Channels of Distribution

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Channels of Distribution

Lesson 20

Channels of Distribution

Are you aware that the study material of Business Studies, which is now in your hands, is prepared at the headquarters of the National Institute of Open Schooling (NIOS) situated at New Delhi. How did it come to your hands? Was it available at your study centre or you bought it from the market? If you got it from your study centre, then just think for a while: how did it reach your study centre? Actually, after publishing the study material, NIOS sent this material to your study centre and then you collected it from there. Similarly, the NIOS study material available in the market is directly purchased by the booksellers from NIOS. Then, the booksellers sell it to you. Thus, the study material published by NIOS reached you either through your centre or through booksellers. In a similar way most of the goods and services we use in our daily life also come from the producers or manufacturers and reach us through some people. In this lesson, let us learn how the goods and services of our need reach us.

20.1

Objectives

After studying this lesson, you will be able to:


explain the meaning of channels of distribution.



identify different channels of distribution;



describe the functions of wholesalers and retailers;



distinguish between wholesalers and retailers; and



identify different types of retail trade.

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Business Studies

20.2 Meaning of Channels of Distribution
You know that the main purpose of trade is to supply goods to the consumers living in far off places. As goods and services move from producer to consumer they may have to pass through various individuals. Let us take an example. A farmer in Srinagar has an apple orchard. Once the apples are ripened he sells the apples to an agent of Delhi. The agent collects the apples from Srinagar, packs them, and sells them to a wholesaler at New Delhi sabzimandi. The wholesaler then distributes them to various retail fruit vendors throughout Delhi by selling smaller quantities. Finally, we purchase apples from those vendors as per our requirement. Thus, we find that while coming from the producer at Srinagar, the product reaches the consumers by passing through several hands like an agent, a wholesaler and a retailer. All these three are called middlemen. These middlemen are connecting links between producers of goods, on one side and consumers, on the other. They perform several functions such as buying, selling, storage, etc. These middlemen constitute the channels of distribution of goods. Thus, a channel of distribution is the route or path along which goods move from producers to ultimate consumers. The route taken by goods as they move from producer to consumer is known as Channel of Distribution.

Agent

Retailer

Producer

Consumer

Wholesaler

Fig. 20.1 Channels of Distribution

20.3 Types of Channels
Normally goods and services pass through several hands before they come to the hands of the consumer for use. But in some cases producers sell goods and services directly to the consumers without involving any middlemen in between them, which can be called as direct channel. So there are two types of channels, one direct channel and the other, indirect channel. From the above diagram it can be found that there is just one direct channel i.e. from producer to the consumer. There are many indirect channels like:

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Channels of Distribution

(i) Producer

Agent

Wholesaler

(ii) Producer

Wholesaler

(iii) Producer

Agent

(iv) Producer

Wholesaler

(v) Producer

Retailer

Retailer

Retailer

Consumer,

Consumer

Consumer
Consumer and
Consumer

Let us discuss about some of the common channels.

(i) Direct Channel
In this channel, producers sell their goods and services directly to the consumers. There is no middleman present between the producers and consumers. The producers may sell directly...
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