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The distribution of goods is one of the most crucial phases of the process of
marketing. Distribution means the process of transferring the product from the factory into
the hands of its consumer. The distribution channels are the various outlets through which
product move from manufacturers to consumers. There are different channels of distribution
and the selection of an appropriate one depends on the requirements of the manufacturers, the
needs of the consumer and the nature of product.
i) Direct selling
ii) Indirect selling
i) Direct selling:
Manufacturer → Consumer
In this case, there are one or two middlemen or intermediaries are involved in
between the manufacturers and the consumer. For example:
TYPES OF MIDDLEMEN:
i) Functional middlemen
ii) Merchant middlemen
i) Functional middlemen:
The functional middlemen are those intermediaries who perform various marketing
functions without having any title to goods, i.e. they help in transfer of goods from the hands
of the producer to those of consumers without acquiring any ownership rights. The following
middlemen come under this category:
a) Brokers
b) Commission agent
c) Auctioneers
d) Del credere agents
a) Brokers:
Brokers are those agents who obtain neither the possession nor the ownership of the
goods and their only function is to bring the buyers and seller together. They negotiate
purchase and sale of goods on behalf of other parties. They are called selling agents if they
are engaged by the seller and buying agent if they are engaged by the buyer to negotiate the
purchase of goods on their behalf. Their roles is over as soon as the buyer and the seller
agrees as regards the terms of the purchase or sale of goods. The broker gets a certain
percentage of commission the business transacted by him.
b) Commission agent:
They sell goods on behalf of the seller. The negotiate the sale of the goods, take
possession of the goods and make arrangement of the goods and make arrangement for the
transfer of the title to the goods. The commission agent has to perform the functions of
warehousing, grading, packing assembling and finally its disposable. They get a certain
percentage of commissions on sales made.
c) Auctioneers:
They sell the goods on behalf of their principles by auction. In an auction, the
auctioneer who has collected the goods from the sellers, displays it for the would be buyers
and invites bids from them. The bid means the buyer is willing to pay for the goods being
auctioned. The buyer who makes the highest bid gets the goods provided the highest bid is
at least equal to the minimum reserve price fixed for the purpose.
d) Del credere agents:
They find buyers for the seller and also guarantee the payment of the price of goods
on their behalf. In case any buyer fails to pay, it is the del credere agent who will pay on his
behalf. For this additional responsibility, an extra commission is charged.
e) Merchant middlemen:
They work for profit. They acquire and transfer the title to goods in their own name.
the middlemen covered under this category are:
i) Wholesalers
ii) Retailers
Manufacturer
Functional
Middemen
Brokers,
Commission
agents, Merchant Middlemen
Auctioneers,
Del-Credere
agents
Wholesalers
Manufacturer,
Retailer, Retailer
Wholesaler
proper
Itinerant
Hawkers and
pedlars, Fixed shop
Street traders,
Market traders
Large Scale
Retail
Small Scale
Retail Shop Retail
departmental
Street stalls, store,
Second hand
Multiple store,
goods shop,
Mail order
General stores,
business,
Single line
Consumers co-
stores
operative
stores
Wholesalers are those merchants who act as intermediaries between the manufacturer
and the retailer. They buy goods and commodities in large quantities from the producer and
sell them to the retailers.
The wholesaler dealing in pharmaceutical products requires a drug license from the
health department of the concerned state government. The wholesaler sells the products to the
chemists and physicians. A wholesaler is called ‘stockist’ if he deals in items manufactured
by a single firm or company.
Classification of Wholesaler:
1) Manufacturer wholesalers
2) Retailer wholesalers
3) Wholesaler proper
1) Manufacturer wholesalers: These wholesalers are engaged in manufacture activities to
some extent. They may not only sell their own products to the retailers but may also
make large-scale purchases from other manufactures to meet the demand of the retailers.
In this way, they reduce their overhead expenses by increasing their turnover.
2) Retailer wholesalers: These wholesalers purchase goods in bulk from the manufactures
and sell them in retail to the consumers through their own shop. In this way they acts as
wholesaler as well as retailer.
3) Wholesaler proper: These wholesalers concentrate solely on buying the selling of
goods in large quantities. They are also known as distributors.
Functions of Wholesalers:
Services to Retailers:
1) The wholesaler purchases the goods from various producers and stores them at one
place for retailers.
2) They help the retailers by supplying the goods to them promptly as compared to their
getting the supply from the manufacturers.
3) The wholesaler usually obtains substantial discounts and rebates and from the
producers and are therefore in a position to give special discounts to the retailers on
bulk purchases.
4) They inform the retailers regarding new products introduced into the market.
5) The wholesaler deals in a limited number of products and therefore gains expert
knowledge in his field of speciality. The retailer can also be benefited from the
specialization achieved by the wholesaler.
