29 14: Channels of Distribution Business LibreTexts

Intermediaries are the middlemen who specialise in performing various functions or rendering services involved in the process of moving the product from the producer to the consumer. These intermediaries may be individual or organisation, who helps the manufacturer in reaching to the final consumers. Intermediaries are of two types – Agent middlemen and Merchant middlemen. In other words, a channel of distribution is a pathway directing the flow of goods and services from producer to consumer consisting of number of inter­mediaries. It is an organised network which performs all the activities required to link producers with users to accomplish the marketing task. After reading about distribution channels, its role, different types, and how its future would be like.

Distribution Marketing

A supply chain is the system through which an organization acquires raw material, produces products, and delivers the products and services to its customers. Supply chain management helps increase the efficiency of logistics service by minimizing inventory and moving goods efficiently from producers to the ultimate users. In a three-level channel, there are three intermediaries involved in the distribution process. The first intermediary is an agent or broker who acts on behalf of the producer, connecting them with wholesalers. The wholesalers purchase products from the producer and sell them to retailers. This channel structure is common in industries where specialized agents or brokers assist in connecting producers with wholesalers.

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Retail sales for catalog showrooms grew from USD 1 billion dollars in 1970 to over USD 12 billion today. Department stores are characterized by their very wide product mixes. That is, they carry many different types of merchandise that may include hardware, clothing, and appliances.

1. The major oil companies such as Mobil have long enfranchised its dealers, who only sell the products of the franchiser (the oil companies).
2. The decision of choosing the placement for products depends on various factors.
3. Thus, the distribution channel influences sales volume and profits.
4. Factors related to perishability, bulkiness, product value, etc. related to the product are taken into consideration while making a choice between the channels of distribution.

If the nature of the product is more technical and the customer may require direct contact with the manufacturer, direct channels are used. Whereas, if the product is fairly easy to use and direct contact makes no difference to the number of sales, longer channels are used. The Horizontal marketing system is a channel in which few companies operating at the same level jointly and mutually agree to pursue a fresh marketing prospect. Its major advantage is that businesses merge their assets, resources, production potentials, and therefore realize more. (i) The manufacturer selects a limited number of wholesalers or retailers and works closely with them to further the sale of his products.

Each type of merchandise is typically displayed in a different section or department within the store. All of these individuals are interdependent, and could not operate successfully without the cooperation and capabilities of all the others. It has not always been this way, and it is still not this way in many other countries. Perhaps a little anthropological discussion will help our understanding. This agreement tends to work paramount where the retail channel is jumbled – i.e. not dominated by a small number of large, dominant retailers who have an encouragement to cut out the wholesaler. Distribution of drugs/ pharmaceuticals in the Europe and United Kingdom is typical example of such arrangement.

How to define distribution channels for your channel?

Distribution channels are used in various industries and sectors, each with its unique set of requirements and challenges. The choice of distribution channels depends on several factors such as the nature of the product, the target market, the company’s marketing strategy, and the overall industry trends. Moreover, distribution channels also provide important post-sale services such as installation, warranty, and repair. They also gather feedback from customers, which can be used to improve the product or service.

(vi) Perishability – The producers of perishable products usually sell their products directly to consumers or sell through the middlemen who have the special storage facilities. Agent middlemen are those intermediaries who do not take title of the goods but only specialises in the negotiating the buying or selling transactions. Financial Strength of functions of channel of distribution the Company – Companies having substantial financial resources need not depend upon intermediaries for assistance and can use shorter channels. Competitors’ Channels – The distribution channels used by the competitors also influence firms channel selection. When the competitors is using a particular channel and have been successful, the concerned manufacturer may also use it in similar manner, provided it suits his requirements.

It is very necessary that the goods are properly assorted and stored at the right place. Channel members have to ensure that stored goods are transported at right time, so that it is made available to the consumers. Distribution can impact pricing based on the costs involved in logistics, warehousing, and the number of intermediaries involved in the supply chain. A distribution channel refers to the network or intermediaries through which a product moves from the manufacturer to the consumer.

Though the manufacturers may extend credit, payment is made in advance, even before the product is bought, consumed and paid by the ultimate consumer. Product cost, technicality, perishability and whether they are standardised or custom-made play a major role in selecting the channel of distribution for them. If the customer belongs to the consumer market, longer channels may be used whereas shorter channels are used if he belongs to the industrial market. (i) Distribution through an agency that stands between the manufacturer and the wholesaler.