Channels of Distribution

Topics: Retailing, Marketing, Business Pages: 12 (2984 words) Published: January 29, 2013
23 Channels of Distribution

23.1 Introduction
As you know, the primary objective of all business enterprises is to earn profit by selling goods and services to ultimate consumers or users. In order to bring goods from the place of manufacture to the place of consumers, the goods have to follow a path or route which is known as channel of distribution or trade channel. A trade or marketing channel consists of producer, middlemen, and consumers or users. The channel serves as a link between the producer and consumers. In the present lesson we shall discuss the various aspects of channels of distribution.

23.2 Objectives
After studying this lesson you will be able to : recall the meaning of channels of distribution; identify the various channels of distribution with the help of a chart; describe the role of middlemen in the distribution of goods; state the desirability of eliminating the middlemen; enumerate the role of wholesaler and retailer in distribution of goods;

40:: Business Studies

explain the role of specialised retail outlets e.g., departmental stores, multiple shops, mail order business, etc.; prepare a list of factors to be considered before choosing a suitable channel of distribution.

23.3 Channel of distribution - Meaning
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 otherwords, 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 who 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. The following diagram (chart) is illustrative of the channel of distribution which may exist in a market. P R O D U C E R S Agent/dearler Wholesaler Retailer Agent Agent/dealer Wholesaler Retailer Retailer Agent Wholesaler Direct Sale Retailer Retailer Retailer


The 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

Channels of Distribution :: 41

middleman. But that is very rare. As the chart shows the producer may sell goods to retailer who may then sell the same to consumers. The producer may sell goods to wholesalers who may inturn sell to retailers and the retailer may sell to consumers. The fourth 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 producer’s 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.

23.4 Role of middlemen in the distribution of goods
The middlemen perform the following marketing functions which are listed in sequence. I. Searching out buyers and sellers (contacting & Mechandising), matching goods to the requirements of market. Offering goods in the form of assortments or packages. Persuading and influencing the prospective buyers to favour a certain product and its maker (personal selling/sales promotion). Implementing pricing policies in such a...
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