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Yogesh Jaat Boy Bharatpur
Yogesh Jaat Boy Bharatpur
Yogesh Jaat Boy Bharatpur
“CHANNELS OF DISTRIBUTION”
Submitted to
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GOVT. ENGINEERING COLLEGE, AJMER
(An Autonomous Institution of Govt. of Rajasthan)
CERTIFICATE
supervision.
To the best of my knowledge and belief, this study is the original work
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ACKNOWLEDGEMENT
I take immense pleasure in completing this project and submitting the final project
report.
In this context as a student, Govt. Engineering College Ajmer, I would like to express
my heartiest gratitude to Mr.Ashok Kumawat for assigning me such a worthwhile topic
to work upon banking industry.
I am highly indebted to, Mr.Ashok Kumawat who have been a source of inspiration
through their constant guidance, personal interest, encouragement and help during
the entire project work. In spite of their busy schedule they always found time to guide
me through the project. I am also grateful to them for reposing confidence in my
abilities and giving me the freedom to work on my project.
The project would not reach its final destination without timely and vital help of his
invaluable guidance, cooperation, inspiration and of course moral support throughout
my project session.
Last but not the least I thank all my respondents, family members & friends who have
helped me directly or indirectly without whose help this project would not be
materialized.
Yogesh Kumar
CONTENTS
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1. Introduction
2. Channel of distribution - Meaning
3. Distribution Channel Function
4. The Need of Distribution Channel
5. Participants In The Distribution Channel
5.1.Wholesaler
5.2.Agents and Broker
6. The Retail Distribution Channel
7. Dual Channel or Multiple channel
7.1.Channel Intermediater-Wholesaler
7.2.Channel Intermediater-Agents
7.3.Channel Intermediater-Retailor
7.4.Channel Intermediater-Internet
8. Customer Marketing Channel
9. Channel organization
10.Export Goods Distributions considerations
10.1.Indirect Exporting
10.2.Direct Exporting
11.Locating Foreign Representative and Buyers
12.Role of Middleman
13.How Channel are Chosen
14.Choice of Channel of Distribution
Introduction
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As you know, the primary objective of all business enterprises is to
earn profit by selling goods and services to ultimate consumers or users. In
order to bring goods from the place of manufacture to the place of
consumers, the goods have to follow a path or route which is known as
channel of distribution or trade channel. A trade or marketing channel
consists of producer, middlemen, and consumers or users. The channel
serves as a link between the producer and consumers. In the present
lesson we shall discuss the various aspects of channels of distribution.
This article discusses Methods of Exporting and Channels of Distribution.
The most common methods of export goods are indirect selling and direct
selling. In indirect selling, an export intermediary normally assumes
responsibility for finding overseas buyers, shipping products, and getting
paid. In direct selling, the producer deals directly with a foreign buyer.
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Distribution Channel Functions
• Information: gathering and distributing marketing research and
intelligence information about the marketing environment
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• Ownership. Every brick-and-mortar retailer can be classified as a
large, national chain store; a smaller, regional chain store; an
independent retailer; or a franchisee.
• Pricing philosophy. Stores are generally either discounters or
full-price retailers. Within the “discounter” category, there are several
subcategories such as factory outlets, consignment stores, dollar
stores, specialty discount stores, warehouse membership clubs, and
so on.
• Product assortment. The breadth and depth of product lines
carried by the store depends a lot on its ownership. An Ann Taylor
store, for example, sells Ann Taylor branded clothing—not much
breadth of product line there, but extensive depth in that line. A
Kmart, on the other hand, carries thousands of brands, but perhaps
does not have much depth (not many brands)in any given category of
product.
• Service level. The more exclusive or specialized the store, the
more types of services it will generally offer from a name-branded
credit card, to on-site alterations, to liberal return policies for its loyal
customers. With the “big box” discounters, on the other hand,
customers pay for convenience and bypass traditional service, by
bagging their own groceries and the like. These distinctions between
various types of stores will be important as we discuss their
participation in certain distribution channels.
Wholesalers
Wholesalers are intermediaries or middlemen who buy products from
manufacturers and resell them to the retailers. They take the same types of
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financial risks as retailers, since they purchase the products (thereby taking
legal responsibility for them), keep them in inventory until they are resold
to retailers, and may arrange for shipment to those retailers. Wholesalers
can gather product from around a country or region, or can buy foreign
product lines by becoming importers. The term “wholesale” is often used to
describe discount retailers (as in “wholesale clubs”), but discounters are
retailers, not technically wholesalers.
