Channels of Distribution MODULE - 4

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Management

21
Notes

CHANNELS OF DISTRIBUTION

A distribution channel, in simple terms, is the flow that a good or service follows from
production or manufacturing to the final consumer/buyer. Distribution channels vary but
typically include a producer, a wholesaler, a retailer, and the end buyer/consumer. The
target for any business is to bring their product or service to the market and make it
available for consumers by creating a distribution path or channel. The link between
producers and the end consumer is normally intermediaries, such as wholesalers, retailers,
or brokers. Distribution channels affect the prices of goods and their positioning in their
respective markets. A distribution channel must be efficient and effective. It means that
transportation and other logistical requirements need to be used at maximum capacity
and at the lowest rates possible.

LEARNING OUTCOMES
After studying this lesson the learner:
l defines channels of distribution in warehouse;
l explains the functions of distribution channels in warehouse;
l lists the types of distribution channels in warehouse;
l defines the types of middlemen in a warehouse;
l identifies the right distribution channel in warehouse;
l recalls designing distribution channels in warehouse.

21.1 DEFINE CHANNELS OF DISTRIBUTION

The term distribution collectively refers to all the acts or services rendered by various
agencies. It consists of an operation or series of operations which physically brings the

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Management goods from the producer into the hands of the final user. The Word Channel is derived
from the French Word “Cannal”. The channel of distribution refers to the pathway taken
by the goods as they flow from the point of production to the point of consumption.

Channel of distribution refers to those people, institutions or merchants who help in the
Notes
distribution of goods and services.

According to the American Marketing Association,” A channel of distribution or marketing

channel is the structure of intra – company organization units and extra company agents
and dealers, wholesalers and retailers through which a commodity, product or service is
marketed.”

Philips Kotler defines channel of distribution as “a set of independent organizations

involved in the process of making a product or service available for use or consumption”.

21.1.1 Importance

A channel of distribution for a product is the route taken by the title to goods as they
move from the producer to the ultimate consumer or industrial user. The channel of
distribution is very important to the producer and the consumer. There is a big gap
between the producer and the consumer and the gap is shrinking by the channel of
distribution. The middlemen in the channel of distribution collects the outputs of various
products, subdivides the products according to the needs of the consumers and gathers
this in the assortment wanted and disperses this assortment to consumers or industrial
buyers. The middlemen are specialists in concentration, equalization and dispersions.
They create time, place, form and possession utilities.

Channels of distribution provide convenience to customers, who can get various items at
one store. If there were no channels of distribution, customers would have faced a lot of
difficulties. A distribution channel is a chain of business intermediaries through which a
good or service passes until it reaches the final buyer or the end consumer.

21.1.2 Understanding Distribution Channels

A distribution channel is the path by which all goods and services must travel to arrive at
the intended consumer. Conversely, it also describes the pathway payments made from
the end consumer to the original vendor. Distribution channels can be short or long, and
depend on the amount of intermediaries required to deliver a product or service.

Goods and services sometimes make their way to consumers through multiple channels,
a combination of short and long. Increasing the number of ways a consumer is able to
find a good can increase sales. Longer distribution channels can also mean less profit
each intermediary charges a manufacturer for its service.

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Channels are broken into two different forms-direct and indirect. A direct channel allows Management
the consumer to make purchases from the manufacturer while an indirect channel allows
the consumer to buy the goods from a wholesaler or retailer. Indirect channels are typical
for goods that are sold in traditional brick-and-mortar stores. Conversely, a direct or
short channel may mean lower costs for consumers because they are buying directly Notes
from the manufacturer.

INTEXT QUESTIONS 21.1

1. Define channels of distribution?

2. What do you understand about distribution channels?

3. _____________ is provided by channels of distribution to customer

a). Convenience

b). Money

c). Satisfaction

d). Sales

21.2 FUNCTIONS OF DISTRIBUTION CHANNELS

Fig. 21.1: Distribution Channel Functions

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Distribution channels perform a number of functions that make possible the flow of goods
from the producer to the customer. These functions must be handled by someone in the
channel. Though the type of organization that performs the different functions can vary
from channel to channel, the functions themselves cannot be eliminated. Channels provide
Notes time, place, and ownership utility. They make products available when, where, and in the
sizes and quantities that customers want.

