Channels of Distribution DSBM

Channels of Distribution
Mrs. R. H. Mishal
Incharge HOD, D. Pharm
Sir Dr. M. S. Gosavi College of Pharmaceutical
Education & Research, Nashik.

Distribution and distribution channels
 Distribution means the process of transferring the
product from the factory into the hands of its
consumer.
 Distribution channels are set of interdependent
organizations involved in the process of making the
product or service available for use or consumption.
 These are the set of pathways a product or service
follow after production.
 Distribution channels can include wholesalers,
retailers, distributors and even the internet.

Distribution and distribution channels
 Advantages:
1. The cost of marketing is reduced by channels of distribution.
2. The goods are easily available at all places.
3. The sale of goods increases due to support of wholesaler and
retailers.
4. The goods are available at similar prices throughout the area.
5. The financial burden and employment problems are removed for
producer.
Disadvantages:
1. Wholesaler, retailer and other agent’s commission increases the
price of goods.
2. Sometime they do not supply goods in time.
3. They may create artificial scarcity by holding goods supply.

Distribution channels
 Distribution channels are grouped under two major
heads-
(i) Direct Selling
(ii) Indirect selling
Direct Selling: No intermediary between the
manufacturer & the consumer.
Ex. Marketing of industrial products like heavy
machinery & goods sold through mail order.

Indirect Selling:
In indirect Selling intermediaries are involved in between the
manufacturer & consumer.

Middlemen
There are two types of middlemen
 Functional middlemen
 Merchant middlemen
Functional middlemen are those intermediaries who
perform various marketing functions without having any
title to goods.
Transfer of goods without acquiring any ownership rights.
Types of Functional Middlemen.
• Brokers
• Commission agents
• Auctioneers
• Del credere agents

Functional Middlemen
• Brokers- Agents who neither possess nor own the goods.
Only function is to bring buyer and seller together.
They negotiate both purchase and sale of goods on
behalf of other parties.
• Commission agents- They sell goods on behalf of seller.
They negotiate the sale of goods, take possession of
goods and make arrangement for the transfer of the title
to the goods.
• Auctioneers- They sell the goods on behalf of their
principals by auction by inviting bids.
• Del credere agents- They find buyers for the seller and
also guarantee the payment of the price of goods on
their behalf.

Merchant Middlemen
1. Merchant middlemen
i. Wholesalers
ii. Retailers

1. Middlemen are the furnishers of valuable information
to the producers about consumer behaviour, the
changes in tastes and fashions, etc.
2. Middlemen allow the manufacturers to concentrate on
production only and relieve them from the botheration
of marketing.
3. Middlemen render financial help to manufacturers.
4. They make available the goods according to the
consumers’ needs, fashion, tastes, etc.
5. Middlemen are an important link between the
producers and consumers.
Functions of Middlemen:

Merchants who act as intermediaries between the
manufacturer & the retailer. They buy goods and
commodities in large quantities from the producer
and sell them to retailers.
Classification of Wholesalers-
1. Manufacturer wholesalers.
2. Retailer wholesalers.
3. Wholesaler proper.
Wholesalers

Functions of wholesalers:
1) Assembling and buying.
2) Distribution
3) Warehousing.
4) Transporting.
5) Financing.
6) Risk bearing.
7) Pricing
8) Grading, packing and packaging.
9) Market Research.
Wholesalers

1. Service to manufacturers-
Economies scale.
Saving in time and trouble.
Better use of capital.
Price stabilization.
2. Services to retailers.
i. Saving in cost and time.
ii.Economy in transport an packing.
iii.Better use of limited factors.
iv.Expert knowledge.
Services of wholesalers

 A retailer is a middleman between a wholesaler
and actual consumers.
 The retailer sells the goods to the consumers
and maintains an intimate contact with the
wholesalers, manufacturers and consumers.
 The retailer dealing in pharmaceutical trade is
known as chemist or a pharmacist.
Retailers

Functions of Retailers
1. Wide choice to consumers..
2. Ready stock.
3. Transport.
4. Grading and packing.
5. Risk-bearing.
6. Financing
7. Market research
8. Sales promotion.

Services of retailer
Services to the Producer/ wholesaler
1. Offer opportunity.
2. A big relief.
3. Provision of information.
4. Reduce the risk of loss.
Services to the consumers
1. Largest choice.
2. Relief from storage.
3. Extra service.
4. Supply of information.

