What is Distribution Channel?

Distribution channels are the network of organizations, including manufacturers, wholesalers,

and retailers, that distributes goods or services to consumers.A distribution channel is the
network of individuals and organizations involved in getting a product or service from the
producer to the [Link] channels are also known as marketing channels or
marketing distribution channels.

What is Distribution Channel – Meaning

In the field of marketing, channels of distribution indicate routes or pathways through which
goods and services flow, or move from producers to consumers.

We can define formally the distribution channel as the set of interdependent marketing
institutions participating in the marketing activities involved in the movement or the flow of
goods or services from the primary producer to the ultimate consumer.

The prime of object of production is its consumption. The movement of product from producer
to consumer is an important function of marketing. It is the obligation of the producer to make
goods available at right place, at right time right price and in right quantity. The process of
making goods available to the consumer needs effective channel of distribution. Therefore, the
path taken by the goods in its movement is termed as channel of distribution.

Distribution channels are the network of organizations, including manufacturers, wholesalers,

and retailers, that distributes goods or services to consumers. A distribution channel is the
network of individuals and organizations involved in getting a product or service from the
producer to the customer. Distribution channels are also known as marketing channels or
marketing distribution channels.

An entrepreneur has a number of alternative channels available to him for distributing his
products. These channels vary in the number and types of middlemen involved. Some channels
are short as they directly link producers with customers. Whereas other channels are long and
indirectly link the two through one or several middlemen.

In short, the distribution channel can be defined as ‘the path through which goods and services or
payment for those goods or services travel from the vendor to the consumers’. Distribution
channel can be as short as a direct transaction from the vendor to the consumer, or may include
several interconnected intermediaries along the way such as the followings –

1. Wholesalers

2. Distributors

3. Agents and

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4. Retailers

The above mentioned are the channels of distribution. A channel of distribution or trade channel
is defined as the path or route along which goods move from producers or manufacturers to
ultimate consumers or industrial users. In other words, it is a distribution network through which
producer puts his products in the market and passes it to the actual users.

This channel consists of:

1. Producers

2. Consumers or end users and

3. Various middlemen like wholesalers, selling agents and retailers, dealers etc., intervene
between the producers and consumers.

Therefore, the channel serves to bridge the gap between the point of production and the point of
consumption thereby creating time, place and possession of utilities.

Each intermediary receives the item at one pricing point and moves it to the next higher pricing
point until it reaches the final buyer. For example Tea, Coffee or dry fruits do not reach the
consumer before going first, through a channel involving the farmer, exporter, importer,
distributor, and the retailer.

Product distribution or place is one of the four elements of the marketing mix. The other three
parts of the marketing mix are product, pricing, and promotion. Distribution is the process of
making a product or service available for use or consumption by a consumer or business user,
using direct means, or using indirect means with intermediaries. Distribution of products takes
place by means of channels.

What is Distribution Channel – 5 Different Types of Flow Concepts: Physical Flow, Title or
Ownership, Promotion Flow, Information Flow and Monetary Flow

One of the ways to understand the concept of channels of distribution is to observe from where
consumers get their items of consumption. Consumers rarely buy products directly from the
companies that make and market them. Products such as television, shoes, tea, sewing machine,
and paper are purchased from retailers.

Retailers procure their products from wholesalers. Wholesalers in turn get their stock of products
from the producing companies. Therefore, products pass through a chain of partners called
intermediaries or channel partners. This chain of participating firms or partners constitute the
channel of distribution.

In other words, channel of distribution refers to a network or conduit of member organizations or

intermediaries that mark a path or route on which products move from producer to consumer.

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There are a variety of intermediaries that participate in distribution of products such as
wholesalers, distributors, agents, and retailers.

The channels of distribution can be visualized as a flow concept.

There are five different types of flow concepts are:

i. Physical Flow:

Once products are manufactured they need to be moved to point of consumption. In this journey,
products physically flow from their point of production to the point of consumption. This
physical movement is perceptible when products move from distant locations where they are
produced to the marketplace.