21.2.1 Breaking bulk

Distribution channels provide a number of logistics or physical distribution functions that

increase the efficiency of the flow of goods from producer to customer. Distribution
channels create efficiencies by reducing the number of transactions necessary for goods
to flow from many different manufacturers to large numbers of customers. This occurs in
two ways. The first is called breaking bulk. Wholesalers and retailers purchase large
quantities of goods from manufacturers but sell only one or a few at a time to many
different customers. Second, channel intermediaries reduce the number of transactions
by creating assortments providing a variety of products in one location so that customers
can conveniently buy many different items from one seller at one time. Channels are
efficient.

21.2.2 Transportation and storage

The transportation and storage of goods is another type of physical distribution function.
Retailers and other channel members move the goods from the production site to other
locations where they are held until they are wanted by customers. Channel intermediaries
also perform a number of facilitating functions, functions that make the purchase process
easier for customers and manufacturers. Intermediaries often provide customer services
such as offering credit to buyers and accepting customer returns. Customer services are
oftentimes more important in B2B markets in which customers purchase larger quantities
of higher-priced [Link] buy products to make them available for retailers
and sell products to other channel members. Retailers handle transactions with final
consumers.

21.2.3. Information

Channel members can provide two-way communication for manufacturers. They may
supply the sales force, advertising, and other marketing communications necessary to
inform consumers and persuade them to buy. And the channel members can be invaluable
sources of information on consumer complaints, changing tastes, and new competitors in
the market.

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INTEXT QUESTIONS 21.2

1. Give the major distribution functions
Notes
2. ____________ channel member transacts with final customer

a. Retailer

b. Wholesaler

c. Distributor

d. Commission agent

21.3 TYPE OF DISTRIBUTION CHANNELS

Broadly, Channel of distribution structure is as follows:

(1) Direct Channel

(2) Indirect Channel.

1. Direct Channel or Zero Level Channels

When the producer or the manufacturer directly sells the goods to the customers without
involving any middlemen, it is known as direct channel or zero level channels. It is the
simplest and the shortest mode of distribution. Selling through post, internet or door to
door selling etc. are the examples of this channel.

Producer ⇒ Consumer

The direct distribution channel does not make use of any intermediaries. The manufacturer
or producer sells directly to the end consumer. The direct form of distribution is typically
used by producers or manufacturers of niche and expensive goods and items that are
perishable. The main drawback of this direct channel:

Ÿ It is uneconomical to have direct contact with the customers, who are countless and
scattered all over.

Ÿ It is not possible for a direct contact with the multi millions of potential customers for
the products.

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2. Indirect Channels

When a manufacturer or a producer employs one or more middlemen to distribute goods,

it is known as indirect channel. The indirect distribution channel makes use of intermediaries
Notes in order to bring a product to market. The Following are the main forms of indirect
channels:

A. Manufacturer-Retailer-Consumer (One Level Channel):

The one-level channel entails a product coming from a producer to a retailer and then to
the end buyer. The retailers buy the product from the manufacturer and sell it to the end
buyers. The one-level channel is ideal for manufacturers of furniture, clothing items, toys,
etc.

Producer ⇒ Wholesaler/Retailer ⇒ Consumer

In the channel there is an intermediary wholesaler / retailer. A manufacturer sells goods to

consumers through these intermediaries. There is a gap between the manufacturers and
the consumer. This method is adopted when the buyers are large, for perishable goods
that need speed in distribution. In this channel the manufacturers use the functions of a
wholesaler or retailer. Generally, automobile appliances, clothings, and shoes are sold
directly to retailers.