6) The wholesaler buys gods in large quantities from the manufactures and sells them in
small quantities to the retailers.
7) They provide credit facilities to the retailers.
8) They bear most of the risks connected with marketing and thus save the retailers from
such risks (e.g. goods may be damaged, destroyed or stolen).
9) The wholesalers help in stabilizing the prices by regulating the supply of goods and
enable the retailers to earn a fair margin of profit.
1) They buy goods in bulk from producers and relieve the producers of the botheration
of collecting orders and supplying goods to widely scattered retailers.
2) The wholesaler trader helps in large scale production of goods by giving order for a
bulk quantity.
3) They usually make cash payment for the goods purchased from producers. Thus, the
capital invested by producers does not remain blocked for long which in turn results
in quick turnover.
4) The wholesaler trader maintains a sufficient stock of goods at all times during the year
and thus, in a way, provides warehousing facilities to both producers and retailers.
5) They provide market information to the manufacturers so that they can regulate their
production accordingly.
6) The wholesalers help the manufacturer in maintaining a uniform rate of production by
placing advance supply orders.
1) The wholesalers sell the goods to the retailers at uniform prices which helps in
bringing uniformly in price of retailers.
2) Wholesalers purchase large quantity of goods from producers which helps cut down
the cost of production. Therefore, consumers are able to purchase the goods at
reasonable price.
3) Wholesalers informed about the taste of consumers to the producers with the result
consumers are able to purchase goods of their liking.
4) Wholesalers help in maintaining a balance in demand and supply and helps to
stabilize the prices.
5) Wholesalers conduct market research from time to time. This help in the improvement
in the existing product. Consumers get better quality products at reasonable price.
Elimination of Wholesalers:
There is common feeling that the services of wholesalers are unnecessary in present
age. They should be eliminated because middlemen are parasites growing fat at the cost of
producers and consumers. But on the other hand it is felt, that, in the absence of wholesalers,
the producers, retailers and consumers may have to face a lot of problems.
It is desirable to study the views and arguments for and against the wholesalers in
order to come to any conclusion.
1) The producer pay commission to the wholesalers which increase the retail price of
goods. So the existence of wholesaler leads to increase in prices.
2) The producer can sell their products to consumers through advertisement without the
help of wholesalers.
3) Certain producers have started opening their own retail outlets at various places for
direct selling to consumers at reasonable price e.g. Dabur, Hmdard etc.
4) Wholesalers are only interested in the sale of popular products. Therefore new
products are not available with the wholesalers.
5) Due to fast means of transport, the retailers can easily buy required quantity of goods
from producers directly.
6) Nowadays, the departmental stores and large scale retail shops are getting popularity
in big cities. Such types of establishment make direct purchase from producers.
7) Sometimes wholesalers create the scarcity in the market by hoarding the products.
Due to shortage of supply, the prices get increased in the market. Thus wholesalers
exploit the consumers by charging very high prices.
8) Cooperative societies are increasing day by day. These societies earn less rate of
profit and sell better quality goods at reasonable price by purchasing directly from
producers.
1) Producers produce goods for future consumption, but it is not possible for them to
estimate the demand in future. This information is supplied by wholesalers, because
they have a well knit network o retailers.
2) If wholesalers are eliminated, the retailers will not be able to purchase goods on
credit. Similarly, producers will not be able to get advances from wholesalers. Hence
both producers as well as retailers will have to face financial difficulties.
3) Wholesalers provides various services to the retailers regarding marketing of goods
which may not be possible for the retailers to perform it.
4) Wholesalers provides free shop delivery facility to the retailers which not be possible
in the absence of wholesalers.
5) Wholesalers provide market information to the producer which may not be available
to them in the absence of wholesalers.
6) If wholesalers are eliminated, the more capital is required by the producers in order to
provide credit facilities to the retailers.
7) In the absence of wholesalers the retailers would purchase goods in small quantity
from producers. Thus will lead to increase in expenses on packaging and transport etc.
Although a wholesaler has become a subject of severe criticism yet keeping in view
the important services rendered by him, it is not desirable to eliminate the wholesalers. They
are an important link between the manufacturers and consumers,
RETAILERS:
Functions of Retailers:
1) Wide choice to consumers: He keeps a stock of various items according to the needs
of the consumers. The retailer is supposed to know the different kind of goods likely
to be demanded by his customers and also to know the sources from where the same
could be obtained.
2) Ready stock: A retailers keeps a ready stock of all the goods so that he is able to meet
the demand of his customers at all times.
3) Transport: Wholesalers are the main source of supply of goods to the retailers.
Retailers usually make their own arrangements for transportation of products of
different kinds from the wholesaler’s godowns.
4) Grading: Normally grading of goods id done either by the producers or sometimes by
the wholesalers. However, a retailer does grading of those goods which have been left
ungraded by the manufacturers and wholesalers.
