Everything you need to know about distribution channels.
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.
1. Meaning of Distribution Channels 2. Concept of Distribution Channels 3. Objectives 4. Need 5. Types 6. Routes
7. Middlemen 8. Channel Choice 9. Market Coverage 10. Advantages 11. Disadvantages.
What is Distribution Channel? – Meaning, Concept, Objectives, Need, Types, Routes, Advantages and Disadvantages
- Meaning of Distribution Channels
- Concept of Distribution Channels
- Objectives of Distribution Channels
- Need of Distribution Channels
- Types of Distribution Channels
- Routes of Distribution Channels
- Middlemen in Distribution Channels
- Channel Choice for Distribution
- Market Coverage of Distribution Channels
- Advantages of Distribution Channels
- Disadvantages of 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 –
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:
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. 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 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’.
Channel choice is affected by this objective in a number of ways:
(i) Does the deliverer arrange the merchandise in the shop?
(ii) Are special displays being utilised?
(iii) Does the product required to be installed, demonstrated or explained?
(iv) Is there a special promotion of the product is required?
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, Flipkart.com 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.
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.
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:
1. Manufacturer-Consumer (Direct Sale):
There are three alternatives in direct sale to consumers.
(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.
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.
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.
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.
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.
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.
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:
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.
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 – Factors for Channel Choice in Distribution: Product, Market, Middlemen, Company, Marketing Environment and Competitors
Marketing channel decisions considerably influence all other marketing decisions such as pricing and promotion. Channel decisions also require special attention as these involve long-term commitments to other firms with whom marketer enters into a contract. Chosen channel cannot be terminated overnight. A distribution system is a key external resource, equally important with key internal resources.
The problem of selecting the most suitable channel of distribution for a product is complex. The most fundamental factor for channel choice and channel management is economic criteria, viz., cost and profit criteria. Profit organisations are primarily interested in cost minimisation in distribution and assurance of reasonable profit margin.
However, channel decisions are not made entirely on the basis of rational economic analysis. We have to consider a number of factors such as the nature of the product, market trends, competition outlook, pricing policies, typical consumer needs, as well as needs of the manufacturer himself.
The following are other critical factors:
(a) If a commodity is perishable or fragile, a producer prefers few and controlled levels of distribution. For perishable goods speedy movement needs shorter channel or route of distribution,
(b) For durable and standardised goods longer and diversified channel may be necessary,
(c) For custom made product direct distribution to consumer or industrial user may be desirable,
(d) Systems approach needs package deal and shorter-channel serves the purpose,
(e) For technical product requiring specialised selling and serving talents, we have the shortest channel,
(f) Products of high unit value are sold directly by travelling salesforce and not through middleman.
(a) For consumer market, retailer is essential, whereas in business market we can eliminate retailer,
(b) If the market size is large, we have many channels, whereas in a small market direct selling may be profitable,
(c) For highly concentrated markets, direct selling is enough but for widely scattered and diffused markets, we must have many channels,
(d) Size and average frequency of customer’s orders also influence the channel decision. In the sale of food products, we need both wholesaler and retailer.
Market means people with money and willing to purchase want-satisfying goods. Age, income group, sex, vocation, religion of customers will have to be studied to secure adequate information of market segments or target markets. Buying habits of customers and dealers will also influence our channel choice.
Consumer and dealer analysis will give data on the number, type, location, buying habits of consumers and dealers. Channel choice needs this information. For example, desire for credit, preference for one stop shopping, demand for personal services, amount of time and effort the customer is willing to spend — all are important factors in channel choice.
If ultimate buyers are numerous, the order is small, order frequency is great and buyers insist on the right to choose from a wide variety of brands/goods, we must have three or even more levels of distribution. Market considerations also govern mass distribution (through multiple channels) or selective/exclusive distribution through few or even one dealer. When service after sale is required, e.g., TV Sets, Refrigerators, etc. selective distribution is profitable.
