UNIT – V

CHANNELS OF DISTRIBUTION

Meaning
A distribution channel (also called a marketing channel) is the path or route
decided by the company to deliver its good or service to the customers. The route
can be as short as a direct interaction between the company and the customer or can
include several interconnected intermediaries like wholesalers, distributors, retailers,
etc.
Hence, a distribution channel can also be referred to as a set of
interdependent intermediaries that help make a product available to the end
customer.
Importance & Functions of Distribution Channels
• Distribution channels provide time, place, and ownership utility. They make
the product available when, where, and in which quantities the customer
wants. But other than these transactional functions, marketing channels are
also responsible to carry out the following functions:
• Logistics and Physical Distribution: Marketing channels are responsible for
assembly, storage, sorting, and transportation of goods from manufacturers to
customers.
• Facilitation: Channels of distribution even provide pre-sale and post-
purchase services like financing, maintenance, information dissemination and
channel coordination.
• Creating Efficiencies: This is done in two ways: bulk breaking and creating
assortments. Wholesalers and retailers purchase large quantities of goods from
manufacturers but break the bulk by selling few at a time to many other
channels or customers. They also offer different types of products at a single
place which is a huge benefit to customers as they don’t have to visit different
retailers for different products.
• Sharing Risks: Since most of the channels buy the products beforehand, they
also share the risk with the manufacturers and do everything possible to sell
it.

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 • Marketing: Distribution channels are also called marketing channels because
they are among the core touch points where many marketing strategies are
executed. They are in direct contact with the end customers and help the
manufacturers in propagating the brand message and product benefits and
other benefits to the customers.
Types of Channels
Normally goods and services pass through several hands before they come to the
hands of the consumer for use. But in some cases producers sell goods and services
directly to the consumers without involving any middlemen in between them, which
can be called as direct channel. So there are two types of channels, one direct channel
and the other, indirect channel.
There are many indirect channels like
(i) Producer Agent Wholesaler Retailer Consumer,
(ii) Producer Wholesaler Retailer Consumer
(iii) Producer Agent Consumer
(iv) Producer Wholesaler Consumer
(v) Producer Retailer Consumer
(i) Direct Channel
In this channel, producers sell their goods and services directly to the
consumers. There is no middleman present between the producers and consumers.
The producers may sell directly to consumers through door-to-door salesmen and
through their own retail stores. Banks, consultancy firms, telephone companies,
passenger and freight transport services, etc. are examples of direct channel of
distribution of service.
(ii) Indirect Channel
If the producer is producing goods on a large scale, it may not be possible for
him to sell goods directly to consumers. As such, he sells goods through middlemen.
These middlemen may be wholesalers or retailers. A wholesaler is a person who
buys goods in large quantities from producers; whereas a retailer is one who buys
goods from wholesalers and producers and sells to ultimate consumers as per their

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requirement. the involvement of various middlemen in the process of distribution
constitute the indirect channel of distribution.
Producer Wholesaler Retailer Consumer
This is the common channel for the distribution of goods to ultimate
consumers. Selling goods through wholesaler may be suitable in case of food grains,
spices, utensils, etc. and mostly of items, which are smaller in size.
Under this channel, the producers sell to one or more retailers who in turn sell
to the ultimate consumers.
This channel is used under the following conditions –
(i) When the goods cater to a local market, for example, breads, biscuits, patties, etc.
(ii) When the retailers are big and buy in bulk but sell in smaller units, directly to the
consumers.
Wholesalers
Wholesalers are one of the important middlemen in the channel of
distribution who deals with the goods in bulk quantity. They buy goods in bulk
from the producers and sell them in relatively smaller quantities to the retailers. In
some cases they also sell goods directly to the consumers if the quantity to be
purchased is more. They usually deal with a limited variety of items and also in a
specific line of product, like iron and steel, textiles, paper, electrical appliances, etc.
Characteristics of Wholesalers
The followings are the characteristics of wholesaler:
(i) Wholesalers buy goods directly from producers or manufacturers.
(ii) Wholesalers buy goods in large quantities and sells in relatively smaller
quantities.
(iii) They sell different varieties of a particular line of product. For example, a
wholesaler who deals with paper is expected to keep all varieties of paper,
cardboard, card, etc.
(iv) They may employ a number of agents or workers for distribution of products.
(v) Wholesalers need large amount of capital to be invested in his business.
(vi) They generally provides credit facility to retailers.
(vii) He also provides financial assistance to the producers or manufacturers.