B. Manufacturer-Wholesaler-Retailer-Customer (Two level channels):

The two-level channel follows the following process:

Producer ⇒ Wholesaler ⇒ Retailer ⇒ Consumer

Wholesalers generally make bulk purchases, buy from the producer, and divide the
goods into smaller packages to sell to retailers. The retailers then sell the goods to the
end buyers. The two-level channel is suitable for more affordable and long-lasting goods
with a larger target market.

C. Manufacturer-Agent-Wholesaler-Retailer-Consumer (Three level channels):

Manufacturer ⇒ Agent ⇒ Wholesaler ⇒ Retailer ⇒ Consumer

The three-level channel is similar to the two-level channel, except the goods flow from
the producer to an agent and then to a wholesaler. Agents assist with selling the goods

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and getting the goods delivered to the market promptly. The agents normally receive a Management
commission and are allocated the task of product distribution in a particular area. The
three-level channel is suitable for goods that are in high demand and with a target market
that stretches across a country.
Notes
Mercantile
Producer ⇒ Agent ⇒ Wholesaler ⇒ Retailer ⇒ Consumer
This level comprises three middlemen i.e. agent, wholesaler and the retailer. The
manufacturers supply the goods to their agents who in turn supply them to wholesalers
and retailers. This level is usually used when a manufacturer deals in limited products
andyet wants to cover a wide market.

D. Modern Distribution Channel

The Internet is the Modern-Day Distribution Channel. With e-commerce growing

tremendously over the past couple of decades, manufacturers and producers are now
able to use online marketplaces to sell their goods. The internet is also ideal for service
providers.

Fig. 21.2: Type of Distribution Channels

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INTEXT QUESTIONS 21.3

1. How many types of distribution channels are available?
Notes
2. Which channel is known as three level channels?

3. Direct channel is also called as __________ channel

a. Zero level b. One level

c. Two level d. Three level

21.4 TYPES OF MIDDLEMEN

Middlemen refer to, such institutions or business concerns situated in the marketing
channels at points between the producer and the final buyers.

A. Definition

According to the American Marketing Association, “A middleman is one who specializes

in performing operations or rendering services that are directly involved in the purchase
and sale of goods in the process of their flow from the producer to the final consumer.”

B. Importance of Middlemen

Middlemen are very important in the modern ever widening market, by making the
distribution easy and smooth. Organized markets for many commodities are created by
them. They create time, place and possession utility. Middlemen concentrate their effort
on marketing and distribution of goods.

21.4.1 Functions of Middlemen

Middlemen’s functions are known as marketing functions. The marketing functions are
the functions of exchange, functions of physical supply and facilitating functions. The
functions of middlemen are:

Ÿ The middlemen are the connecting link between the sellers and buyers. They help
the sellers and buyers to enter into a contract of sale or purchase.

Ÿ They direct the flow of goods from the producer to the ultimate consumer.

Ÿ Merchant middlemen perform the function of merchandising by making the goods fit
for the market segmentation.

Ÿ Middlemen are responsible for the flow of goods.

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Ÿ Large scale production is possible with the help of middlemen. They collect huge Management

orders and large purchases of products lead to large scale production.

21.4.2 Agent Middlemen

They are mostly engaged in wholesale dealing. They assist in negotiating sales or purchase Notes
or both on behalf of the seller or buyer. They do not take the title of the goods which they
handle. The different kinds of agent middlemen are:

1. Broker: A broker is an agent. He represents the buyer or the seller in negotiating

purchases or sales without having physical control over the goods involved. His main
service is to bring the buyer and the seller together. He is the agent of the owner of
goods, seeking a buyer other than the agent of a buyer who is seeking for supply.

2. Commission Agent: Commission agent is an agent – individual, firms or even

companies. It negotiates the sales of goods belonging to the principal. It customarily
exercises physical control over the sale of goods. It has the power on price, and terms
of sale under the condition that it must obey the instructions of the principals.

3. Manufacturer’s Agent: Manufacturer’s agents are employed by the manufacturers

to sell their products. The agent receives a percentage of commission based on his
sales. He uses his techniques. He employs his sales representatives, who work for
him. Selling is his main function. These types of middlemen are important in the
marketing of industrial goods.