For instance, many luxury cars like Porsche, which are not manufactured in India, travel from
their factories to the ultimate buyers using a complex path or ‘route to market’ that involves
intermediaries in the country of their origin to intermediaries in the country of sale. The
participating partners take physical possession of products in this journey. This flow is also often
called downward flow.

ii. Title or Ownership:

Besides the physical flow of products, there are other flows that happen in this process. Along
with the physical movement of products, sometimes the title to the goods also gets transferred
from one intermediary to the other. That is, as goods move the ownership also gets transferred.
For instance, companies sell their goods to wholesalers and who in turn sell the same to retailers.
Here the title flows from the manufacturer in the direction of the consumer.

iii. Promotion Flow:

Efforts made by channel partners in the promotion of goods with their customers is known as
promotion flow. Like any other marketing entity, the channel partners also employ a variety of
promotion tools including advertising, sales promotions, and personal selling to push their
products to the next participating partner in the chain. For instance, wholesalers often offer
incentives and bulk discounts to retailers who buy more quantity of their products.

iv. Information Flow:

In the channels of distribution information flow can take both upward and downward form.
Information that flows upwards from channel members is of great importance because it contains
inputs on how marketing can be made better. For instance, how consumers react to a new model
of car may reach the producing company through the dealership where buyers interact with the
sales staff.

The intermediaries, because of their proximity to the customers, have better access to their
feedback and needs and wants. They are particularly better placed in forecasting demand and

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consumer trends. Information also flows from intermediaries to customers. Since intermediaries
are experts in their areas they help customers take better and informed buying decisions. This
happens when a customer of insurance, car, or house seek information from resellers.

v. Monetary Flow:

As the product moves from producer to consumer following a path, money flows in the reverse
direction. The money that a customer parts at the point of sale moves up to the point at which the
products originate. The monetary flow in channels of distribution is upwards.

An important question that arises is why firms use channel partners or intermediaries. The
channels of distribution are necessary because they add value by performing functions that
cannot be efficiently performed by the producer.

What is Distribution Channel – 6 Important Objectives: Achieving a Given Level of

Services, Enhancing the Prospect of Sales being Made and a Few Others

The objectives of channels of distributions are discussed as follows:

Objective # 1. Receiving Fast and Accurate Feedback of Information:

In order to maintain and provide an efficient distribution system and service, a good and regular.
How of relevant information is necessary, which includes inventory levels, sales trends, damage
reports, service levels, cost monitoring etc.

Objective # 2. Making the Product Readily Available to the Market Consumers:

To ensuring the product is represented in the right type of outlet or retail store is an important
objectives of channels of distribution. Having identified the correct marketplace for the goods,
the company must make certain that the appropriate physical distribution channel is selected to
achieve this objective.

Objective # 3. Achieving a given Level of Service:

Once again, from both the supplier’s and the customer’s viewpoints, a specified level of service
should be established, measured, and maintained. The customer normally sees this as crucial and
relative performance in achieving service level requirements is often used to compare suppliers
and may be the basis for subsequent buying decisions.

Objective # 4. Enhancing the Prospect of Sales being Made:

The most appropriate factors for each product or type of retail store will be reflected in the
choice of channel. The general aims are to get good positions and displays in the store; and to
gain the active support of the retail salesperson, if required. The product should be “visible,
accessible, and attractively displayed’.

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Objective # 5. Minimising Logistics and Total Costs:

Costs are very crucially significant as they are reflected in the final price of the product. The
selected channel will reflect a certain cost and this cost must be assessed in relation to the type of
product offered and the level of service required.

Objective # 6. Achieving Co-Operation with Regard to any Relevant Distribution Factors:

These factors can either be from the supplier’s or the receiver’s point of view and include
minimum order sizes, unit load types, product handling characteristics, materials handling aids,
delivery access (e.g., vehicle size), and delivery time constraints, etc.

What is Distribution Channel – Need for Selecting an Appropriate Channel of

Distribution

It is a fact that the distribution channels are greatly required by the manufacturers. The need for
selecting an appropriate channel can be understood on the basis of the parameters considered,
which highlight the fact why distribution channels must be selected?

1. Attention – Little attention of companies to their distribution channels may damage results
such as profit, brand, number of customers etc.

2. Imaginative distribution systems – Companies can use imaginative distribution systems to take
competitive advantage. For example Dell, [Link] etc. Dell is the best example of
revolution in Distribution channel. Dell is selling its products directly to the consumer rather
than through retailer.

3. Difficult to Replace – Companies can change their products, advertising and Pricing easily but
not their distribution channels. It is not an easy task to change distribution channel, franchisees,
dealers and retailers.

4. Value Addition – Distribution Channel Members can provide greater efficiency in making
availability of goods to the target markets through their Contacts, Specialization, experience, and
scale of operation. This can add value to the product or service at each level of distribution.