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(viii) In a city or town they are normally seen to be located in one particular area of
the market.
Functions of Wholesalers
Following are the functions, which a wholesaler usually performs.
(a) Collection of goods: A wholesaler collects goods from manufacturers or
producers in large quantities.
(b) Storage of goods: A wholesaler collects the goods and stores them safely in
warehouses, till they are sold out. Perishable goods like fruits, vegetables, etc. are
stored in cold storage.
(c) Distribution: A wholesaler sells goods to different retailers. In this way, he also
performs the function of distribution.
(d) Financing: The wholesaler provides financial support to producers and
manufacturers by sending money in advance to them. He also sells goods to the
retailer on credit. Thus, at both ends the wholesaler acts as a financier.
(e) Risk taking: The wholesaler buys finished goods from the producer and keeps
them in the warehouses till they are sold. Therefore, he assumes the risks arising out
of changes in demand, rise in price, spoilage or destruction of goods.
Classification of Wholesalers
Wholesalers are business intermediaries who buy goods in large quantities
from producers and sell them in smaller quantities to retailers or industrial users.
They play a crucial role in the distribution channel by bridging the gap between
manufacturers and retailers.
Wholesalers can be classified based on ownership, type of goods, functions
performed, and area of operation.
1. Classification Based on Ownership
a) Merchant Wholesalers
• Own the goods they sell.
• Buy in bulk from manufacturers and sell to retailers.
• Assume risk and take title of goods.
Example: Distributors of FMCG products like soaps, toothpaste.

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Types:
• Full-Service Wholesalers: Offer complete services—storage, transportation,
financing, etc.
• Limited-Service Wholesalers: Offer limited services like only selling or
delivery.
b) Agents and Brokers
• Do not own the goods.
• Act as intermediaries between buyers and sellers.
• Earn commission or brokerage.
Example: Commission agents for agricultural produce.
Types:
• Commission Agents
• Brokers
• Auctioneers
c) Manufacturers’ Sales Branches and Offices
• Owned and operated by manufacturers.
• Function like wholesalers but sell only the parent company’s products.
• No profit motive as they are internal arms of the manufacturer.
Example: Hindustan Unilever's own distribution centers.
2. Classification Based on Type of Goods
a) General Merchandise Wholesalers
• Deal in a wide variety of goods from different product lines.
• Also known as general line wholesalers.
📝 Example: A wholesaler dealing in groceries, cleaning items, and toiletries.
b) Single-Line or Specialty Wholesalers
• Deal in one line or category of goods.
• Offer deep knowledge and better service in that line.
📝 Example: Wholesalers of only electronics, or only textiles.
3. Classification Based on Functions Performed
a) Cash-and-Carry Wholesalers
• Sell goods for cash only.

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 • No credit or delivery; customers carry goods themselves.
• Low cost, high efficiency.
Example: Metro Cash & Carry.
b) Truck Wholesalers (Truck Jobbers)
• Deliver goods directly to retailers from trucks.
• Mostly for perishable goods like dairy or bakery items.
c) Drop Shippers (Desk Jobbers)
• Do not physically handle goods.
• Take orders and arrange direct shipment from manufacturer to customer.
Example: A wholesaler selling coal or steel without maintaining inventory.
d) Rack Jobbers
• Supply and manage inventory on retailers' shelves.
• Common in non-food retail, e.g., magazines, toys.
4. Classification Based on Area of Operation
a) Local Wholesalers
• Operate within a limited geographic area.
• Serve local retailers.
b) Regional Wholesalers
• Cover a specific region or state.
• Larger operations than local wholesalers.
c) National Wholesalers
• Operate across the entire country.
• Serve major retail chains and stores.
d) International Wholesalers
• Import and export goods.
• Deal in cross-border wholesale trade.