5) Risk-bearing: retailers have to maintain a reasonable stock of goods. They bear the
risk of loss of goods by fire, theft or deterioration as long as they are not sold.
6) Financing: They provide financial help to consumers by selling them the goods on
credit.
7) Market research: Retailers are in close contact with their customers. They know the
tastes, likes and dislikes of the customers. They pass on such information to the
wholesalers for onward transmission to the manufactures concerned.
8) Sales promotion: They display the goods in show windows and on counter for the
information of customers. Thus a retailer helps to promote the sale of goods
manufactured by a particular manufacturer who has lunched the sales promotion
campaigns.
1) Retailer studies the tastes, likes and dislikes of the customers and through the
wholesaler, communicates it to the manufacturer to enable him to improve his
products accordingly.
2) They help the wholesaler and manufacturer by doing the job of advertisement by
displaying goods in show windows or on counter or by any other means.
3) The retailers help the manufacturers and wholesalers in meeting the various
requirements of consumers living in every nook and corner of the country.
TYPES OF RETAILERS:
1) Itinerant retailers
2) Fixed shop retailers
1) Itinerant retailers:
These retailers do not operate from fixed business premises but move from place to
place from selling goods in small lots to the consumers. They generally work with a very
small capital investment and they mainly deal in low-priced commodities of daily use. The
following are different types of itinerant retailers:
Hawkers and pedlars: They move from door to door in residential localities to sell
their goods. The goods sold by them are generally small and cheap, such as
vegetables, fruits, toys, household articles etc.
Street traders: These traders generally arrange their goods at busy street corners or
pavements of roads, temples, railway stations, cinema halls etc. they offer a wide
variety of articles of common use. They generally deal only in one particular line of
products.
Market traders: They keep on moving from place to place to sell their goods at
weekly, fortnightly or monthly bazars or at annual fair.
2) Fixed shop retailers:
The fixed shop retailers set up permanent establishment to sell their goods. They do
not go from place to place in search of their customers. In fact it is the customers who visit
the shop to get their requirements. The fixed shop retailers may be divided into two
subgroups:
They deal in all kinds of goods essential as well as luxury goods, cheap as well as
expensive. The capital investment of such retailers are relatively large as compared to small
scale shops. For example, departmental stores, multiple shops or chain stores, mail order
business, consumer cooperative societies etc.
Advantages:
1) It provides great convenience in shopping beause customers can get all their
requirements from one place.
2) It keeps a large variety of goods, thus offering a good choice to customers, when they
buy the required goods.
3) The departmental stores are located mainly in the central part of the city. So it is
convenient for all types of consumers to visit it.
4) Its buys its requirements in large quantities which reduces its cost and increases the
profit.
5) Due to huge sale in departmental stores the selling cost per unit become very low.
6) It provides telephone facilities, recreation facilities and free home-delivery facility to
its customers.
7) It can afford to employ competent sales persons to attend to its customers. This leads
to efficiency and increased customer satisfaction.
Disadvantages:
Multiple shops or chain stores are the groups of shops in the same branch of retail
trade. A single business firm opens a number of branch shops which are situated at different
localities in the city or different parts of the country. The main object is to provide shopping
facilities near the residence of the would be customers. All the branches are centrally
controlled and have uniformity of operation. Each branch deals in a similar line of goods.
Each multiple shop system has a Head Office whose decisions are passed on to all its
branches. The price of all the items is fixed by the head office and the is charged at very
branch. The supply of items to various branches are made direct from head office. Examples
of multiple shop system are DCM, BATA, NTC, DABUR, HAMDARD, etc.
Advantages:
1) Under multiple shop system, all purchases for the branches are made by the central
office. This results in bulk buying which reduces the cost of the product.
2) There is a considerable increase in sales because majority of branches of multiple
shops are located in important localities of the city for the convenience of the
customers.
3) The fixed price and standard quality of goods helps in winning the confidence of the
customers.
4) The shortage of supplies at one branch can easily be met by transfer from another
branch having a surplus stock
5) There is uniformity of window display and shop decoration in all the branches of
multiple shops which makes an easy identification of them.
6) In multiple shop system, there is a direct contact between producer and customer, so
the middlemen’s profits are eliminated.
7) In multiple shops sales are made strictly on cash payment. So there is practically no
loss due to bed debts.
8) Multiple shops are run under the control of head office which follows uniform
policies in regard to all important matters. This makes it easy for the head office to
exercise effective control and supervision of its branches.
Disadvantages:
1) Multiple shops deal in a limited range of products. So the customers do not have a
wide choice.
2) The head office of a multiple shops is generally located as a far away place, so there is
generally no effective control on the staff working in its branches.
3) The staff at multiple shops have little freedom to make its own decisions sometimes
its adversely effect the sales.