4. Selling Agents: Selling agents are independent middlemen. He operates on a

contractual basis. He negotiates all sales of a specified line of merchandise or the
entire output of its principal. He has authority over the price, terms and other conditions
of sale. He is the sole selling agent for the line.

5. Resident buyers: Resident buyer is an independent agent, and he specializes in

buying for retailers. He receives compensation or a fee on commission basis. He
operates in lines of trade, such as furniture, garments etc. He has his office in the
marketplace. The resident buyers are purely and simply an independent agent
specialized in buying for principals who are retailers.

6. Auctioneers: They are generally appointed by business firms. The auctioneer

receives the goods and invites bids for the goods. The highest bidder gets the goods
and the auctioneer collects the amount from him.

21.4.2 Merchant Middlemen

Merchant middlemen buy and sell goods on their own account and risk. They take the
title of goods. They resell the goods at profit. They are wholesalers and retailers.

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A. Functions of Merchant Middlemen

Ÿ They are the connecting link between the producers and consumers and goods are
supplied where they are in demand.
Notes Ÿ They match the demand with production.

Ÿ They perform the important functions of advertisement, display etc.

Ÿ They know the purchasing powers of customers and by informing the producers, fix
reasonable prices.

Ÿ They offer too many communications between producers and customers.

21.4.3 Wholesaler

A wholesaler is a businessman who specializes in performing wholesale activities. The

word wholesaler means to market goods in relatively large quantities.

A. Definition

According to the American Marketing Association,” Wholesalers buy and resell

merchandise to retailers and other merchants and to industrial institutions, and commercial
users, but do not sell in significant amounts to ultimate consumers.”

B. Functions of the Wholesalers

Ÿ Buying and Assembling: The wholesalers procure varieties of goods from various
producers regularly and preserve them in his shop for resale.

Ÿ Warehousing: The wholesaler stores goods in large quantities in his own or hired
warehouses. This ensures uninterrupted supply of goods to the retailers.

Ÿ Transporting: Transportation involves the bringing of goods from the plant door to
his godown and also from his godown to the retailer’s shop.

Ÿ Financing: He offers financial assistance to the retailers through extension of credit

facilities. On the other hand, he buys from the manufacturers for cash or for a relatively
shorter period of credit.

Ÿ Risk bearing: Since he acquires the title over the goods in which he deals, he
assumes the risk arising out of changes in demand, spoilage and deterioration in
quality of the goods kept in his godown.

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21.4.4 Retailers Management

The word retailer is derived from a French word retailen which means “to cut again.”

A. Definition - According to Cundiff and Still, “a retailer is a merchant or occasionally

an agent whose main business is selling directly to the ultimate consumer.” Notes
B. Importance - It is one of the important functions of the marketing process. The
retailer is an intermediary in the marketing channel of distribution. He is both a
marketer and consumer. He is a specialist in selling goods to the ultimate consumer.
Retailers create place, time and possession utilities. He supplies the needed goods
from the place of production to the place where it is demanded. He sells the goods
at a reasonable price at the time when the customers want the goods.

C. Services of the Retailer

Ÿ The primary job of a retailer is to assemble different varieties of goods from various
wholesalers.
Ÿ A retailer helps in the physical flow of the goods from the producer to the consumer.
The retailer satisfies the daily wants of the people by creating place utility
Ÿ He provides the availability of many varieties of goods from many manufacturers. He
provides varieties of choice enabling the consumers to select the commodities easily.
Ÿ A retailer attracts consumer’s attention to new goods and their arrival by personal
salesmanship. He brings new products and new varieties to the knowledge of
consumers.
Ÿ The retailer gives advice and guidance to the consumers regarding the purchase of
goods. It is essential for him to establish a permanent and continuous relationship
with consumers.