Retailers
Retailers are the traders who buy goods from wholesalers or sometimes
directly from producers and sell them to the consumers. They usually operate

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through a retail shop and sell goods in small quantities. They keep a variety of items
of daily use.
Characteristics of Retailers
The following are the characteristics of retailers:
(i) Retailers have a direct contact with consumers. They know the requirements of
the consumers and keep goods accordingly in their shops.
(ii) Retailers sell goods not for resale, but for ultimate use by consumers.
(iii) Retailers buy and sell goods in small quantities. So customers can fulfill their
requirement without storing much for the future.
(iv) Retailers require less capital to start and run the business as compared to
wholesalers.
(v) Retailers generally deal with different varieties of products and they give a wide
choice to the consumers to buy the goods.
Functions of Retailers
All retailers deal with the customers of varying tastes and temperaments.
Therefore, they should be active and efficient in order to satisfy their customers and
also to induce them to buy more.
(i) Buying and assembling of goods: Retailers buy and assemble varieties of goods
from different wholesalers and manufacturers. They keep goods of those brands and
variety which are liked by the customers and the quantity in which these are in
demand.
(ii) Storage of goods: To ensure ready supply of goods to the customer retailers keep
their goods in stores. Goods can be taken out of these stores and sold to the
customers as and when required. This saves consumers from botheration of buying
goods in bulk and storing them.
(iii) Credit facility: Although retailers mostly sell goods for cash, they also supply
goods on credit to their regular customers. Credit facility is also provided to those
customers who buy goods in large quantity.
(iv) Personal services: Retailers render personal services to the customers by
providing expert advice regarding quality, features and usefulness of the items.
They give suggestions considering the likes and dislikes of the customers. They also

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provide free home delivery service to customers. Thus, they create place utility by
making the goods available when they are demanded.
(v) Risk bearing: The retailer has to bear many risks, such as risk of:
(a) fire or theft of goods
(b) deterioration in the quality of goods as long as they are not sold out.
(c) change in fashion and taste of consumers.
(vi) Display of goods: Retailers display different types of goods in a very systematic
and attractive manner. It helps to attract the attention of the customers and also
facilitates quick delivery of goods.
(vii) Supply of information: Retailers provide all information about the behaviour,
tastes, fashions and demands of the customers to the producers through wholesalers.
They become a very useful source of information for marketing research.
Distinction between Wholesaler and Retailer
Wholesaler Retailer
(i) Buys goods in large quantities. (i) Buys goods in small quantities.
(ii) Buys goods directly from producers. (ii) Generally buys goods from the
wholesalers.
(iii) Deals with limited variety of goods. (iii) Deals with wide range of products.
Requires more capital to start and run Requires less capital to start and run the
the business. business.

(v) Sell goods for resale purpose. (v) Sell goods for consumption.
(vi) No direct contact with consumers (vi) Direct contact with consumer.
(vii) No special attention is given to (vii) In order to attract the attention of
decoration of shop customers retailers give more attention to
decoration of shop.

MIDDLE MAN
A middleman plays the role of an intermediary in a distribution or transaction
chain who facilitates interaction between the involved parties. Middlemen specialize
in performing crucial activities involved in the purchase and sale of goods in their
flow from producers to the ultimate buyers.

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Types of Middlemen
Middlemen can be classified into two categories, namely merchants and agents.
1. Merchants
Merchants, such as wholesalers and retailers, buy and re-sell their goods.
They take ownership of inventory and bear the expense of storing and distributing
the product. They make money by selling the goods at a higher price than its cost to
them. The difference is called the “markup.”
Merchant middlemen range from a shopkeeper to a large multinational
corporation with international operations. Larger middlemen may focus on a core
competency, such as delivery, advertising, warehousing, or a particular market
segment.
2. Agents
Agents, such as brokers or real estate agents, specialize in negotiations
involved in transactions. They do not take ownership of what they are selling.
Instead, they make money by charging a commission or a fee for facilitating a
transaction.
For example, brokers act as intermediaries between investors and the
securities exchange. They provide trading services, investment advice, and solutions
to their clients and charge a brokerage fee in return.

