Ss middle man

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STUDY SESSION
DISTRIBUTION CHANNELS

Agenda
• Introduction
• Distribution Channels
• Channels selection
• Summary

INTRODUCTION
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Introduction
• The path through which goods and services travel from
the vendor to the consumer or payments for those
products travel from the consumer to the vendor. A
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 wholesalers, distributers, agents and
retailers.
• Each intermediary receives the item at one pricing point
and moves it to the next higher pricing point until it
reaches the final buyer. Coffee does not reach the
consumer before first going through a channel involving
the farmer, exporter, importer, distributor and the retailer.
Also called the channel of distribution.

Types of flows
• A channel of distribution consists of three types of flows:-
• Downward flow of goods from producers to consumers
• Upward flow of cash payments for goods from consumers
to producers
• Flow of marketing information in both downward and
upward direction

CHANNELS
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Channels
• Companies 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 and directly link
producers with customers. Whereas other channels are
long and indirectly link the two through one or more
middlemen.

Producer - Customer
• This is the simplest and shortest channel in which no
middlemen is involved and producers directly sell their
products to the consumers. It is fast and economical
channel of distribution. Under it, the producer or
entrepreneur performs all the marketing activities himself
and has full control over distribution.
• A producer may sell directly to consumers through door-
to-door salesmen, direct mail or through his own retail
stores. Big firms adopt this channel to cut distribution
costs and to sell industrial products of high value. Small
producers and producers of perishable commodities also
sell directly to local consumers.

Producer-Retailer-Customer
• This channel of distribution involves only one middlemen
called 'retailer'. Under it, the producer sells his product to
big retailers (or retailers who buy goods in large
quantities) who in turn sell to the ultimate consumers.
• This channel relieves the manufacturer from burden of
selling the goods himself and at the same time gives him
control over the process of distribution. This is often suited
for distribution of consumer durables and products of high
value.

Producer-Wholesaler-Retailer-Customer
• This is the most common and traditional channel of
distribution. Under it, two middlemen i.e. wholesalers and
retailers are involved. Here, the producer sells his product
to wholesalers, who in turn sell it to retailers.
• And retailers finally sell the product to the ultimate
consumers. This channel is suitable for the producers
having limited finance, narrow product line and who
needed expert services and promotional support of
wholesalers. This is mostly used for the products with
widely scattered market.

Producer-Agent-Wholesaler-Retailer-
Customer
• This is the longest channel of distribution in which three
middlemen are involved. This is used when the producer
wants to be fully relieved of the problem of distribution
and thus hands over his entire output to the selling
agents.
• The agents distribute the product among a few
wholesalers. Each wholesaler distribute the product
among a number of retailers who finally sell it to the
ultimate consumers. This channel is suitable for wider
distribution of various industrial products.

CHANNELS SELECTION
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Channels selection
• Businesses has to choose a suitable channel of
distribution for their product such that the channel chosen
is flexible, effective and consistent with the declared
marketing policies and programmes of the firm.
• While selecting a distribution channel, the businesses
should compare the costs, sales volume and profits
expected from alternative channels of distribution and
take into account the various factors.
• Product consideration
• Market consideration
• Other consideration

Product consideration
• The type and the nature of products manufactured is one
of the important elements in choosing the distribution
channel. The major product related factors are:-
• Products of low unit value and of common use are
generally sold through middlemen. Whereas, expensive
consumer goods and industrial products are sold directly
by the producer himself.
• Perishable products; products subjected to frequent
changes in fashion or style as well as heavy and bulky
products follow relatively shorter routes and are generally
distributed directly to minimize costs.

Product consideration
• Industrial products requiring demonstration, installation
and aftersale service are often sold directly to the
consumers. While the consumer products of technical
nature are generally sold through retailers.
• An entrepreneur producing a wide range of products may
find it economical to set up his own retail outlets and sell
directly to the consumers. On the other hand, firms
producing a narrow range of products may their products
distribute through wholesalers and retailers.
• A new product needs greater promotional efforts in the
initial stages and hence few middlemen may be required.

Market consideration
• Another important factor influencing the choice of
distribution channel is the nature of the target market.
• Some of the important features in this respect are:-
• If the market for the product is meant for industrial users,
the channel of distribution will not need any middlemen
because they buy the product in large quantities. short
one and may as they buy in a large quantity. While in the
case of the goods meant for domestic consumers,
middlemen may have to be involved.

Market consideration
• If the number of prospective customers is small or the
market for the product is geographically located in a
limited area, direct selling is more suitable. While in case
of a large number of potential customers, use of
middlemen becomes necessary.
• If the customers place order for the product in big lots,
direct selling is preferred. But,if the product is sold in
small quantities, middlemen are used to distribute such
products.

Other consideration
• There are several other factors that an entrepreneur must
take into account while choosing a distribution channel.
Some of these are as follows:-
• A new business firm may need to involve one or more
middlemen in order to promote its product, while a well
established firm with a good market standing may sell its
product directly to the consumers.
• A small firm which cannot invest in setting up its own
distribution network has to depend on middlemen for
selling its product. On the other hand, a large firm can
establish its own retail outlets.

Other consideration
• The distribution costs of each channel is also an important
factor because it affects the price of the final product.
Generally, a less expensive channel is preferred. But
sometimes, a channel which is more convenient to the
customers is preferred even if it is more expensive.
• If the demand for the product is high, more number of
channels may be used to profitably distribute the product
to maximum number of customers. But, if the demand is
low only a few channels would be sufficient.
• The nature and the type of the middlemen required by the
firm and its availability also affects the choice of the
distribution channel.

Factors
• All these factors or considerations affecting the choice of
a distribution channel are inter-related and
interdependent.
• Hence, businesses must choose the most efficient and
cost effective channel of distribution by taking into account
all these factors as a whole in the light of the prevailing
economic conditions. Such a decision is very important for
a business to sustain long term profitability.

SUMMARY
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Summary
• The path through which goods and services travel from
the vendor to the consumer or payments for those
products travel from the consumer to the vendor. A
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 wholesalers, distributers, agents and
retailers.
• Each intermediary receives the item at one pricing point
and movies it to the next higher pricing point until it
reaches the final buyer. Coffee does not reach the
consumer before first going through a channel involving
the farmer, exporter, importer, distributor and the retailer.
Also called the channel of distribution.

Ss middle man

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