This channel is the shortest and the simplest of all channels choices available to a company. It is the direct channels in when product all transferred directly to consumers by money acuter without any Participating in the pathway. Usually we have numerous and scattered consumers who buy in very small quantities. Hence, this market is not popular for a wider market.
In India many companies selling industrial goods opt for this choice. Among the consumer goods, the most conspicuous examples are first of the company selling “Bull Worker” health – aids direct to consumer through mail order and Diamond group who sells 40% of the granites and marbles are direct from the production point, whereas 60% is sold through indirect selling method. The general pattern of sales includes different wholesaling and retail show rooms located at different localities.
THE FOLLOWING METHODS USED BY PRODUCERS UNDER DIRECT CHANNELS
Sales counter at production plant: it is also called as gate sales. Here, the firm maintains their own sales. Counters at the manufacturing point itself.
Sales by Mail order method: Here a post office plays a significant role. It is a system by which products are sold to consumers, thus system is also known as shopping by post or mail order business or selling by post. It is an impersonal selling here customer are approached by sending catalogues, price lists, samples etc.,
- Business can be housed in any place by looking at the economy of rent.
- Capital requirement is less.
- A buyer gets home delivery and the marketing in unlimited.
- A consumer gets the products without shopping.
- Bad debts can be avoided.
- Buyer can’t inspects or select the goods.
- Credit facilities are not possible.
- Cheating is common for both sides.
- After sales service is not entered.
Tele buying / Tele selling: This system is also known as dial- n- order. Telephone buying and direct phone contact with the prospects to persuade and secure orders on phone is now popular device in the west and slow spreading in big cities in India. Showroom sale is supplemented by telephone selling by a marketer as is cheaper than in home sale through sales force. Most of the regular customer prefers this tele buying as it saves time and is cheaper.
Internet buying / Internet selling: This system of buying and selling is increasing very rapidly. Here, in this system the customer contacts the buyer through internet and the customers can sale different products sitting at our place and can also negotiate on the price with the buyer ad complete the sale, this system save lot of time and is more advanced compared to mail order or tele buying.
Indirect or long channel is one where in the company echoes to engage intermediaries in order to channels into products and services to consumers. Thus, in case of direct channel a company stands the closest to consumer and takes upon itself the task of transferring ownership and possession of its product direct to buyers. Never the less, in case of indirect channels, a company may have more than one choice where in it may stand further or the farthest from the customer depending on the length of channel sequence. These different channel choices may be briefly described as follows.
Manufactures Retailer Consumer
This channel consists of one type of intermediary called retailer, through whom a manufacturer sells goods to consumers. In this channel choice, the manufacturer moves away from consumers by one step and such as the directness of contact is proportionately reduced. The Kohinoor group makes use of 2% of this channel in order to sell its products. The Kohinoor group has its own retail showroom.
If the buyers are large then this channel is preferable. It speeds up the distribution process, large retailers includes retail showroom located in different localities. A manager acts as a wholesaler and performs the functions of storage, financing, etc.
A retailer may be defined as that merchant intermediary who buys products from preceding channel members in small assorted to its and sells them to consumers in still smaller associated lots to suit individual consumer requirements. He is the last / final middlemen in the channel of distribution as he is going to sell his products to consumers.
Retailer offers the following services to both Consumers and Producers
BUYING FOR CONSUMERS
SELLING FOR PRODUCERS
1. Expert Seller
Breaking of bulk
2. Advertiser of goods
Transport and Warehousing
3. Bulk breaking
Repairs and installation
6. Feedback source of consumers needs and reaction
SERVICE TO CUSTOMERS:
- They supply goods in small quantity to buyers.
- They anticipate the consumer demand.
- They guide the customers in buying.
- They offer credit facility to customers.
- They create price and time utility.
- They undertake guarantee over the product.
- They stock variety of goods.
SERVICE TO PRODUCERS:
- They assist the efficient distribution of goods.
- Information of likes and dislikes of the customers in pass into producers.
- They help the producers in display and demonstration.
- Sales promotion is strong with their help.
- They act as markets researches.
- In this Channel the wholesales are not consider because:
- Wholesaler lacks interest in aggressive selling.
- They offer poor facility to store the products.
- They demand high amount of discount on sells.
- It shortness the journey time to the consumers.
- Manufacture Wholesaler Retailer Consumer
This channel consists of two types of intermediaries, respectively called wholesaler and retailer, through whom a manufacturer channels his products to consumer. In this channel choice a manufacturer further moves away from the ultimate consumer owing to the appearance of wholesaler between him and the retailer. The gap between manager and customer is wider due to these intermediaries, thus the directness of distribution channel is further reduced.
It is the most traditional channel in India and is being used by a large number of small and big companies DIAMOND group makes 2% of this channel. The DIAMOND group products move from its different factories to few showroom located in different parts of the country. This showroom serves as the point of storage and distribution of products to the customer.
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A merchant wholesaler may be defined as that intermediary who buys goods in bulk from manufacturer and sells them largely to subsequent intermediaries participating in the channel, vizâ€¦ semi-wholesalers and retailers and sometimes to large consumers. They buy the goods and sell the same on their own account and risk. They take little of goods and they resale the goods at a profit.
