Marketing Aptitude Study Material – Channels of Distribution

Marketing Aptitude Study Material – Channels of Distribution

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Most producers do not sell their goods directly to the final users, between them stands a set of intermediaries performing a variety of functions. These intermediaries constitute a marketing channel. So, marketing channels are a set of interdependent organisations (intermediaries) involved in the process of making a product or service available for use or consumption by the consumer or business user. A channel of distribution is the path a product takes from the producer or manufacturer to the final user.

Importance of Distribution Channels

• Distribution channel reduces the cost of any transaction by routinisation of purchasing decisions.
• They act as communication agent which often guide the consumers in right direction to fulfill their wants.
• A distribution channel is important for understanding the logistics of the business.
• It helps in managing, planning, producement, transporting and storage of products.
• They help to reduce the stroage cost.

Functions of Distribution Channel
The main functions of distribution channel are

• Contact between Producer and Consumers: Through distribution channel producer comes into the contact with the consumer, which is useful to collect some important information regarding product and behaviour of the consumer.
• Satisfaction to the Consumer: Distribution channels provide satisfaction to the consumer by providing services and by supplying products in different varieties, colours, sizes and according to fashion.
• Transferring: the Title Distribution channel materializes the transfer to product’s title. Title is transferred through sales and purchase. It delivers right product, at right place, at right time and at right price to the consumer.
• Fixing Prices: The institutions functioning as distribution channel assist the manufacturer and buyers in determination of price.

Types of Channels of Distribution
The various channels used for distribution can be described as follows

1. Conventional Distribution Channels
These distribution channels assume that each enterprise working in the channel is separately owned and operated concern.
They are as follows:

1. Direct Channel or Zero Level Channels: When the manufacturer instead of selling the goods to the intermediary sells it directly to the consumer, then this is known as zero level channel, e.g., retail outlets, mail order selling, internet selling.
   Manufacturer → Consumer.
2. Indirect Channels: When a manufacturer gets the help of one or more middlemen to move goods from the production place to the place of consumption, the distribution channel is called indirect channel.
   Following are the more types of it.
   (a) One Stage Channel: of Distribution In this case, there is one middleman, i.e., the retailer. The manufacturers sell their goods like refrigerator, air conditioner, washing machine, etc to retailers who in turn sell it to the consumers.
   Manufacturer → Retailer → Consumer
   (b) Two Stage Channel: of Distribution In this case, there are two middlemen namely, wholesaler and retailer. This is applicable to products where market is spread over a large area, value of individual purchase is small and the frequency of purchase is high.
   Manufacturer → Wholesaler → Retailer → Consumer
3.  Three Stage Channel: of Distribution When the number of wholesalers in the chain is large and they are scattered throughout the country, the manufacturers often use the services of mercantile agents who act as a link between the producer and the wholesaler. They are also known as distributors.
   Manufacturer → Agent → Wholesaler → Retailer → Consumer

2. Non-Conventional Distribution Channels
These channels of distribution are the networks in which channel components participate in a full co-ordination and cohesion manner rather than working in a loose manner.
They are of two types:

1. Vertical Distribution Channels: These are rationalised and capital intensive networks, designed to achieve technological, managerial and promotional economics,, through the integration, co-ordination and synchronisation of marketing flows from points of production to points of ultimate uses.
   They are of three types:
   (a) Corporate System/Channel: In this distribution channel, a single firm owns both production and distribution facilities. e.g, Bata, Tata, Modi, Godrej, DCM, etc. with their own production units and retail outlets.
   (b) Administrated Vertical System/Channel: These channels are coordination of all the functions of production and distribution achieved through the use of programme developed by one or the number of limited firms throughout the whole marketing system.
   (c) Contractual Marketing System/Channel: Under this distribution channel, independent channel components manufacturer, wholesalers and retailers are employed on a voluntary basis to develop a more efficient system on a contractual basis, so as to obtain economies of scale and increases market impact.
2. Horizontal Distribution Channel System: Horizontal distribution channel is a new trend in distribution in which two or more companies join hands to exploit a marketing opportunity or opportunities, either by themselves or by creating an independent unit, e.g., Associated Cement Company (ACC), Sugar Syndicate of India, Maruti Udyog and HDFC Bank, etc.

Factors Affecting the Choice of Distribution Channel
The following factors have to be taken care of in choosing a specific distribution channel

• Product Consideration
  • Nature of product
  • Perishability
  • Unit value
  • Weight and technolocity
  • Standardised products
  • Product line
  • Seasonality
• Market Consideration
  • consumer or industrial market
  • Number of customers
  • Geographical distribution
  • Buying habits of consumers
  • Size of order
  • Need of product
• Company Consideration
  • Financial resources
  • Market standing
  • Volume of production
  • Desire for control of channel
  • Services provided by manufacturers
• Middlemen Consideration
  • Availability of middlemen
  • Attitude of middlemen
  • Services provided by middlemen
  • Cost of channel
  • Sales volume potentials
  • Financial ability

Marketing Middlemen
Middlemen are intermediaries who specialise in performing or rendering services that are directly involved in the purchase and sale of goods and services in the process of their flow from producer to the consumer.