5. Reduced number of Channel Transactions – Marketing intermediaries or channel members

help to reduce the number of channel transactions.

6. Information – Gathering and distributing information is very helpful.

7. Promotion – Communication to the consumer regarding product information and offers

through advertising and promotion.

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8. Financial support – Offering financial support for example Purchase on credit, exchange
options, purchase using payment plans

9. Other – Financing, Physical Distribution and Risk Taking are other parameters that influence a
channel selection decision Reduces Distribution cost and time.

What is Distribution Channel – 5 Main Types: Direct Channel, One Level Channel,
Two Level Channel and Three Level Channel

The types of marketing channels are nothing but the route taken by the products to go from the
manufacturer to the final consumer. There are certain channels where the products go directly
from the manufacturer to the final consumer, but in other channels some intermediaries come in
between the manufacturer and the final consumer.

The following are the different channels available:

1. Manufacturer to Consumer (Zero Level/Direct Channel):

The products in this channel go from the manufacturer directly to the final consumer. There is no
intervention by any other intermediary. Under this channel, the final consumer must be large
enough to buy products in a large quantity directly from the manufacturer or the manufacturer
should have the capacity to distribute the goods directly to all the final consumers. Example-An
industry purchasing the raw materials directly from the source.

2. Manufacturer to Retailer to Consumer (One Level Channel):

The retailer plays his role in between the manufacturer and the consumer. The retailer buys
directly from the manufacturers and sells the goods to the consumers in the required quantities.
Such a retailer should be strong enough because on the one hand he has to purchase in a large
quantity from the manufacturer and on the other hand sell the products to a large number of
consumers in small quantities.

This channel suits organized retailing well because the retailers under this system are not only
financially strong but also of a large size such as departmental stores, malls, super bazaars, chain
stores etc.

3. Manufacturer to Wholesaler to Retailer to Consumer (Two Level Channel):

We find that in this channel there are two intermediaries in between the manufacturer and the
consumer-the wholesaler and the retailer. The wholesaler buys the goods from the manufacturer
in very large quantities and in-turn sells the goods in relatively smaller quantities to the retailer,
but there is no direct relationship between the manufacturer and the consumer.

The retailer buys the goods from the wholesaler in sufficiently large quantities and sells them in
very small quantities to the consumers. The retailer has no direct contact with the manufacturer.

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4. Manufacturer to Wholesaler to Consumer (One Level Channel):

The retailer is by-passed in such a channel. The wholesaler buys the goods from the
manufacturer in large quantities and sells them directly to the consumers. This arrangement is
possible only when the final consumer is able to buy the goods in sufficiently large quantities
directly from the wholesaler. This is found in institutional consumers such as hospitals,
government departments, educational institutions etc.

5. Manufacturer to Agent to Wholesaler to Retailer to Consumer (Three Level Channel):

Under this channel we find that there is an agent who acts in between the manufacturer and the
wholesaler. The agent generally does not buy the goods, he only arranges for the sale of goods
from the manufacturer to the wholesalers. From this point onwards the wholesalers sells the
goods to the retailer and the retailer in-turn sells the goods to the final consumer. This
arrangement is found in cases where the manufacturer operates on a very large scale over a very
wide area and has a very wide product range.

It is not necessary that a company has to use only one type of channel for all its products through
its market. It may use the direct or one level channel to reach its customers in the local area and
longer channels to reach its customers at far off places. There is no rigidity regarding the use of
channels.

If a company uses only one type of channel for all its marketing requirements, it is called a
mono-channel or a single-channel policy. If a company uses different types of channels to reach
different customers at different places, it is called a dual or a multi-channel policy.

Integrated Channels of Distribution:

The new model of distribution that has emerged is the integrated distribution. Vendors and the
channel are moving away front a two-tier distribution model to a single supply chain that
leverages various elements of the channel for most distribution logistics. There is also a
possibility under this system for a vendor to maintain a direct relationship with the customer and
allows for the rise of comprehensive services delivered by either the vendor or the channel.

What is Distribution Channel – Most Common Routes Used for Bringing the Products
to the Market

The most common routes used for bringing the products to the market from-producer to
consumer are as follows:

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1. Manufacturer-Consumer (Direct Sale):

There are three alternatives in direct sale to consumers.

They are:

(i) Sale through advertising and direct methods (mail order selling),

(ii) Sale through travelling sales force (house to house canvassing),

(iii) Sale through retail shops of manufacture, for example, shops selling mill cloth. Bata Shoe
Company outlets, etc.