(a) Middlemen who can provide wanted marketing services will be given first preference. Of course, they must be available,
(b) The selected middlemen must offer maximum co-operation particularly in promotional services. They must accept marketing policies and programmes of the manufacturers and actively help them in their implementation,
(c) The channel generating the largest sales volume at lower unit cost will be given top priority. This will minimise distribution cost.
(a) The company’s size determines the size of the market, the size of its larger accounts and its ability to get middlemen’s co-operation. A big firm may have shorter channel,
(b) The company’s product mix influences the pattern of channels. The broader the product line, the shorter will be the channel. If the product mix has greater depth or specialisation, the company can favour selective or exclusive dealerships,
(c) A company with substantial financial resources need not rely too much on the middlemen and can afford to reduce the levels of distribution. A weaker company has to depend on middlemen 4o secure financial and warehousing reliefs,
(d) New companies rely heavily on middlemen due to lack of experience and ability of management,
(e) A company desiring to exercise greater control over channel will prefer a shorter channel as it will facilitate better co-ordination, communication and control,
(f) Heavy advertising and sale promotion can motivate middlemen to handle displays and join enthusiastically in the promotion campaign and co-operative publicity. In such cases even a longer chain of distribution can be profitable. Thus, quantity and quality of marketing services provided by the company can influence the channel choice directly.
5. Marketing Environment:
Marketing environment can also influence the channel decision. During recession or depression, shorter and cheaper channel is always preferable. In times of prosperity, we have a wider choice of channel alternatives. Technological inventions also have impact on distribution.
The distribution of perishable goods even in distant markets become a reality due to cold storage facilities in transport and warehousing. Hence, this led to expanded role of intermediaries in the distribution of perishable goods.
Marketers closely watch the channels used by rivals. Many a time, similar channels may be desirable to bring about distribution of your products also. However, sometimes marketers deliberately avoid customary channels (dominated by rivals) and adopt different channel strategy. For instance, you may by-pass retail store channel (usually used by rivals) and adopt door-to-door sales (Where there is no competition).
What is Distribution Channel – Intensity of Distribution: Extensive Distribution, Selective or Limited Distribution, Exclusive Distribution
Once, the company decides the general channels to be used, it has to decide on the number of middlemen in each channel, i.e., intensity of distribution.
There are three alternatives:
1. Extensive Distribution:
We have maximum number of retail outlets for mass distribution of convenience goods as consumers demand immediate satisfaction and that too at the most convenient retail shops. Extensive or broadcast distribution is essential when the price is low, buying is frequent and brand switching is a common phenomenon.
Extensive distribution secures rising sales volume, wider consumer recognition and considerable impulse purchasing. But it creates problem of motivation and control and it may generate unprofitable sales due to higher marketing costs.
2. Selective or Limited Distribution:
When special services are needed, e.g., TV sets or a right prestige image is to be created, e.g., certain cosmetics to be sold only through chemists, we have selective distribution. The number of outlets at each level of distribution is limited in a given geographic area.
When we have limited number of middlemen, they can spend more on sales promotion and offer maximum cooperation in the company’s promotion campaign. If the product has long useful life and consumer brand preference can be established, selective distribution will be more profitable.
3. Exclusive Distribution:
When final buyers do not need any product service, mass or extensive distribution is adopted. If the amount of product service expected by final buyers is considerable, exclusive distribution is preferable. Here, we have one wholesaler or one retailer for a given market to handle the right of distribution in that market. Similarly, if your brand has not only brand preference but also brand insistence and consumers refuse to accept substitutes, selective or even exclusive distribution is feasible.
Exclusive distribution creates a sole agency or sole distribution-ship in a given market area. Such types of distribution are very useful in the sale of consumer speciality goods, e.g., expensive men’s suits. Exclusive distribution privileges offer tremendous loyalty of dealers and substantial sales support from dealers.
However, the main sacrifice involved is the rising sales volume that might be obtained through wider or extensive distribution. The manufacturer can have greater control over prices and markets and he can get maximum co-operation from middlemen. Exclusive dealer can carry complete stock and offer after-sale-service to the buyers of products.
What is Distribution Channel – Some Advantages of Distribution Channels
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.
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.