Distribution channels are systems of economic institutions through which a producer of goods delivers them into the hands of their users.
NATURE/CHARACTERISTICS OF DISTRIBUTION CHANNELS
The main characteristics of distribution channel are as under:
(1) Only those middlemen are included in it who transfer the title of products and services.
(2) Distribution channels are the groups of persons and firms which are included in distribution process of products and services.
(3) Under distribution channel, middlemen perform various functions in addition to transferring the title of products.
(4) Under distribution channel, the working middlemen are paid in the form of commission while retailers are paid in the form of profit.
(5) Distribution channels determine the flow of products and services.
IMPORTANCE OF DISTRIBUTION CHANNELS
In present times, the significance of distribution channels is increasing continuously. Its significance can be estimated by this fact that it connects two points of pipeline. On one side of it is producer and the consumer is on other side. The significance of distribution channels is clear from the following points :
(1) If distribution channel is efficient, then firm develops.
(2) Middlemen deliver the various new products and services on proper time and at proper place to the consumers or industrial users.
(3) Middlemen play an important role in expanding the market area.
(4) Middlemen provide pre sale and after sale services to consumer.
(5) Middlemen provide various information related to market and product to producers.
(6) Distribution channels perform the activities like advertisement, sales promotion and personal selling.
(7) The main objective of distribution channel is to make available the right product to the right consumer at right price and in right quantity.
(8) Distribution channels regulate the purchase decisions. Thus, the cost of business transactions is decreased.
FUNCTIONS OF DISTRIBUTION CHANNELS
The main function of distribution channel is to establish a relation between the production and consumption. Hence, the following functions are performed by distribution channels for distribution:
(1) Serving the Consumers : The title of the products and services is transferred through the distribution channels. Thus, the distribution channels serve the consumers by delivering right product at right place at right time and at right price.
(2) Satisfaction to Consumers : The distribution channels provide satisfaction to consumers by understanding and fulfilling their needs, desires and expectations.
(3) Transfer of Title : Distribution channels not only ensure the availability of products but also the transfer of product title. The function of transferring the title is performed by the activities of sales, purchase and exchange. Thus, distribution channels play an important role in transferring the title of product of producer to the final consumers or industrial users.
(4) Price Determination : Distribution channels provide useful information related to market demand, prices of other products, strategies and price policies of competitors to the manufacturers and consumers. They also give their suggestions regarding the price of products. Thus, distribution channels help the manufacturers and consumers in determining the prices.
(5) Promotional Activities : Distribution channels play an important role in performing various promotional activities like advertisement, personal selling, sales promotion, etc. Even these also provide place and facilities for decoration and functional display of products.
(6) Communication of Information : Today the distance between consumer and producer is increasing. In the absence of distribution channels, they cannot establish a direct link. These provide information about market demand, fashion, interest of consumers, etc. to the producers and also help the producers in making desirable changes accordingly.
(7) Financing : An important function of distribution channels is to manage the finance. In present era, each function requires finance. Often, the wholesalers perform the function of financing by giving advance to producers. Besides this, wholesalers also provide financial facilities to the retailers by selling the goods to them on credit.
(8) Creation of Utility : Distribution channels create utility in products. The utilities related to time, place, ownership, etc. are created through distribution channels.
TYPES OF DISTRIBUTION CHANNELS
(A) Direct Distribution : This is the channel of distribution in which producer directly sells his products and services to the consumers without any middlemen. Producers sell the products to consumers by various channels like own sales shops, own salesmen, mail, etc. Thus, the following are the channels of delivering the products through direct distribution channel:
(1) Own Salesmen : Some salesmen are appointed for establishing the contact with potential customers. In this, the salesmen of small and perishable products deliver these products directly to the consumers by putting these in a vehicle. This is called door to door selling. On the contrary, in the situation of industrial products like machines, raw material, etc., the salesmen take order of product and send it to company so that proper arrangements relating to delivery of goods can be made by company. Click here for Nature And Scope Of Marketing.
(2) Own Sales Shops : Under this channel of distribution, producers sell the goods by establishing their own sales shops at different places. These divided into two classes which are as under :
- Multiple Shops : These are fully owned by manufacturers. These are also called chain stores. The decisions regarding the design, advertisement, procedure, etc. of these stores are taken by central organisation. Some examples of these stores are Bata India Ltd., Jai Engineering Works Ltd., Raymonds, etc.
- Own Sales Showrooms: The own sales showrooms are established by manufacturers in specific cities. The price of product is determined by manufacturer. The products manufactured only by specific manufacturers are sold at these showrooms.
(3) Mail Order : Under this distribution channel, orders are given by mail and these orders are also fulfilled by this channel. The firms using the mail order method are called mail order houses. Seller provides information relating to product to the customers through different types of advertising channels and then orders for the product are received by mail from customers. After that, packed goods are delivered by post office through V.P.P.
(B) Indirect Distribution: Indirect distribution channel refers to that channel in which product is sold indirectly. Under this, goods are delivered to consumers through different middlemen like retailers, salesmen, agencies, etc. The following are the types of this method:
- Manufacturer to Retailers: Under this method, big companies sell products directly to different departmental stores, super bazaar, mail order houses, etc. and these again sell the products to the consumers.
- Manufacturer to Retailers Through Salesmen : In this method, it is essential to establish contact with retailers for receiving the orders from them continuously. For this, producers appoint their salesmen in different cities.
- Manufacturer to Retailers Through Agency : In this method, wholesale agencies are established by producer near the main market for making availability of goods to retailers.