Manufacturer Agent Wholesaler Retailer Consumer
It is the indirect or longest channel distribution. It consist of 3 types of intermediaries namely, Agent middlemen, Wholesaler and Retailer. In this channel the producer uses the service of an agent middleman for the initial dispersion of goods. The gap between the producers and consumer is very great. In this channel the manufacture disposal the goods to the agent middlemen, the agent distributes the goods/products to the wholesalers, wholesales the products to retailers and finally the retailers sell the goods to the consumers.
In marketing manufactured goods, agent middlemen are used by manufacture to make themselves free from marketing tasks. An agent middleman sells on commission basis directly to wholesaler or large retailers, agent middleman generally operators the wholesale level they are common in agriculture marketing.
Agent intermediaries are those channel components who never take title to and usually do not take possession of goods but merely assists manufacture, merchant intermediaries, and consumer in carrying out transactions of sell and purchase. Therefore, unlike merchant intermediaries, they don’t buy or sell goods on their own account but merely bring buyers and seller together in order to strike a transaction. They are usually compensation the value of service by way of commission on the value of the sale affected through them or on any other basis mutually agreed upon.
Agent middlemen’s are further classified as follows:
Brokers: They are those agent intermediaries who do not themselves by buy or sell products but act only as contract persons for prospective sellers and buyers participating in the distribution channel. They all however, usually referred to as “Sellers salesman in disguise” because, they generally act for sellers. Brokers receive commission or brokerage only whenever a transaction or exchange of goods is takes place.
Commission Agent: commission agent is an agent individual firms or even companies. It negotiates the sales of goods belonging to the principle. He is having control over the sales of goods and has the power on living the prices. He makes arrangement for delivery. He may extend necessary credit. Later he collects the credit and deducting there for they give remaining amount to the suppliers.
Selling Agent: He is an independent agent. He operates on a contractual basis, as he is a middlemen he negotiates all sales of a specified line of merchandise or entire output of its suppliers. He has authority over the price, forms and conditions of rate. He has close contact with the buyers so, he can guide the manufacturer.
Sole Selling Agent: Sole selling agents are those agents intermediaries who are given exclusive franchise to channels to whole or substantially the whole of a manufacturer production without only territorial restriction on the basis of terms and conditions mutually agreed upon and contained in the agency agreement stipulated. The sole agent is given a special commission.
A combination of two or more than two may be opted for depending on the demands made by company’s products and markets. When a company uses only one channel for all its products in all market segments, it is referred to as “Mono or Single Channel”. When a company uses two channels for its products and market segment it is referred to as “Dual Channel”. In other words dual channel means two channels are used for selling product in consumer market and industrial markets. In the former indirect and in the latter direct channel is used.
Nevertheless, it is possible that a company may use more than two channels which are called multiple channels. Differences in size of market, buyer, behaviour, market densities and product mix composed of unrelated product items often necessitate use of a multiple channel.
Other aspects of channel management
The policies and strategies described above can’t be implemented by sheer selection of appropriate channel and goods intermediaries. For their effective implementation it is essential that these are effectively managed. Beside selection, the other aspects of channel management include compensating, motivating and co-coordinating and controlling intermediaries composing the company’s distribution channels. These aspects of channel management are briefly described hereunder.
Compensation: From a manufactures stand point compensation, in the context of distribution channel, may be defined as consideration offered to an intermediary anticipating in the channel for the services rendered by it to the manufacturer.
According to Stern and Ansary, compensation to intermediaries “is paid only for what they actually do within the system”. Hence, different functions performed by different intermediaries should serve as the basis for compensation. The rate of compensations such should be determined by the number of functions performed by an intermediary duly weighted by their relative importance to a manufacture.
However, in a real life situation, compensation is not always determined on such a rational basis. The tradition of the trade, agreements between industry and trade associations and governmental directives play a considerable intervening role in determining the rate of compensation.
The following are some of the important forms of compensating intermediaries:
Commission: Commission is paid to agent intermediaries for the services rendered by them which usually include assisting in ownership transfer, negotiation, order booking, financing, promotion, debt recovery etc. it is calculated as percent of the total amount or volume of sales generated by them.
The rate of commission, known as selling commission.
The rate of commission not only various from company to company within the industry but also from market to market within a company. When an intermediary acts as a broker, he gets brokerage as certain percent of the total sales assisted.
Trade Discount: Trade discount is a form of compensation usually adopted to compensate merchant middle who is appointed a distributor or dealer and aggress to various forms of channel controls exercised by a manufacturer for whom they work. Although merchant middlemen are free to sell goods to anybody anticipating in the channel and earn profits, trade discount is a reward they receive from the manufacturer for exclusive services rendered and controls accepted. Trade discount given as percent of the invoice price of the goods bought by a distribution or dealer. A large number of Indian companies pay trade discount to intermediaries.
Quantity Discount: Quantity discount also known as bonus in many Indian companies is a form of compensation given to an intermediary whether neither agent nor merchant, in respect of the quantum of sale recorded through them. It is paid as percent of sale and its compensation is to provide an incentive to an intermediary to work harder and to augment sales of the company. In India many companies use quantity discount as a form of compensation for rewarding their intermediaries.
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