21.4.5 Advantages and Disadvantages of Middlemen

It is generally felt that a good amount of the final price is eaten away by the middlemen.
A. Advantages / Services rendered by middlemen
Ÿ There are many functions like assembling, warehousing, transporting etc are performed
by the middlemen. They also take active part in the distribution of finished goods.
Ÿ The important functions of distribution and its risk burden are assumed by middlemen,
and the producers have been freed.
Ÿ Because of the services of the middlemen, goods are brought to the places where
they are needed.

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Management Ÿ Specialization, which is the result of division of labour, is important in modern marketing,
when there are specialized dealers.
Ÿ We can eliminate the middlemen, but we cannot eliminate their functions. It means
someone has to perform the functions. The marketing functions cannot be eliminated.
Notes
B. Disadvantages of Middlemen

Ÿ The appearance of middlemen in marketing functions costs about 35% to 50% of

the price paid by the consumer.
Ÿ There are large numbers of middlemen between the consumers and producers. Some
of these middlemen do not perform any function but these people create hindrance in
the free flow of goods towards the market.
Ÿ All types of risks arising out of depression and recession, strikes, scarcity are not
shouldered by the middlemen.
Ÿ They enter into black marketing in times of scarcity and emergencies with a view to
earn huge profits, by boosting the price.
Ÿ Communications have been developed extensively, and different modes of transporting
systems are available regularly. Hence, middlemen can be eliminated.

INTEXT QUESTIONS 21.4

1. List the types of agent middlemen

2. Give the disadvantages of middlemen

3. Middlemen can be eliminated in _________ channel

a. Direct b. Indirect

c. Two level d. Three level

21.5 CHOOSING THE RIGHT DISTRIBUTION CHANNEL

Not all distribution channels work for all products, so it’s important for companies to
choose the right one. The channel should align with the firm’s overall mission and strategic
vision including sales goals.

The method of distribution should add value to the consumer. Do consumers want to
speak to a salesperson? Will they want to handle the product before they make a purchase?
Or do they want to purchase online with no hassles? Answering these questions can help

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companies determine which channel they choose. Secondly, the company should consider Management
how quickly it wants its product(s) to reach the buyer. Certain products are best served
by a direct distribution channel such as meat or produce, while others may benefit from
an indirect channel. The main factors which help in determining the choice of distribution
channels include product, company, market and environment. Notes

21.5.1 Product Related Factors

Following are the important product related considerations in deciding on channels of

distribution:

A. Product type: In case of industrial goods like CT scan machines, short channels
like zero level channel or first level channel should be preferred because they are
usually technical, expensive, made to order and purchased by few buyers. Consumer
goods like LCD, refrigerator can be distributed through long channels as they are
less expensive, not technical and frequently purchased. The technical nature of the
product requires services. Hence, sales and servicemen are needed to explain the
use of the product to the customers. For products like computers, business machines
etc., direct channels are more advantageous.

B. Perishable and Non- Perishable Products: Perishable products like fruits or

vegetables are distributed through short channels while nonperishable products like
soaps, oils, sugar, salt etc. require longer channels.

C. Value of Product: In case of products having low unit value such as groceries, long
channels are preferred while those with high unit value such as diamond jewellery
short channels are used. When the unit value of a product is high, a direct channel is
effective. On the other hand, when the unit value is low, the direct channel is ineffective.
If the product is of low value, larger and cheaper channels will be better. Short and
costly channels may be used if the products are of high value.

D. Product Complexity: Short channels are preferred for technically complex goods
like industrial or engineering products like machinery, generators like torches while
non complex or simple ones can be distributed through long channels.

21.5.2 Company Characteristics

Following are the main Company Characteristics offering choice of channel of distribution:

A. Financial Strength: The companies having huge funds at their disposal go for direct
distribution. Those without such funds go for indirect channels i.e., they depend on
the intermediaries.

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Management B. Control: Short channels are used, management wants greater control on the channel
members otherwise a company can go in for longer channels. When a firm wants to
exercise control over the price, the way in which customers are served etc., direct
channel is suggested.
Notes C. Reputation: It has been said that reputation travels faster than man. There are many
companies, which have good reputation because of the product preference by the
customers. Many intermediaries are eager to have connections with such companies.

