You are on page 1of 7

1

DISTRIBUTION CHANNELS
1. Marketing deals with the creation of form, time, place and possession
utilities.
2. Distribution channels deals with the firms effort to create place utilities
successfully.
3. Even before a product is ready for the market, the management should
determine what methods and routes will it use to get the product to the
customer?
4. This basically means establishing strategies for the product's distribution
channels and physical distribution.
Middlemen and Distribution channels:
1. Ownership of a product has to be transferred somehow from the firm to
the consumer who needs and buys it.
2. Products must be physically transported from where they are produced to
where they are needed.
3. The most important activity of getting the product from the producer and
arranging it for sale to the customer, where and when he wants it is the
major role of the distribution channel.
Middlemen:
1. Middlemen are independent individual firms that render services directly
related to the sale or purchase of a product as it flows from the producer
to the consumer.
2. Middlemen are commonly classified on the basis of whether or not they
take title to the products they distribute.
3. Merchant middlemen actually take the title and possession of the
products they help to market.

2
4. Agent Middlemen never actually take title or possession of the products,
but they only arrange the transfer of title. E.g.: - Real estate brokers,
travel agents and manufacturers agents.
5. Facilitators: - besides producers. Middlemen and final customers. There
are other institutions that help the distribution process.
6. Among these intermediaries are banks. Transport companies, storage
firms and insurance companies.
7. However. because the above intermediaries do not take title to the

products and they are not actively involved in purchase or selling


activities. They are not formally included in the distribution
channel. They are normally referred to as facilitators.

Importance of Middlemen:

1."Middlemen are parasites who live on the innocent customers, by not


adding any additional value to the product".
2. Going by the above quotation some critics say that prices of products
are high because there are too many middlemen performing
unnecessary or redundant functions.
3. During the great recession some manufacturing firms attempted to
cut costs by eliminating middlemen.
4. Although the middlemen were eliminated from the distribution
channels. The experience has been that it did not always result in
reduction of costs and in some cases the costs went up and also
resulted in poor quality of service.
5. This bitter experience has lead to the quotation that -You can eliminate

middlemen, but you cannot eliminate essential distribution activities and


services performed by them".

6. The three major functions performed by middlemen are


a) Concentration: - Collecting or concentrating the outputs of
various producers and making them available under a single
roof.
b) Equalization: - Sub-dividing these outputs into the amounts

desired
by customers and then putting the various items
together in the assortment wanted.

c) Dispersion: - Distribution of this assortment to customers or


Industrial buyers.
Other functions of Middlemen

To Consumer
1. Anticipate wants
2.Buying specialist
3. Bulk breaking
4.Transportation
5. Installation & Service
6. Financing & Credit
7. Guarantees the product

To Producers
1. Interprets wants
2. Selling specialist
3. Bulk breaking
4.Transportation
5. Storage
5. Financing & Insurance
6. Risk bearer

Difference between Retail and Wholesale Sale:


a) Retail Sale: includes all activities directly related to the sale of products or
services to the ultimate consumer for personal non-business use.
(i)

Any firm, wholesaler or retailer that sells something to ultimate


consumers for their non business use is making a retail sale,
regardless of how the product is sold e.g.: in person, by telephone,
mail or vending machine or where it is sold either in a store or at
the customers house.

4
b) Wholesaling: - includes the sale and activities directly incident to the sale,
of products or services to those who are buying for resale or for business
use.
i) Going by the above interpretation it is pertinent to understand that a
retail store is engaged in wholesaling when it sells pencils or stationery to
a restaurant.
ii) At this juncture it is important to understand that it is the purpose
for which a product or a service is purchased that determines
whether it is a whole sale or a retail sale and not the quantity of a
product or service purchased.
Selecting Channels of Distribution for Consumer Goods
1
Producer

2
Producer

Consumer

Retailer

3
Producer

4
Producer

Wholesaler

Agent

Consumer

Retailer

5
Producer

Agent
Retailer

Wholesaler
Consumer
Retailer
Consumer

Consumer

Distribution Of Industrial Goods


1
Producer
Industrial User

Producer
Producer
Industrial distributor Agent
User

User

4
Producer
Agent
Industrial
Distributor
User

Some principles about distribution channels


1. Channel design should begin with the final customer and work

backward to the producer and keep the consumer buying habits in


mind while determining the distribution channel.
2. The channel selected must be appropriate to the basic objectives of the
firms marketing programme e.g.: - If a firm wants widest possible
distribution of its products it cannot go for exclusive franchise policy at the
retail level.

3. The channel should provide access to a predetermined share of the market.


4. The channels must be flexible enough so that the use of one channel does
not permanently close off another. E.g.: - an exclusive store for watches
refusing to sell a brand if the same brand of watches is sold through
departmental stores.
5. Channels of distribution and middlemen are always on trial and changes
occur constantly as there is a change in the consumer buying habits e.g.: -

6
door to door selling becoming more popular as the size of working women
population is increasing.
Conflicts between manufactures and wholesalers
From Manufacturers Point of view:
1. Wholesalers fail to promote products aggressively.
2. Wholesalers are no longer performing the storage services that producers
were accustomed to earlier.
3. Some wholesalers promote their own brands that are in direct competition
with the manufacturers brands.
4. Wholesalers services are too expensive.
5. Manufacturers want closer contact with their market and customers.
6. Some products may need rapid physical distribution.
7. Large-scale retailers usually prefer to buy directly from manufacturers.
Conflicts from wholesalers point of view:
1. Manufacturers do not understand that the primary obligation of
wholesalers is to serve their customers. Serving producers is only
secondary.
2. Manufacturers expect too much. Wholesalers discounts are not high
enough to justify the level of warehousing and promotion expected by
producers.
3. Manufacturers skim the cream off the market.
Options open to Manufacturers:
1. Sell directly to retailers
2. Establish sales offices or branches

7
3. Sell directly to consumers
4. Use missionary sales force

Options open to Wholesalers:


1. Improve internal Management
2. Provide management assistance to retailers
3. Form voluntary chains
4. Develop and promote their own brands.
Factors affecting choice of distribution channel:
1. Market considerations:
(a) Number of potential customers (b) Geographic concentration of
the market(c) Order size.
2. Product considerations:
(a) Unit value of the product (b) Perishability (c) Technical nature of
the product.
3. Middlemen considerations:
(a) Services provided by middlemen (b) Availability of desired
middlemen (c) Attitude of middlemen towards manufacturers
policies.
4.Company considerations:
(a) Financial resources (b) Ability of management (c) Desire for
channel control (d) Services provided by seller.