CHANNELS OF DISTRIBUTION
Dr Subhanjali Chopra
18.2 Meaning of Channels of Distribution
18.3 Kinds of Distribution Channels
18.4 Choice of Channel of Distribution
18.7 Self Assessment Questions
18.8 Further Readings
Distribution of products constitutes an important element of marketing mix of a firm. After development of the product, the entrepreneur has to decide channels or routes through which the product will flow from the factory to the potential customers. He has a number of alternatives available to him. The entrepreneur may choose to distribute the product directly to customers without using any intermediaries. Alternatively, he may use one or more middlemen including wholesalers, selling agents, and retailers. Big firms have their zonal or regional authorized agents or dealers spread over the entire country. The dealers, in turn, work with distributors and retailers. On the other hand, small firms cannot afford to have zonal offices, but are devising their own ways of doing business. They also receive regular orders for goods. Entry may be difficult for the small firms.
It has been observed that many authorized dealers of known brands also stock other unknown or new brands of goods. They also insist on the customer buying the lesserknown brand because of higher margin of profit. The small entrepreneur, with fewer overheads and low labour costs along with better planning and management, may be able to earn good profits.
After reading this chapter, you should be able to:
• Explain the meaning of channels of distribution.
• Describe various kinds of distribution channels.
• Enumerate the factors affecting choice of a distribution channel. • Describe various types of middlemen.
18.2 MEANING OF CHANNELS OF DISTRIBUTION
A channel of distribution or trade channel is the path or route along which goods move from producers to ultimate consumers. It is a distribution network through which a producer puts his products in the hands of actual users. A trade or marketing channel consists of the producer, consumers or users and the various middlemen who intervene between the two. The channel serves as a connecting link between the producer and consumers. By bridging the gap between the point of production and the point of consumption, a channel creates time, place and possession utilities. A channel of distribution represents three types of flows:
a. Goods flow from producer to consumers;
b. Cash flow from consumers to producer as payment for goods; and c. Marketing information flows in both directions, from producers to consumers in the form of information on new products, new uses of existing products, etc. The flow of information from consumers to producers is the feedback of the wants, suggestions, complaints, etc.
18.3 KINDS OF DISTRIBUTION CHANNELS
Every small-scale entrepreneur requires a channel that can distribute his product to the right customers at the right time and at the right cost. It consists of all the middlemen which participate in the distribution of goods and which serve as a link between the manufacturer and the consumer.
Producer Retailer Consumer
Producer Wholesaler Retailer Consumer
Channels of Distribution
A brief explanation of different channels of distribution is given below: 1. Manufacturer Customer: This is also known as direct selling because no middlemen are involved. A producer may sell directly through his own retail stores, for example, Bata. This is the simplest and the shortest channel. It is fast and economical. Small producers and producers of perishable commodities also sell directly to the local consumers. Big firms adopt direct selling in order to cut distribution cost and because 274
they have sufficient facilities to sell directly to the consumers. The producer or the entrepreneur himself performs all the...
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