21.5.3 Competitive Factors

A company has to decide whether to adopt the same channel as that of its competitor or
choose another one. The middlemen are able to offer a good facility of storage. The
channel which facilitates maximum sales must be preferred. The cost of each attractive
channel may be estimated on the basis of unit sale. The best type of channel which gives
a low unit cost of marketing may be considered. The characteristics of buyers as to their
number, location, frequency of the purchase, quantities bought by them etc influence the
channel selection. The channel adopted must facilitate the commodities produced to be
available to the consumers in time

21.5.4 Market Factors

Following are the important market factors affecting choice of channel of distribution:

A. Size of Market: If the number of customers is small like in case of industrial

goods, short channels are preferred, while if the number of customers are high as in
case of convenience goods, long channels are suited. Long channels will have to be
employed if the product is meant for the consumer market and industrial market.
There is a need for a number of middlemen services if the number of potential
customers is large. If the number of potential customers is small, direct selling is
suggested.

B. Geographical Concentration: Generally, long channels are used if the consumers

are widely spread while if they are concentrated in a small place, short channels can
be [Link] selling is effective if the customers are concentrated in a few places.
If they are situated over the whole country, then a large number of middlemen will
have to be employed.

C. Quantity Purchased: Long channels are used in case the size of order is small
while in case of large orders, direct channels may be used. If the sales volume
is large, direct selling is suitable. Industrial distributors sell industrial operating
supplies.

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D. Customer buying habit: Management

This affects the channel policies very much. When the buyer’s habit and purchase
pattern of consumers are frequent and small in size, then indirect selling is suitable.
Notes
21.5.5. Environmental Factor

Economic factors such as economic conditions and legal regulations also play a vital role
in selecting channels of distribution. For example, in a depressed economy, generally
shorter channels are selected for distribution.

INTEXT QUESTIONS 21.5

1. How to choose the right channel?

2. What are the major factors affecting the choice of channel?

3. Technical and expensive products should use _________ channel

a. Short b. Long

c. Indirect d. None

21.6 DESIGNING DISTRIBUTION CHANNEL

Designing an appropriate industrial distribution channel and managing it is a tough and
continuing task. A well designed channel structure helps to achieve the desired marketing
objectives. A channel structure consists of types and number of middlemen, terms and
conditions of channel members, number of channels. The various steps that are involved
in industrial distribution channel design in industrial markets are given in the figure.

21.6.1. Steps Involved in Industrial Channel Design Process

Let us understand each of the stages of industrial distribution channel design process in detail:

A. Analyzing the Needs of the Customer

When a marketer designs a marketing channel, he must understand the service output
levels desired by the target customers. Different customers have different levels of service
requirements. A high potential customer needs to be offered effective and professional
service backup, ensuring availability of varied products compared to the low potential
customer. The marketing channel designer has to know at this stage itself that providing
superior service output means increased channel costs and higher prices for customers.

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Notes

Fig. 21.3: Designing distribution channel

B. Establishing Channel Objectives

Channel objectives are a part of and result from the company’s marketing objectives
that need to be stated in terms of targeted service output levels. Profit considerations
and asset utilisation must be reflected in channel objectives and the resultant design. It
should be the endeavour of the channel members to minimise the total channel costs and
still provide the desired level of service outputs. Channel objectives keep varying
depending on the characteristics of the products.

C. Considering Channel Constraints

The industrial marketer develops his channel objectives keeping into consideration various
constraints like the company, competition, the environment, product characteristics and
the level of service output desired by the target customers.

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Ÿ Company: If a company has financial limitations as a constraint, then it may restrict Management
its direct distribution approach through company sales force to few high potential
customers.

Ÿ Competition: If a competitor has been very successful through direct service then it
may force all other firms also to adopt the same strategy of direct selling. Notes

Ÿ Environment: Economic conditions, legal regulations are the environmental factors

that affect channel design. During recession, producers use economical ways to sell
the products to avoid additional costs. Similarly, the law looks down upon those
channel arrangements that try to build a monopoly market or minimize competition.