2. Manufacturer-Retailer-Consumer:

This channel option is preferable when buyers are large retailers, for example, a departmental
store, discount house, chain stores, super market, big mail-order houses or cooperative stores.
The wholesaler can be by-passed in this trade route. It is also suitable when products are
perishable and where speed in distribution is essential. However, the manufacturer has to
perform the functions of a wholesaler such as storage, insurance, financing of inventories and
transport.

3. Manufacturer-Wholesaler-Retailer-Consumer:

This is a normal, regular and popular channel option used in groceries, drugs goods, etc. It is
suitable for producers under the given conditions – (i) They have a narrow product line (ii) They
have limited finance (iii) Wholesalers are specialized and can provide strong promotional
support, (iv) Products are durable and not subject to physical deterioration or fashion changes.

4. Manufacturer-Agent-Wholesaler-Retailer-Consumer:

In this channel the producer uses the service of agent middlemen such as – a sales agent, for the
initial dispersion of goods. The agent in turn may distribute to wholesalers, who in turn sell to
retailers. There may be a sole selling agent for many manufacturers, for example, Voltas. Many
textile mills have sales agents for distribution. Agent middlemen generally operate at the
wholesale level. They are common in agricultural marketing.

Agent middlemen sell directly to wholesaler or to a large retailer on commission basis. They are
used by manufacturers for marketing of this goods.

5. Manufacturer-Wholesalers-Consumer:

Wholesaler may by-pass retailer when there are large and institutional buyers, e.g., industrial
buyers, for example, government, consumer cooperatives, hospitals, educational institutions,
business houses, etc.

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6. Competitors:

Marketers closely watch the channels used by rivals. Many a time, they prefer similar channels
to bring about distribution of their products also. For instance, they may by-pass retail store
channel and adopt door-to-door sales.

What is Distribution Channel – 2 Types of Middlemen in Distribution: Merchant and

Agent Middlemen

There are two types of middlemen in distribution:

1. Merchant middlemen buy and sell goods on their own account and at their own risk of loss,
e.g., wholesaler and retailer.

2. Agent middlemen who do not take ownership title to goods but actively negotiate the transfer
of ownership right from the seller to the buyer, e.g., selling commission agent or broker.

In the channel management, a manufacturer has to make three decisions:

1. Selection of general channel of distribution to be adopted.

2. Number of middlemen at each level and in each market.

3. Selection of a particular middleman for selling ‘goods’ with or without any exclusive rights of
distribution.

In all commodity markets, whether primary or central, we have a host of middlemen acting as
essential functionaries.

a. Brokers:

Broker is an agent who does not have direct physical possession of goods in which he deals but
he represents either the buyer or the seller in negotiating purchases or sales for his principals.
They may be organised as individuals, partnership or even companies. They act as agents for
their clients — producers, dealers, manufacturers, etc.

The produce brokers offer services of expert middlemen between sellers and buyers. Brokers are
experts in grades, qualities, trade terms and contract terms as well as in warehousing and
transport problems. They buy and sell specific quantities of specific grades of a commodity on
behalf of their masters or employers who undertake all market, credit, transport, and other risks.

In the primary markets, they do business on account of their customers not only in spot goods,
ready for immediate delivery, but they also make sales at negotiated prices for forward delivery
of specific grades and of definite quantities.

b. Commission Agents:

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In each primary and central market, individuals, firms or even companies are organised to buy or
sell commodities, acting as buying or selling agents of producers, dealers or manufacturers who
convert the commodities into consumer goods. They may buy or sell on their own account and at
their own risk of loss. In that case, they are called commission merchants or factors.

They may receive goods for sale on consignment acting as consignees of their employers. They
are important in agricultural markets. The consignment method is used by manufacturers who
wish to maintain resale prices of their goods. They may also act as sole agents of their
employers. Resident buyers or buying agents are important in central markets for purchases on
behalf of distant buyers.

Selling agents sell the entire output of their principals or all of given lines of goods; they also
often have full authority to finalise prices, terms and other conditions of sale. We have also
manufacturer’s agents to sell goods of a number of a non-competing producers or manufacturers.

They are appointed on a continuing agency basis; they often sell within an exclusive area. But
they possess limited authority with regard to prices and terms of sale. All commission agents
work for a fee or commission, e.g., 3% to 5% on sales or purchase.