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Functions of Middlemen
Middlemen perform the following functions in a marketplace:
• They provide valuable information and feedback to producers about
consumer behavior, changing tastes and fashions, upcoming rival businesses,
etc.
• They enable manufacturers to concentrate on the primary function of
production by handling the ancillary functions of warehousing, distribution,
advertising, insurance, etc. They promote the goods to the consumers on
behalf of the producers.
• Middlemen like banks and other financial institutions render financial
services to manufacturers.
• They make the goods and services available to consumers at the right place, at
the right time, and in the right quantity.
• Buyers and sellers are often unwilling to assume the market risk for fear of a
possible loss. It is the middlemen in the process chain who assume the risks of
theft, perishability, and other potential hazards.

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Characteristics of a Middleman
1. A middleman ( be a person or a firm ) moves the goods and services from the
lower-valued owners to the hands of the higher-valued users. A middleman
specializes in gathering information of the lower-valued owners and provides
information to the higher-valued users.
2. Information itself is a scarce good or service. It affects the conditions and
opportunity of exchange. A middleman, by specializing in the provision of
information, bears a lower cost than the exchanging partners. In other words,
a middleman promotes efficiency and increases wealth by acting as a low-cost
producer on information.
3. A middleman can also ensure and certify the quality of goods and services for
the buyers, thus reducing the search cost of the buyers. Property agents,
brokers, some stalls in an arcade providing similar products are examples of
middlemen.
4. With the middlemen in reducing any information cost, a free market can
economize on the cost of information and transaction. For example, a
monetary economy reduces the transaction cost in exchanges compared with
a barter economy.
ELIMINATION OF MIDDLE MAN
The term "middleman" describes an intermediary between a producer and an
end customer. In a typical distribution channel, the middleman is the wholesaler or
the retailer. Manufacturers would eliminate the middleman by selling products
directly to retail stores or consumers. Wholesalers can do the same by skipping
retailers and selling directly to consumers.
This strategy has some advantages over a straightforward distribution process.
1. Cost Savings
The primary motive to eliminate middle man is to save money.
Manufacturers today sell directly to consumers via online connectivity. Companies
can promote products on their own websites, take orders and send goods directly
to the final customer.

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2. Better Value
Eliminating the middleman usually creates a win-win for the seller and
buyer from a money perspective. Each step in a traditional distribution process
involves a trade buyer adding a markup to his costs. This ultimately makes the
final customer's price higher because he is paying for the original product costs, the
costs of each buyer's acquisition as well as the profit expected by the retailer. By
getting rid of the middleman's markups, company can offer the customer a lower
price while getting higher gross profits for itself.
3. Efficiency
Skipping steps in the distribution channel reduces the amount of logistics
and transportation required in the movement of goods from manufacturer to
consumer. This increases efficiency significantly. Additionally, companies can offer
products and websites and quickly ship them to consumers following the
purchase. This increases customer satisfaction and revenue.
4. Environmental Impact
An indirect benefit of eliminating the middleman, which some companies
promote actively, is better environmental preservation. By minimizing the number
of trucks and travel time moving products from one place to another place by
reduce the pollutants in the air. Additionally, local farmers have taken
opportunities to market fresh produce to local buyers to improve freshness and
minimize waste from delays in moving perishable foods.
Essential Requisites of a Retailer in Marketing
Retailers play a key role in marketing by serving as the final link between
producers and consumers. To perform effectively, they must possess certain
essential requisites:
1. Product Knowledge
Retailers must know the features, uses, quality, and price of the products they sell.
2. Customer Orientation
They should treat customers politely, understand their needs, and offer good service.
3. Honesty and Integrity
Fair dealings and transparent pricing help build customer trust and loyalty.

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4. Adequate Capital
Sufficient funds are needed to maintain stock and manage day-to-day operations.
5. Suitable Location
A good retail location attracts more customers and increases sales.
6. Effective Display
Attractive and organized display of goods encourages impulse buying.
7. Variety and Stock Maintenance
Retailers must keep a variety of products in the right quantity to meet customer
demand.
8. After-Sales Service
Offering exchanges, repairs, or support adds to customer satisfaction.
9. Adaptability
Retailers should stay updated with changing customer preferences and market
trends.
10. Legal Compliance
They must follow trade laws, use proper billing, and avoid unfair practices.

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