Meaning: in the field of marketing, channels of distribution indicates routes or pathways through which goods and services flow, or more from producers to consumers.
We can define formally the distribution channels as the set of interdependent marketing institutions participating in the marketing activities involved in the movement the flow of goods or services from the primary producers to ultimate consumers.
A channel of distribution is a path traced in the direct or indirect transfer of ownership of a product as it moves from producers to consumers.
A channel is pipeline through which a flows on its way to the consumers. The manager put his products into the pipeline marketing channels and it moves towards various marketing people and reaches the ultimate consumer which is the other end of the channels.
Components of distribution system: –
The distribution system involves two components such as below.
Channels of distribution: – means a process through which the products are transferred from the producers to the ultimate consumers. It also known as marketing channels. The channels members such as merchants agents wholesalers and retailers are middlemen in distribution and they perform all marketing functions. These channels members such as merchants agents wholesalers and retailers are middlemen in contribution and try perform according to marketing functions. These middlemen facilitate the process of exchange and create time, place and possession utilities through matching and sorting process. Sorting enables meeting or matching the supply with consumers demand.
Physical distribution: – it looks after physical handling of goods and assures maximum customers services. It aims at offering of delivery of right goods at the night distribution activities cover:
- Order processing
- Inventory control
- Customer service.
All middle in distribution on performs these function and they assure putting the products with in an arm’s length customer’s desire and demand.
Elements of distribution channels:
Pathway: distribution channels are a pathway through which products and services flow from manufacturers to customers.
Flow: this of goods and services in sequential and usually in directional.
Composition: it is composed of intermediaries also called middlemen who participate in the flow of voluntarily.
Objectives: although channels components largely strive to achieve mutually acceptable objectives, the manufacturer focus is an achieving corporate marketing objective.
Leader: manufacturer leads the channels components and their behavior is regulated by mutually acceptable code of conduct, trade customer and or contracted stipulation. Thus the company acts as the channels caption and manages the ‘pathway’.
Functions: the intermediaries perform such functions which facilitates transfers of ownership and possession of goods and services from marketers to consumers.
The function performed by intermediaries is classified as follows:
Sorting out: it involves breaking a homogeneous through grading or inspection.
Accumulation: it involves bringing a number of like products together into a large homogeneous supply. This process is called concentration.
Allocation: it involves sorting out of accumulated products and consists of breaking down a homogeneous supply into smacker lots it is also referred to as the process of “dispersion”.
Assorting: it involves building an assortment of different but perhaps a related product to form a stock of an intermediary. At the manufacturer level assortment are dictated by production technology while at the consumer and, use assortments are governed by consumption pattern. These discrepancies in assortment create opportunities for intermediaries to participate in the channels of distribution.
Importance of distribution channels:
Channels of distribution for a product the route taken by the title to goods they are from the producers to the ultimate consumers. It is very important because product in one place while the consumption scattered in many place. So there is big gap between producers and the consumers. So through channels of distribution can only fill the gap. A channel of distribution connects a link between the producers and the consumers.
The middle man plays an important role in consumer orientation demand. The middlemen are specialist in concentration equalization and dispersion, i.e.
- collects output of various producers
- subdivide the products according to the needs of the consumers.
- disperse this assortment to the consumers.
The success of channels of distribution [COD] is completely depending upon the middlemen as they create time and possession utility. The COD helps in making products available at right time in the night place and in the right quality.
Marketing is a comprehensive term, which includes distribution also, distribution is a function to distribution or sub divided the producer’s goods to various specific markets which incurred to all ultimate consumers.
Role of channels of distribution
Channel of Distribution plays a very important role in achieving the marketing objectives of a company. Undoubtedly, the manufacturer of product or services creates involve utility but the distribution channels create time and place utilities. According to Drucker, “both the market and distribution channels are offer more crucial than the product. They are primary; the product is secondary.
In an ever widening market, particularly in consumer goods market distribution channels have a distinctive role in the successful implementation of marketing plans and strategies. These channels perform the following marketing functions in the machinery of distribution:
- The searching out of buyers and seller.
- Matching goods to requirements of the market(merchandising)
- Offering products in the form of assortments packages of items usable and acceptable by the consumers /users.
- Persuading and influencing the prospective buyers to favor a certain products and its maker [personal selling /sales promotion].
- Implementing pricing strategies in such a manner that would be acceptable to the buyers and ensure effective distribution functions.
- Participating actively in the creation and establishment of market for a new product.
- Offering pre- and after sales service to customer
- Transferring of new technology to the users along with the supply of products and playing green resolution in our country.
- Providing feels back information, marketing intelligence and sales forecasting services for their regions their suppliers.
- Offering credit to retailers and consumers.
- Risk- bearing with references to stock holding transport.
MIDDLEMAN IN DISTRIBUTION CHANNELS
Merchant intermediaries are those channels member who take both title to and position of goods from the proceeding member (s) and channel’s them to the subsequence. These may classify as follows:
Wholesalers : A merchants wholesalers may be defined as that intermediary who buys goods in bulk from manufactures and sells them largely to subsequent intermediaries participating in the channel, namely, semi-wholesalers and retailers, they buy the goods and sees the same on their own account and risk. They take title of goods and they resale the goods at a profit with commission.
Retailers: A retailer may be defined as that merchant intermediary who buys product from preceding challes members in smaller assorted lots to suit individuals’ consumer requirements. Retail in the final middlemen in the channel of distribution as he is going to sell products to houses holds consumers for non- business use.