Ÿ Product characteristics: As already mentioned, complex and non-standard products

require direct distribution without any intermediaries.

Ÿ Customer: The industrial marketers depend on intermediaries to offer services to

customers who are either giving less business or are located at far-off places and
prefer to serve the nearby or high potential customers by themselves.

D. Listing Channel Tasks

The industrial marketers have to creatively structure the necessary tasks or functions to
meet customer requirements and company goals. They have to first make a list of various
tasks to be performed, identify the critical tasks and make objective and realistic decisions
on which tasks can be effectively performed by the company and which cannot be
performed due to certain constraints.

E. Identifying Channel Alternatives

There are four issues that are involved in identifying the channel alternatives. They are:

a. The types of business intermediaries: There are different types of intermediaries

that the industrial marketers should identify. They have to consider various factors
like the tasks to be performed, product and market conditions before selecting either
manufacturer’s representatives or agents, industrial distributors, brokers, commission
merchants or value-added resellers.

b. Number of intermediaries: The manufacturers have to settle on the number of

intermediaries they wish to use in their channel structure. They may either go for
intensive, selective or exclusive distribution.

c. Number of channels: Industrial marketers need to serve various market segments.

This necessitates them to use more than one channel for distributing and marketing
their products. This multi-channel approach helps them not only to increase their

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market share but also reduce their costs. However, the industrial marketers need to
take care of possible channel conflicts like proper demarcation of territory to channel
members to sell and serve the customers in their respective areas.

Notes d. Terms and responsibilities of Channel Members: There are various terms and
conditions which the industrial marketer must make clear to the participating channel
members like the responsibilities and tasks, conditions of sale and territorial rights
that would enable both of them to enhance their performance.

Ÿ Responsibilities and tasks: In order to avoid any future disagreements, there

should be clarity in the roles of both the industrial marketers and the channel
partners. Each should comply with the commitments about their individual
responsibilities and tasks to be performed.

Ÿ Conditions of sale: It should be clearly mentioned well in advance about the

discounts offered by the manufacturers to the distributors, the commission to be
paid to the agents or brokers. Other terms relating to warranty period,
replacement of defective parts also should be appropriately stated.

Ÿ Territorial rights: The territory between the distributors should be well

demarcated so as to avoid any future confusion that may lead to legal issues.

F. Evaluating Alternate Channels

There are several channel alternatives available to the industrial markets. They have to
determine the best among the alternatives by evaluating them based on the following
criteria:

a. Economic Performance: Different channel alternatives generate different levels of

sales and incur different levels of costs. An industrial marketer has to pose a question
whether sales generation would be more by direct selling through company sales
force or through the channel members. The marketing manager has to similarly estimate
the total costs of selling through different channel members.

b. Degree of control: An industrial marketer exercises different levels of control over

different channel members. The degree of control is more on company sales force
and least on distributors.

c. Degree of adaptability of channel members: With the market changing

dynamically the channel members should have the capacity to adapt themselves to
the changing environment. The industrial marketer must be able to control as well as
modify the channel structure. Each channel member should be committed to the
agreement they have with other members.

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INTEXT QUESTIONS 21.6

1. What are the stages involved in designing the distribution channel?
Notes
2. ___________ important factor while evaluating the channel alternatives

a. Degree of control b. Economic performance

c. Adaptability d. All these

WHAT YOU HAVE LEARNT

Distribution: Delivering the Physical distribution: Involves

right product, at the right time, a series of activities from order
in the right condition, into the processing, inventory control,
right set of hands. transportation and logistics,
packaging of materials and
customer service.