Types of Marketing Middlemen
Middlemen are broadly classified into two groups

1. Merchant Middlemen
Merchant middlemen normally take title to, and therefore own, the product they handle. The buy and sell for their own gain and derive their income from the margins arising from the sales (i.e., difference between buying price and selling price).
There are two categories of merchant middlemen and they are:

1. Wholesalers: Wholesalers may be defined as the middlemen who operates between the producers (from whom they purchase goods) and the retailers (to whom they sell goods).
   They deal with goods in bulk and reap the benefit of economies of scale. They provide goods in relatively small quantities to retailers and provide them with facility of credit purchase.
2. Retailers: Retailers are middlemen who procure goods from the wholesalers and sell the product to the end-users or the consumers. They cater to the demand of the customers by providing a variety of products of different companies at one place.
   They also offer pre and after sales services and communicate to consumers the features of the products. Full service retailer, discount retailer, vending machine and super market are types of retailer.

2. Agent Middlemen
All agent middlemen of marketing don’t own what they handle i.e., not take title to the goods. They derive their income from the fees they are paid by their clients or commissions given.
There are three categories of agent middlemen:

1. Broker: He brings the buyers and sellers together and negotiate between them. He generally specialises in a narrow range of products and possess in-depth knowledge of market condition in his area of specialisation. A broker does not receive payment until the product is sold and has to ensure the best deal for the customer.
2. Commission Agent: They procure goods on consignment and transport them to bigger markets to sell them for the best price in the market. They deduct the commission and the transportation costs and pay the rest of the money earned to the producer. They generally deal with agricultural products, sea foods, etc.
3. Auctioneer: An auctioneer is an agent who sells goods by auction i.e., to the highest bidder in public competition. He has no authority to hold the goods sold and can deliver the goods only on receipt of price. He is the agent of the vendor.

Some Terms Related to Distribution of Products

• Direct Marketing: Direct marketing means cold calls where calls are made without any prior appointment with the customers. Under this method of distribution, the manufacturers bypass the chain of middleman and approach the consumers directly and sell them their products.
• Internet Marketing: With the widespread use of computers and Internet, today it is possible to buy and sell products over the internet through websites maintained by producers. The manufacturer is able to cater to a larger number of customers sitting anywhere in the world, efficiently and speedily using Internet marketing.
• Telemarketing: Some producers/manufacturers approach the consumers over the telephone to tell them about the product and its uses and ultimately persuade them to buy the product. This method is often used to sell credit cards, subscription of certain books and journals and also membership of certain clubs, etc.

Tit-Bits

• Mobile is the Latest distribution system.
• Retailing by manufacture includes mail order retailing, own retail stores and house-to-house selling.
• Retail banking means bank financing to retail traders.
• The Internet marketing can serve actual sales of product, promotion, customer service and market research.

Check your skills

1. The function of distribution channel includes

1. managing finances
2. promotional activities
3. fixing prices
4. servicing the consumer
5. All of the above

2. Which is the channel of direct distribution?

1. Own sales showrooms
2. Own salesmen
3. Own sales shops
4. Mail order
5. All of the above

3. Indirect distribution channel is

1. producer → consumer
2. producer → agent
3. producer → retailer
4. producer → agent → wholesaler
   → retailer → consumer
5. All of’the above

4. Distribution channels are

1. systems of economic institution through which a producer of goods delivers them  into hands of their uses is
2. system of pricing
3. costing system
4. branding
5. All of the above

5. Marketing channels are

1. distribution network through which producer’s products flow to the market
2. the channel of storage
3. channel of production
4. All of the above
5. None of the above

6. Which is the factor of distribution channel?

1. Number of customer
2. Size of the manufacturer
3. Product weight
4. Perishability
5. All of the above

7. Vending machine is

1. a pricing system
2. distribution channel
3. cost planning
4. management system
5. All of these

8. Which of the following factor influences the choice of distribution channel?

1. Product consideration
2. Market consideration
3. Company consideration
4. Middlemen consideration
5. All of the above

9. The channel of distribution comes under which element of the marketing mix?

1. Product
2. Price
3. Place
4. Promotion
5. None of these

10. The type of distribution channel is

1. producer → consumer → agent → wholesaler → retailer
2. producer → agent → wholesaler → retailer → consumer
3. agent → consumer → wholesaler → producer → retailer
4. retailer → consumer → producer → wholesaler→ agent
5. consumer → producer → wholesaler → agent→ retailer

11. Which is the latest distribution system?

1. Telephonic distribution
2. E-commerce
3. E-mail
4. Mobile
5. All of the above

12. The channel of product and consumer is

1. agent, retailer or wholesaler
2. product or service
3. producer
4. government
5. price

13. Marketing channels are sets of inter-dependent organisation involved

1. production activity
2. financing activity
3. training activity
4. in the process of making a product available for use or consumption
5. All of the above