Types of Retailers
 Itinerant retailers- Do not have fixed business premises. Move from place to place for
selling small lots to consumers.
 Different types of Itinerant Retailers-
 Hawkers & pedlars- Move door to door in residential localities.
 Street traders- Arrange their goods at busy street corners or pavements of busy roads,
temples, railway stations, cinema halls etc.
 Market traders- They keep on moving from place to place to sell their goods at weekly,
fortnightly or monthly bazaars or at annual fair.
Fixed shop retailers
1. Small scale retail shop
2. Large scale retail shop

Types of Retailers
1. Small scale retail shop-
(i) Street stalls- Stalls located at a street crossing or in the main street. Table or
platform is used for display of inexpensive goods like toys, pens, cosmetics
which are to be sold.
(ii) Second hand goods shops- Deal in second hand or used goods like clothes,
books, furniture, household items.
(iii) General stores- Set up in residential areas which is stocked with all kinds of
products needed by local residents in the course of their day to day life.
(iv) Single line stores- Specialize in selling only a particular kind of item.
(v) Speciality stores- Sell specialized goods-one product of a single line like
children’s garments.
2. Large scale retail shop

Retail Departmental Store
 It is a large scale retail organization comprising a number of departments each
dealing in a separate line of products and work under one roof and one management.
 Advantages:
1. It provides great convenience in shopping as customers can get their all
requirements at one place.
2. It keeps a large variety of goods, thus offering a good choice to customers, when
they buy the required goods.
3. The departmental stores are located mainly in the central part of the city. So it is
convenient for all types of consumers to visit it.
4. It buys its requirements in large quantities which reduces its cost & increases the
profit.
5. Due to huge sale in departmental stores, the selling cost per unit becomes very low.
6. It provides telephone facilities, recreation facilities & free home delivery facility to
its customers.
7. It can afford to employ competent sales persons to attend to its customers. This leads
to efficiency & increased customer satisfaction.

Retail Departmental Store
 Disadvantages:
1. Very high initial cost.
2. Generally located in central place. Difficult to distant public to visit departmental
store.
3. The overhead expenses are comparatively high.
4. No personal contact or coordination between various departments in a departmental
store.
5. Owner cannot establish personal contact with the customers.

Multiple shops or chain stores
 They are group of shops in the same branch of retail trade.
 There is fixed price & std. quality of goods available.
 The branches can be easily identified due to uniformity in decoration.
 The middlemen profit is avoided as there is direct contact bet. Producer &
customer.
 The goods can be transferred to other branches if needed.
 The sale is on cash payment.
 The supply of items to various branches is made direct from head office
 A single firm’s branches are situated at different locations in the city or
different parts of the country.
 They provide shopping facilities near the residence of would be customers.
 Each branch deals in similar line of goods.
 Purchasing, assembling, transporting, advertising & financing for all
multiple shops is made by central office.

Mail Order Business
 It does not require a shop to start a business.
 Requires a low capital.
 It is very useful for those customers who live in
remote areas of the country.
 There is no danger of bad debts, since the price of
goods is received either in advance or collected from
post office when goods are sent by V.P.P.
 There is a direct link between manufacturer and
customers.
 The seller gets a very wide market to sell his products.

Consumer Cooperative Stores
 Consumers themselves form a society and run the
retail business.
 Basic purpose is to eliminate middlemen.
 Consumers get better quality goods at lower prices.
 Increases economic security among members.
 Consumers have complete control over society
running the store.
 Reduced overhead expenses.
 Stores cannot run on a large scale.
 Lack of ability, expertise & training in members who
run the store.

Hire-purchase Trading Houses
 Buyer gets credit from seller against the security of a lien on the goods purchased by him.
Buyer gets ownership of goods only after he has paid the total price in an agreed number
of instalments.
 Advantages
 1. This system provides facility to purchase costly goods to middle class people on easy
instalments.
 2. The Small scale manufacturer can buy their machinery and tools without making total
payment.
 3. This system helps to increase the sale of costly and non-essential items as it tempts
large number of people to buy the same.
 4. Even the people who have sufficient money will go for this system as they can invest
their money elsewhere to earn more profit
 Disadvantages:
 1. People are tempted to buy things which they cannot afford.
 2. Trader dealing in hire purchase scheme have to arrange for large capital to finance their
business
 3. The goods purchased on hire purchase scheme are costlier as they have to pay the
interest on unpaid instalment.

Channels of Distribution DSBM

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