Direct channel:
Manufacturer sells
directly to the
consumer
Agent middlemen:
Do not take title of
the goods which they
Indirect channels: handle; assist in
Involve multiple negotiating sales or
intermediaries before purchase or both on
the product ends up in behalf of the seller or
the hands of the buyer.
consumer

Distribution channels: Path by which all goods and services must travel to
arrive at the intended consumer and ensure flow of goods from the producer to
the customer. Includes wholesalers, retailers, distributors and the Internet

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 MODULE - 4 Channels of Distribution
Warehouse
Management

KEY TERMS
Distribution Channel, Agent Middlemen, Merchant Middlemen,
Notes
Choice of channel Designing channel, Direct channel,
Indirect channel, Functions, Breaking Bulk

TERMINAL EXERCISE
1. Define channels of distribution
2. List the major functions of channels of distribution
3. What major types of distribution channels are used
4. Give the role of merchant middlemen
5. Give the advantages of wholesalers
6. Brief about the direct channel merits in the current scenario
7. Explain the two and three level channels with examples
8. List the product factors affecting the selection of distribution channel
9. Give the steps involved in designing the distribution channel
10. What major factors are considered for the identifying of channel alternatives
11. Brief about the importance and functions of distribution channels
12. Describe the various types of middlemen involved in the distribution channel
13. Discuss on the merits and demerits of each channel members in distribution
14. Design distribution channels for any four different kinds of products of your choice

ANSWERS TO INTEXT QUESTIONS

21.1
1. A channel of distribution or marketing channel is the structure of intra – company
organization units and extra company agents and dealers, wholesalers and retailers
through which a commodity, product or service is marketed
2. A distribution channel is the path by which all goods and services must travel to
arrive at the intended consumer. Conversely, it also describes the pathway payments
made from the end consumer to the original vendor. Distribution channels can be

176 SENIOR SECONDARY

Channels of Distribution MODULE - 4
Warehouse
short or long, and depend on the amount of intermediaries required to deliver a Management
product or service.
3. (a)

21.2 Notes
1. Distribution channels provide a number of logistics or physical distribution functions
that increase the efficiency of the flow of goods from producer to customer. The
transportation and storage of goods is another type of physical distribution function.
Some wholesalers and retailers assist the manufacturer by providing repair and
maintenance service for products they handle. Channel members also perform a
risk-taking function. Last, channel members perform a variety of communication and
transaction functions
2. (a)

21.3
1. Direct and indirect are the two types of channels available for distribution.
2. Manufacturer – Agent – Wholesaler – Retailer – Consumer
3. (a)

21.4
1. Types of agents’ middlemen
Broker, Commission Agent, Manufacturer’s Agent, Selling Agents, Resident
buyers and Auctioneers
2. All types of risks arising out of depression and recession, strikes, scarcity are not
shouldered by the middlemen. They enter into black marketing in times of scarcity
and emergencies with a view to earn huge profits, by boosting the price. Hence,
middlemen can be eliminated.
3. (a)

21.5
1. Not all distribution channels work for all products, so it’s important for companies to
choose the right one. The channel should align with the firm’s overall mission and
strategic vision including sales goals.
2. The main factors which help in determining the choice of distribution channels include
product, company, market and environment.
3. (a)

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 MODULE - 4 Channels of Distribution
Warehouse
Management 21.6

1. Stages in designing channel

Ÿ Analysing the Needs of the Customer

Notes
Ÿ Establishing Channel Objectives

Ÿ Considering Channel Constraints

Ÿ Listing Channel Tasks

Ÿ Identifying Channel Alternatives

Ÿ Evaluating Alternate Channels

2. (d)

DO AND LEARN
The choice of channel for different products differs and considering the other factors like
objectives, company, competitors, market, environment that affect the channel selection,
divide the class into four groups and each group could assume a product category like
durable, perishable, technical and cost and do the exercise of channel selection.

ROLE PLAY
Shiva and Tharun are the marketers of textiles and processed foods; and both are
discussing the channel designing for their products with minimum involvement of middlemen
so that their profit is not compromised and consumers also benefited. Both converse as
below and any two groups can discuss points to follow their conversation and end up in
a suitable channel design.

Shiva: Hi, Tharun, how are you

Tharun: Fine Shiva, doing well and hope better for you also. I thought of talking to you
regarding the marketing channels to be designed for my products. Could you
please give me points?

Shiva: Fine, I am glad to do so…….

178 SENIOR SECONDARY