costs more. Distributors make

it possible for the consumers to buy goods as per his purchasing power. So Channel of Distribution facilitate the possession utility. The channel of distribution is the network of institutions that perform a verity of interrelated and coordinating functions in the movement of goods from produces to consumers. In short Distribution channel facilitate the movement of goods from producers to the consumers while performing the function of time, place and from utility.

Functions of Channels of Distribution.

Functions performed by Channels of distribution can be categorized in to three main groups. They are: 1. Transactional Functions. 2. Logistical Functions. 3. Facilitating Functions. Transactional functions: Functions necessary for the transaction of goods are called transactional functions. Risk bearing, buying and selling comes under this function. Producers, after producing the goods, sell it to the intermediaries. Distributors or intermediaries sell these goods to the next intermediaries or to the end user. Likewise the users of the goods buy it from the distributors. Buying, selling and risk bearing comes under the transactional functions. Distributors buy goods from the producers in anticipation of selling it to the consumers for a profit. Due to the fall in price, the distributors may suffer loss in the process. So they are bearing risk of loss of money. Some goods are perishable. For example vegetables and fruits my get spoiled during the transit. Brake down of truck which carries the perishable goods may spoil the goods. Distributors bear the risk of such damages. Buying and selling the goods help the transfer of title from the producer to the user. Logistical Functions: Logistical function performs the flow of goods, resources and information between the point of origin to the point of consumption in order to meet the requirements of the customers. Logistics involves the functions like integration of information, inventory, material handing, grading, packing, transportation, warehousing, packaging, security of the goods etc. To facilitate the supply of goods on time, proper storage is necessary. Perishable goods like meat, fruits, vegetables etc. need more attention in storage. Logistical functions performs such activities. With the help of Logistic function, goods are made available by the distributors to the consumers at the time of need. Facilitating functions: Facilitating function facilitate both physical exchange and transaction of goods. It involves the post purchase services, maintenance, financing, market information etc. Distributors help the customers to chose the appropriate product for the consumption. Distributer convey the demand of the customer to the manufactures. Also the distributor convey the opinion of the consumer to the producer. After sales services and maintenance are required for certain goods. Distributors facilitate such functions. Sellers sometimes provide financial assistance to the buyers. They also provide necessary information about the products to the customers. Facilitating functions involves financing, market information, after sales service, etc.

The channel of distribution performs a verity of functions such as selling, buying, risk bearing, assembling, storage, transportation, grading, maintenance, post purchase service, market information, financing etc. Electronic goods need after sales service and maintenance. Perishable goods need proper storage facilities. These are the main function of the Channels of Distribution.

For selecting which type of Sales-forecasting is to be use following are the factors on which it depends:
(1) The degree of accuracy required: If the decisions which are to be made from the Sales-Forecast have high risks attached to them, then it stands to believe that forecasts need to be prepared as accurately as possible. However this involves more cost. (2) The availability of data and information: in some markets there is a wealth of available sales information.(e.g. details of clothing, food retailing, etc.,) we can say it as up-to-date information in other words. (3) The time horizon that the sales forecasts are intended to cover: For example we forecasting next year sales or we are forecasting just sales for next week. (4) The position of the products in its life cycle: Sales data and horizon may vary for both maturity stage product and the product which is just at introductory stage.