Manufacturer’s agents are very helpful, in the three circumstances:

i. For a small manufacturer with a few products and having no sales force,

ii. For entering into a new market to be fully developed,

iii. For sale of a new line of product which the present sales force is unable to manage or the new
market is not within their territory.

c. Dealers:

In all primary and central commodity markets, we invariably have merchant dealers. They are
great risk-bearers in the physical or spot markets. They are the backbone of our markets. These
dealers act as principals, buying and selling commodities on their own account and at their own
risk merely for a chance of profit. By selling to them, all producers can be free from risk of loss.

They also act as warehouse keepers of the market and to that extent manufacturers are also free
from risk of loss to a certain extent. The development of the dealer — the risk- bearing middle
man between the producer and the manufacturer, and between the manufacturer and the ultimate
consumers — permitted the producers and converters to transfer some of their market risks to the
dealer. The commodity dealer voluntarily absorbs both market and credit risks in the expectation
of making profits. There is no assurance of profits.

What is Distribution Channel – Some Advantages of Distribution Channels

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When a customer is considering buying a product he tries to access its value by looking at
various factors such as its delivery, availability etc., which are directly influenced by channel
members. Similarly, a marketer too while choosing his distribution members must access what
value the member is adding to the product.

Some advantages of distribution channel are as under:

1. Results in Customer Convenience – Channel distribution provides accumulating and assorting

services, which means they purchase from many suppliers the various goods that a customer,
may demand. Secondly, channel distribution is time saving as the customers can find all that they
need in on$ retail store and the retailer.

2. Customers can buy in small quantities – The phenomenon of breaking bulk quantities and
selling them in smaller quantities is known as bulk breaking. The customers have the benefit of
buying in smaller quantities and they also get a share of the profit the retailer makes when he
buys in bulk from the supplier.

3. Customers receive financial support – Resellers offer financial programs to their customers
which make payment easier for the customer. Customers can buy on credit and using a payment
plan etc.

4. It is Cost Saving – Distribution channel partners are specialists in what they do therefore, they
perform at much lower costs than companies trying to run the entire distribution channel all by
itself.

5. It is Time Saving – Time of delivery is reduced due to efficiency and experience of the
channel members. For example, the grocery store receives deliveries from the wholesaler in
amounts required and at a suitable time and often in a single truck. In this way cost as well as
time is saved.

6. Channel members also help in boosting sales – Resellers often use persuasive techniques to
persuade customers into buying a product thereby increasing sales for that product. They often
make use of various promotional offers and special product displays to entice customers into
buying certain products.

7. Channel members provide valuable information – Manufacturers s rely on the intermediaries

to provide information which will help in improving the product or in increasing its sale. High-
level channel members often provide sales data. On all other occasions the manufacturer can
always rely on the reseller to provide him with customer feedback.

8. Bigger Reach – A channel of distribution makes it possible to deal with customers that the
company could not economically reach with own sales force or store. A network of distributors
or retailers provides ready-made coverage of other regions or the whole country without the
company having to invest.

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9. Increased Market Knowledge – Distributors provide company with local market knowledge,
enabling it to enter new markets quickly and effectively without the cost of market research or
marketing programs

10. Increased Core Competency – A small business needs to focus its resources on product
development and generate revenue. Using channel distribution allows a small business to focus
on those core competencies without having to hire new personnel

11. Results in increased Efficiency – the intermediaries help to develop a single line of contact
for each customer. That line of contact would include order placement, defective product returns,
payment collections, product questions and product returns. All this helps in increasing the
efficiency of the manufacturer.

12. Results in Growth – An international channel distributor can help a small business reach
markets all over the world

What is Distribution Channel – Disadvantages: Loss of Product Importance due to Delay,

Lack of Communication Control, Revenue Loss and a Few Others

1. Loss of Product Importance due to delay – In case of transportation delays, the product loses
its importance in the channel and the sales suffer.

2. More importance to competitor’s product – Similarly a competitor’s product may enjoy

greater importance as the channel members might be getting a higher promotional incentive.

3. Lack of Communication Control – Manufacturer loses control over what message is being
conveyed to the final customers. The reseller may engage in personal selling in order to increase
the product sale and communicate about the product to his customers. He might exaggerate about
the benefits of the product this may lead to miscommunication problems with end users.

4. Revenue loss – The manufacturer sells his product to the intermediaries at costs lower than the
price at which these middlemen sell to the final customers. Therefore the manufacturer goes for a
loss in revenue.

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