Retailers are further classified as institutional and non- institutional retailers.
The institutional retailers are:
- Consumer Co- operative stores.
- Fair price shops.
- Departmental stores.
- Chain / multiple stores.
- Mail order houses.
- The non-institutional buyers are:
- Stress sellers.
Agent Intermediaries are those channel components who never take title to end usually do not take title to and usually do not take possession of goods but merely assist manufacturers, merchants intermediaries and consumers in carrying out transactions of sale and purchase. There for, unlike merchant intermediaries, they do not buy or sell goods on their own account but merely bring buyers and sellers together in order to strike a transaction. There exist an agency relationship between such an intermediary manufacturers where in the former acts as agent and the latter as his principal, such agent intermediaries solicit orders, sometimes with discretion a fixing prices, and determines the term of sale with buyers.
Agent intermediaries are usually compensable for their services by way of commission on the value of sale affected through them or any other basis naturally agrees upon.
Agent intermediaries may be further classified as follows:
- Sole selling agent.
- Selling agent.
- Commission agent.
The first problem of channel design in whether you want direct sale to consumer or indirect sale i.e., sale through middleman under the direct sales the channel problem becomes problems of company organization. If the company chooses the indirect route, it must consider such problem as the type and number of middleman’s and methods to be employed in motivating and controlling them. The selection of these middlemen beings with the knowledge of ultimate customers-his needs and desires for distribution services. Customer conveniences and economics of exclusive distribution will determine the number of middleman employed. The company must choose whether to attempt extensive, selective or exclusive distribution or combination of all three types, the decision is made after the careful analysis of product, customer, dealers, and company objectives and policies, and the conflict with in the channels and any other relevant factors. The company must resolve channels and bring the product profitably to the market.
In the chance managements a manufacturer has to make three decisions:
- Section of a particular middleman at each level and in each market.
- Number of middlemen at each level and in each market.
- Selection of particular middlemen for selling goods, with or without any exclusive rights of distribution.
Once the company has determined, its basic channel design and levels of distribution, it has to select middlemen appoint them, motivate their efforts, evaluate their utility periodically and if necessary, it has to reorganizing the channels in the light of experience.
Channel decisions also require special attention as involve long term commitments to other firms with whom marketer enters in to a contract. The problem of selecting the most suitable channel 0f distribution for a product is complex. The most fundamental factor for channel choice and channel management it economic criteria, viz., cost and profit criteria, we have to consider a number of factors such as the nature of the product, market trends, competition outlooks pricing policies typical consumer needs, as well as needs of the manufacture critical factor.
Product manufactured by a company itself is a governing factor of great force in the distribution channel selection. The product attributes shape the channel decision in the following manners,
- If a commodity is perishable or fragile a producer prefers few and controlled levels of distribution.
- For durable and standardized goods longer and diversified channel may be necessary.
- For custom made product direct distribution to consumer or industrial user may be desirable.
- Systems approaches needs package deal and shorter-channel serves the purpose.
- For technical product requiring specialized and selling and serving talent, we here the shortest channel.
- Products of high unit value are sold directly by traveling sales force and not through middlemen.
Under the modern concept of marketing market factor shape all marketing decision. As a corollary, the distribution channel choice is considerably influenced by market factor.
Consumers: the numbers of consumers, their geographic location and purchase pattern considerably govern the choice of a channel.
Intermediaries: the relative strength and weakness of intermediaries and the difference in the type of function performed and facilities and privileges desired by them often determine the choice of channel.
Competitors: the distribution channels used by competitors also influence the channel choice because it may be the customary channel used by all those operating in the field.
If the market size is large, we have many channels where as in a small market direct selling may be profitable.
Like markets and products, companies own strength and weakness significantly influence and shape channel choices.
Financial strength: – a company with substantial and financial resources need not really too much on the middlemen and can offered. To reduce the levels of distribution a weaker company has to open on middlemen to secure financial and warehousing relief.
Past channel experience: – in case often old and established company its past experience of working with certain kind of intermediaries also condition channel choice.
Marketing policies: – the marketing policies relevant to channels decision may relate to advertising delivery, after – sales service and pricing.
Reputation: – it is said that the reputation travels faster than the man. It is true in case of companies also who wish to select distribution channels.
Middlemen who can provide wanted marketing services will be given first preference.
The selected middle men must offer maximum co – operation particularly in promotional services. They must expect marketing policies and programs of the manufacturers and actively help them in their implementation.
The channel generating the largest sales volume unit cost will be given top priority this will be minimizing distribution cost.
Marketers closely watch the channels used by rivals. Many a times, similar channels may be desirable to bring about distribution of your products also. Followers, sometimes marketers deliberately avoid customary channels (dominated by rivals) and adopt different channels strategy for instance, you may by – pass retail store channel (usually used by rival) and adopt door to door sales (where there is no competitors).
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Marketing environment can also influence the channel decision. During recession or depression, shorter and cheaper channel is always preferable. In times of prosperity we have a wider choice of channel alternatives. Technological inventions also have impact on distribution. The distribution of the perishable goods even in distant markets becomes a reality due to cold storage facilities in transport and warehousing. Hence this led to expanded role of intermediaries in the distribution of perishable goods.
Arranging in classes of distribution channels and intermediaries
Types of distribution channels: broadly distribution channels may be classified as a non – integrated and integrated channel is individual or conventional marketing channels.
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