14. A distribution channel may be defined as

1. a chain of intermediaries
2. a group of marketers
3. a path of achieve goal
4. a network of companies
5. None of the above

15. Direct marketing is more useful when

1. absolute margins are very large
2. absolute margins Eire low
3. absolute margins are very low
4. production cost is very low
5. None of the above

16. Distribution is also known as the variable in which marketing mix?

1. Price
2. Place
3. People
4. Product
5. None of these

17. The Internet marketing can serve which of the following purposes?

1. Actual sales of product
2. Promotion
3. Customer service
4. Market research
5. All of these

18. The structure of distribution channel vary with the production of

1. nature
2. price
3. size
4. quantity
5. None of these

19. Which is the type of middlemen?

1. Wsirehousing agent
2. Clearing agent
3. Exporting agent or forwarding agent
4. All of the above
5. None of the above

20. Wholesaler includes those agencies taking part in buying and selling activities that operate between the local market and

1. the producer and manufacturer of product
2. wholesaler
3. retailer
4. agent
5. All of these

21. Stores deal with products of a specific brand or company

1. general
2. speciality
3. departmental
4. super
5. None of these

22. Large scale retailers is/are

1. departmental stores
2. consumer cooperative stores
3. chain shops
4. All of the above
5. None of the above

23. Which of the following type of large scale retailing sells goods of daily necessity to general public?

1. Departmental store
2. Multiple shop
3. Super market
4. Franchise
5. None of these                                              ,

24. Retailing includes

1. financial management
2. manufacturing activity
3. production
4. All of the above
5. None of the above

25. Which of the following is the type of large scale retail trade?

1. Departmental store
2. Multiple shop
3. Supermarket
4. Consumer store
5. All of these

26. Which is the function of wholesaler?

1. Selling and buying the products
2. Dividing the goods
3. Storing
4. All of the above
5. None of the above

27. Retailing by manufacturers includes

1. mail order retailing
2. own retail stores
3. house to house selling
4. All of the above
5. None of the above

28. Which is type of retailer?

1. Full service retailer
2. Discount retailer
3. Vending machine
4. Super market
5. All of these

29. Which factors influence choice of channel of distribution?

1. Size of order
2. Buyers of product
3. Buying habits of customer
4. Number of potential customer
5. All of the above

30. In which of the following trade a small amount of capital is required?

1. Wholesale
2. Retail
3. Franchise
4. All of these
5. None of these

31. The functions of wholesaler are

1. assembling of goods
2. distribution of goods
3. financing
4. grading
5. All of these

32. …….is selling final consumer products to householders.

1. Retailing
2. Financing
3. Storing
4. Producing
5. Planning

33. Direct marketing is necessary for [SBI PO 2008]

1. having a focused approach marketing
2. boosting sales
3. better customer contacts
4. All of the above
5. None of the above

34. Direct marketing means [SBI Clerk 2009]

1. face to face marketing
2. melas
3. seminars
4. indoor marketing
5. online marketing

35. Online marketing is [SBI Clerk 2009]

1. same as face to face marketing
2. easier than traditional marketing
3. boring, as customers are not visible
4. voluminous task
5. None of the above

36. Telemarketing involves [SBI Clerk 2009]

1. good communication skills
2. high level of motivation
3. door to door campaigns
4. event management
5. All of the above

37. Retail banking means [SBI Clerk 2009]

1. retail shopkeepers
2. bank financing to retail traders
3. same as universal banking
4. giving loans to corporates
5. giving consumer loans to various public

38. Marketing channels mean [PNB PO 2010]

1. delivery period
2. delivery time
3. delivery outlets
4. delivery place
5. All of these

39. For online marketing…. is the most effective means.  [SBI PO 2011]

1. saving accounts
2. credit card
3. housing loans
4. NRI deposites
5. business accounts

40. Objects of digital marketing are [SBI PO 2011]

1. online marketing
2. cold calling
3. web designing
4. anticipating the market
5. outdoor marketing

41. Telemarketing means [SBI PO 2011]

1. selling telephones
2. sending SMS messages
3. chatting on the phone
4. marketing through phone calls
5. marketing person

42. Direct marketing means [SBI PO 2011]

1. advertisements
2. banners
3. face-to-face selling
4. selling by all staff
5. achieving targets

43. Marketing channels means [SBI Clerk 2012]

1. outlets from where sales take place
2. channel financing
3. focusing sales on one single group
4. home delivery
5. courier service

44. Delivery channels means [SBI Clerk 2012]

1. place from where the products are sold
2. courier service
3. distribution agencies
4. delivery time
5. offsite banking

45. Telemarketing involves

1. selling credit cards
2. subscription of books and journals
3. Membership of certain clubs
4. All of the above
5. None of the above

46. Direct marketing means

1. cold calls
2. face-to-face selling
3. fastest transaction
4. advertisement
5. None of these

47. Wholesalers perform

1. selling and promoting
2. warehousing
3. financing
4. risk bearing
5. all of these

Answer Key