Channels of Distribution

CHANNELS OF DISTRIBUTION
INTRODUCTION:
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 lesser known 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.
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.
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.
P.Umamaheswarrao, Asst.Prof, Mechanical Engg, BEC, BAPATLA Page 1

1. Manufacturer to 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 they have sufficient facilities to sell directly to the
consumers. The producer or the entrepreneur himself performs all the marketing
activities.
2. Manufacturer to Retailer to Customer: This is one stage distribution channel
having one middleman, i.e., retailer. In this channel, the producer sells to big
retailers like departmental stores and chain stores who in turn sell to customer.
This channel is very popular in the distribution of consumer durables such as
refrigerators, T V sets, washing machines, typewriters, etc. This channel of
distribution is very popular these days because of emergence of departmental
stores, super markets and other big retail stores. The retailers purchase in large
quantities from the producer and perform certain marketing activities in order to
sell the product to the ultimate consumers.
3. Manufacturer to Wholesaler to Retailer to Customer: This is the traditional
channel of distribution. There are two middlemen in this channel of distribution,
namely, wholesaler and retailer. This channel is most suitable for the products
with widely scattered market. It is used in the distribution of consumer products
like groceries, drugs, cosmetics, etc. It is quite suitable for small scale producers
whose product line is narrow and who require the expert services and
promotional support of wholesalers.
CHOICE OF CHANNEL OF DISTRIBUTION:
While selecting a distribution channel, the entrepreneur should compare the

costs, sales volume and profits expected from alternative channels of distribution.
In order to select the right channel for distributing his product, a small-scale
manufacturer should keep in mind the following considerations 1:
1. Market Considerations: The nature of the market is a key factor influencing
the choice of channels of distribution. The following features of the market should
be considered to determine the channels:
a. Consumer or industrial market: If the product is meant for industrial users,
the channel of distribution will be a short one. This is because industrial users
buy in a large quantity and the producer can easily establish a direct contact with
them. But in case for goods meant for consumers, retailers may have to be
included in the channels of distribution.
b. Number and location of buyers: When the number of potential customers is
small or the market is geographically located in a limited area, direct selling is
easy and economical. In case of large number of customers, use of wholesalers
and retailers becomes necessary.
c. Size of order: Direct selling is convenient and economical where customers
place order in big lots as in case of industrial goods. But where the product is
sold in small quantities, middlemen are used to distribute such products. A
manufacturer may use different channels for different types of buyers. He may
sell directly to big retail stores and may use wholesalers to sell to small retailers.
d. Customers buying habits: The customer buying habits like the time he is
willing to spend, the desire for credit, the preference of personal attention and
one stop shopping significantly affect the choice of distribution channels.
2. Product Considerations: The type and nature of the product influence the
number and type of middlemen to be chosen for distributing the product. The
important factors with respect to the product are as follows:
a. Unit value: Products of low unit value and common use are generally sold
through middlemen, as they cannot bear the cost of direct selling. On the other
hand, expensive consumer goods and industrial products are sold directly by the
producers.
b. Perishability: Perishable products like vegetables, fruits and bakery items
have relatively short channels, as they cannot withstand repeated handling.
Goods, which are subject to frequent changes in fashion and style, are generally
distributed through short channels, as the producer has to maintain close and
continuous touch with the market.
c. Bulk and weight: Heavy and bulky products are distributed directly to
minimize handling costs. Coal, bricks, stones, etc., are some examples.
d. Standardisation: Custom-made and non-standardized products usually pass
through short channels due to the need for direct contact between the producer
and the consumers. Standardized and mass-made goods can be distributed
through middlemen.
e. Technical nature: Industrial products requiring demonstration, installation and
after sale service are often sold directly. The consumer products of technical
nature are generally sold through retailers.
f. Product line: An entrepreneur producing a wide range of products may find it
economical to set up its own retail outlets. On the other hand, firms with one or
two products find it profitable to distribute through wholesalers and retailers.
g. Age of the product: A new product needs greater promotional effort and few
middlemen may like to handle it. As the product gains acceptance in the market,
more middlemen may be employed for its distribution.
3. Middlemen Considerations: The cost and efficiency of distribution depend
largely upon the nature and type of middlemen as given in the following factors:
a. Availability: When middlemen as desired are not available, an entrepreneur
may have to establish his own distribution network. Non-availability of middlemen
may arise when they are handling competitive products, as they do not like to
handle more brands.
b. Attitudes: Middlemen who do not like a firm’s marketing policies may refuse
to handle its products. For instance, some wholesalers and retailers demand sole
selling rights or a guarantee against fall in prices.
c. Services: Use of those middlemen is profitable who provide financing,
storage, promotion and after sale services.
d. Sale Potential: An entrepreneur generally prefers a dealer who offers the
greatest potential volume of sales.

e. Costs: Choice of a channel should be made after comparing the costs of
distribution through alternative channels.

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CHANNELS OF DISTRIBUTION

Distribution of products constitutes an important element of marketing mix of a

MEANING OF CHANNELS OF DISTRIBUTION:

KINDS OF DISTRIBUTION CHANNELS:

P.Umamaheswarrao, Asst.Prof, Mechanical Engg, BEC, BAPATLA Page 1

CHOICE OF CHANNEL OF DISTRIBUTION:

While selecting a distribution channel, the entrepreneur should compare the

P.Umamaheswarrao, Asst.Prof, Mechanical Engg, BEC, BAPATLA Page 3

P.Umamaheswarrao, Asst.Prof, Mechanical Engg, BEC, BAPATLA Page 4

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