4) There is no provision for any facilities to its customers.
5) The owner of multiple shops cannot make personal contacts with his customers. The
success of the organization depends upon the branch managers.
(7) They sell the goods both on cash and on They sell the goods only on cash basis.
credit basis.
(8) These store mainly cater to the needs of They deal mainly in necessities and
rich people and sell costly luxury goods. cater for general public.
Mail order business is a type of retail trade in which all business activities take place
through mail (post). Some manufacturers sell their product directs to consumers without
involving middlemen (wholesalers and retailers). The manufacturer approaches the would-be
customers by sending its catalogue, price list and circular by post. Sometimes an
advertisement is given in a leading newspaper and magazine. The customers place order for
the supply of goods after going through the customers sends the price of goods in advance.
Generally, the goods are sent through V.P.P. (Value Payable Post). Under it the goods are
delivered to the addresses on the payment of the price to the post office which remits it to the
sender of goods.
These are established by the manufacturers for selling the goods manufactured by
them directly to consumers, thus eliminating the middleman.
In this case the business house is not engaged in production or wholesale selling but
concerned only with the sale of goods by mail. It purchases the required goods, party on the
receipt of orders and partly anticipation on orders, from the wholesalers and despatches the
same by the mail to the consumers.
1) The system does not need a shop or showroom to start the business,
2) The running expenses are low because the system does not require a large number of
employees.
3) The system is very useful for those customers who live in remote areas of the country.
They get the requirements while sitting in their homes.
4) The business can be started even with a small amount of capital.
5) There is a direct link between manufacturer and consumers. Hence no middlemen is
required.
6) There is no danger of bad debts since the price of goods is received either in advance
or collected from post office when goods are sent by V.P.P.
7) The seller gets a very wide market to sell his product.
8) A lot of advertisement is required to run a mail order business. The results of an
advertising campaign can easily be estimated from the number of orders secured,
quantity or value of goods ordered.
Disadvantages of Mail Order Business:
In this system, the customers themselves form a society and run the retail business.
The basic purpose is to eliminate middlemen. The capital required for running a cooperative
store is subscribed by the members through the purchase of shares of small denominations.
Thus even poor consumers can become members of such societies. The consumers
cooperative stores purchase their requirements in bulk from the wholesalers at wholesale
rates and sell them to their members at the market rate. A part of profit earned in the business
is passed on to the members in the form of bonus on purchases. Besides the bonus, the
members holding shares in the capital of the society get a dividend on their shares. These
stores are usually managed by honorary members but sometimes sales managers may also be
appointed.
Advantages:
1) The consumers get better quality goods at lower prices as middlemen’s profits are
eliminated.
2) It promotes thirft among members and increases their economic security.
3) The consumers have complete control over the society running the store. Thus the
genuine needs of the majority of the consumers will be promptly met by such stores.
4) The overhead expenses are reduced because unnecessary expenditure on
advertisement and decoration of store is not required.
Disadvantages:
1) There is a lack of ability, experience and business training on the part of honorary
members, who are running the stores.
2) These stores generally have meager resources, thus these store cannot run on a large
scale.
3) Generally speaking, there is much to be desired as regards the loyalty of the members.
HIRE PURCHASE TRADING HOUSES:
In this form of business, the buyers gets credit from the seller against the security of a
lien on the goods purchased by him. In this system, the buyers acquires ownership of goods
only after he has paid the total price in an agreed equal number of instalments. Initially, the
buyer only pays a part of the purchase price of goods and the rest of the price is paid in equal
periodical instalments (i.e. monthly, half yearly or yearly). The ownership of the goods
continues to be with the seller and transferred to the buyers only, when he has paid the final
instalment of the price of goods. In case of default, the seller is free to take back the goods
from the buyer. Furthermore, the instalments already paid by the buyer are forfeited and these
are treated as hire-charges for the goods. Under the hire purchase system, the sale does not
take place until the last instalment for the goods has been paid. These instalments always
include interest as the seller has to wait for sometimes till the full price is received.
Advantages:
1) The system provides facility to purchase costly goods, such as houses, refrigerators,
T.V. sets, cars, scooters etc. to middle class people on easy instalments.
2) The small scale and medium scale manufacturers can instal the required machinery
and tools without paying the total amount for it.
3) The systems helps to increase the sale of costly and non essential luxury articels,
because it tempts a very large number of people to buy the same.
4) Even people who have enough money to pay at once as price of the desired article,
may prefer to purchase their requirements under hire purchase system, so as to invest
their money elsewhere to earn more profit.
Disadvantages:
1) People may be tempted by instalments plans to buy things which they cannot afford.
2) The traders dealing in hire purchase have to arrange a large capital to finance their
business.
3) The goods purchased on hire purchase basis are costlier than its actual price because
the hire purchase price includes the interest on the unpaid instalments.
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