Meaning, Elements & Channel of Distribution

Meaning of Distribution

Distribution of product is the process of providing the goods and services from the manufacturer to the final consumers. After the development of the product, the marketing manager has to decide channels or routes. The product will flow from the factory to the potential customers through them. The marketer may choose to distribute the product directly to customers without using any intermediaries. Alternatively, he may use one or more middleman including wholesalers, selling agents, and retailers. But the important point is that the product should move efficiently and at minimum possible cost from the company’s production department to the ultimate customers.

According to Philip Kotler, “Distribution includes various activities the company undertakes to make the product accessible and available to target customer.”

Distribution is the function of getting goods into the hands of the consumer. The channel of distribution denotes the middleman engaged in moving goods from the place of production to place of consumption. It is the channel through which goods move as smoothly as possible to the desired places. It is the route by which goods move from the place of production to the place of consumption.

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Elements of Distribution

The distribution includes two components. They are channels of distribution and physical distribution.

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• Channels of Distribution

A channel of distribution is an organized net- work or a system of agencies and institutions which in combination perform all the activities required to link producers to accomplish the marketing task.

In another word, it stands for the path or route traced in the direct or indirect transfer of product; as it moves from a producer to the ultimate consumer or industrial users. Thus, a channel of distribution is a pathway the flow of goods and services from producers to consumers composed of intermediaries through their functions and attainment of the mutual objectives.

According to American Marketing Association, “A channel of distribution, or marketing channel is the structure of inter- company organization units and extra – company agents and dealers, wholesale and retail through which a commodity, product or service is marketed.”

• Physical Distribution

Physical distribution is a marketing activity that concerns the handling and the movement of goods. Physical distribution is a major component of the marketing mix and cost area of business. It includes all those activities connected with the efficient movement of goods from the place of production to the place of consumption. Physical distribution involves the handling of raw materials, fabricated parts, supplies and finished products from producers to consumers via intermediaries. It is the process of strategically managing the movement and storage of materials, parts and finished inventory from the supplier, between enterprise facilities and to customers.

The physical distribution encompasses the wide range of interrelated activities such as transportation, warehousing, materials handling, packaging, inventory control, and plant and warehouse location, order processing, marketing forecasting and customer services. Broadly, these activities can be grouped into four major functions namely, order processing, marketing forecasting and customer services. Broadly, these activities can be grouped into four major functions namely, order processing, inventory management, transportation and material handling.

According to W.J.Stanon, Physical distribution consists of all activities concerned with moving the right products to the right place at the right time.”

Channel of Distribution for Consumer and Industrial Products

Marketing channels are basically for different types of consumer and industrial product. They consist of different kinds of building blocks, producer, consumers or industrial users, agents, wholesalers and retailers depending upon the philosophy of the company, nature of the market, nature of customers, scale of operations, etc.

Channels of Distribution for Consumer Products

Channel of distribution can be defined as the process of distributing goods and services to the final consumer.The simplest channel of distribution is zero level marketing channel. In this, there is direct contact between the producer and the ultimate consumer or user. The one level marketing channel contains one selling intermediary. It may be the retailer in case of consumer products as a sales agent or broker in case of industrial products. The two level marketing channels contain two intermediaries, namely, wholesaler and retailer. The three level marketing channels contain three intermediaries – agent middleman, Wholesaler, and retailer.

• Producer- consumer:

It is the direct channel of distribution. It is the direct sales of goods and services by the producer to the consumers. There is no involvement of any middleman between the producer and the consumers. The producer creates a link with the consumer directly through his own retail shops. Under this, all the marketing activities are performed by the producer or the manufacturer himself.

• Producer – retailer- consumer:

It is the distribution channel in which retailer is involved as the middleman. Under this, the manufacturer sells to the retailers who in turn sell to the ultimate consumers. This channel of distribution is very popular these days . The retailers purchase in large quantities from the manufacturer and perform certain marketing activities in order to sell the product to the ultimate consumers.

• Producer- wholesaler- retailer- consumer:

Under this channel wholesaler and retailer is considered as the middleman.This is a traditional channel of distribution for the sale of consumer goods. This channel is most suitable for the products with a widely scattered market. The agent middlemen serve as a link between the producers and retailers.

• Producer- agent- retailer- consumer:

Under this channel agent& retailer is considered as the middleman.This channel is used where the wholesalers are scattered throughout the country and agents undertake marketing on behalf of the producers. It is also possible to have a channel of producer, wholesaler, agent, retailer and consumer.

Channels of Distribution for Industrial Products

The channel of distribution for consumer products is generally long, while channels for industrial products are short as retailers are not needed. Direct marketing of industrial products is generally followed in local markets and in cases the producers have facilities to dispatch the products to industrial users directly. Direct channel is very popular for selling of industrial products since industrial users place orders with the manufacturers of industrial products directly.

• Producer- Industrial user:

Under this channel producer,directly provides goods and services to the industrial user.It is the most commonly used channel in the distribution of industrial goods. This channel plays a predominant role in the sale of industrial goods. These goods are bulky and highly technical and of high unit value. Therefore, the industrial goods are not purchased frequently. As a result, 75% of industrial users will purchase these goods directly from the manufacturer.

• Producer- industrial distributor- industrial user:

Under this channel, fabricating materials and parts, equipment’s and operating supplies are sold through a wholesaler to industrial users. On behalf of the manufacturer, wholesaler makes all sorts of efforts in releasing the goods. This channel is quite common in the case of construction Company and air conditioning plant.

• Producer- agent- industrial user:

Under this channel, the agent is referred as the middleman.Manufacturer of operating supplies of small equipment needs a lot of marketing efforts. Therefore, they sell their goods to the industrial users through agent middlemen instead of merchant middlemen and also for those who are not interested in investing fund on selling activities. This method is useful to those who are interested in introducing new products.

• Producer- agent- industrial distributor- industrial user:

Under this method, agent and industrial distributor are used as the middleman. This method will be adopted by the manufacturer of fabricating materials and parts, operation supplies etc. because these manufacturers will produce in full capacity that too on a large scale.The producer sells the goods to the final consumers using agent & industrial distributor. It is the combination of the above channels adapted to suit varying conditions on the basis of geographical factors.

References:

Koirala, Dr. Kundan Dutta. Elementary Marketing. Kathmandu: Buddha Academic Publishers and Distributors Pvt. Ltd, 2014.

Thapa, Gopal, Dipendra K. Neupane and Dilli Raj Mishra. Introduction to Marketing. Kathmandu: Asmita Books Publishers and Distributors (P) Ltd., 2014.