Resident sales agents are good examples in retail. They reside in the
country to which they sell products, but the products come from a variety of
foreign manufacturers. The resident sales agent represents those
manufacturers, who pay the agent on commission. A resident sales
agent does not always have merchandise warehoused and ready to sell,
but he or she does have product samples for which orders can be placed
and is responsible for bringing the items through the importation process.
Retailers that don’t have the money, time, or manpower to send someone
overseas for manufacturers’ site visits to check out the new product lines
can depend on a resident sales agent to do the job.
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Buying offices can also be considered a type of agent or broker, since
they earn their money pairing up retailers with product lines from various
manufacturers.
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might sell some product lines at retail and others to commercial lawn care
companies, each requiring different intermediary services.
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Channel intermediaries – Internet
• Sell to a geographically disperse market
• Able to target and focus on specific segments
• Relatively low set-up costs
• Use of e-commerce technology (for payment, shopping software
• Paradigm shift in commerce and consumption
Channel Organization
A vertical marketing system (VMS) consists of producers,
wholesalers, and retailers acting as a unified system One channel
member either owns the others, has contracts with them, or wields so much
power that they all cooperate
Indirect Exporting
The principal advantage of indirect marketing for a smaller company
is that it provides a way to penetrate foreign markets without the
complexities and risks of direct exporting. Several kinds of intermediary
firms provide a range of export services. Each type of firm offers distinct
advantages for the company.
Commission agents
Commission or buying agents are finders for foreign firms that want to
purchase domestic products. They seek to obtain the desired items at the
lowest possible price and are paid a commission by their foreign clients. In
some cases, they may be foreign government agencies or quasi-
governmental firms empowered to locate and purchase desired goods.
Foreign government purchasing missions are one example.
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products for resale. Typically, only larger EMCs can afford to purchase or
finance exports.
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organized along multiple- or single-industry lines and can represent
producers of competing products.
Piggyback marketing
Piggyback marketing is an arrangement in which one manufacturer
or service firm distributes a second firm's product or service. The most
common piggybacking situation is when a domestic company has a
contract with an overseas buyer to provide a wide range of products or
services. Often, this first company does not produce all of the products it is
under contract to provide, and it turns to other companies to provide the
remaining products. The second company thus piggybacks its products to
the international market, generally without incurring the marketing and
distribution costs associated with exporting. Successful arrangements
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usually require that the product lines be complementary and appeal to the
same customers.
Direct Exporting
The advantages of direct exporting for a company include more
control over the export process, potentially higher profits, and a closer
relationship to the overseas buyer and marketplace. These advantages do
not come easily, however, since the company needs to devote more time,
personnel, and corporate resources than are needed with indirect
exporting.
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such a separation is the less efficient use of corporate resources due to
segmentation.
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Sales representatives
The representative uses the company's product literature and
samples to present the product to potential buyers. A representative usually
handles many complementary lines that do not compete. The sales
representative usually works on a commission basis, assumes no risk or
responsibility, and is under contract for a definite period of time (renewable
by mutual agreement). The contract defines territory, terms of sale, method
of compensation, reasons and procedures for terminating the agreement,
and other details. The sales representative may operate on either an
exclusive or a nonexclusive basis.
Agents
The widely misunderstood term agent means a representative who
normally has authority, perhaps even power of attorney, to make
commitments on behalf of the firm he or she represents. Firms in the
developed countries have stopped using the term and instead rely on the
term representative, since agent can imply more than intended. Any
contract should state whether the representative or agent does or does not
have legal authority to obligate the firm.
Distributors
The foreign distributor is a merchant who purchases merchandise
from an exporter (often at substantial discount) and resells it at a profit. The
foreign distributor generally provides support and service for the product,
relieving the export company of these responsibilities. The distributor
usually carries an inventory of products and a sufficient supply of spare
parts and maintains adequate facilities and personnel for normal servicing
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operations. The distributor typically carries a range of non-competitive but
complementary products. End users do not usually buy from a distributor;
they buy from retailers or dealers.
Foreign retailers
A company may also sell directly to a foreign retailer, although in
such transactions, products are generally limited to consumer lines. The
growth of major retail chains in markets such as Europe and Japan has
created new opportunities for this type of direct sale. The method relies
mainly on traveling sales representatives who directly contact foreign
retailers, although results may be accomplished by mailing catalogs,
brochures, or other literature. The direct mail approach has the benefits of
eliminating commissions, reducing traveling expenses, and reaching a
broader audience. For best results, however, a firm that uses direct mail to
reach foreign retailers should support it with other marketing activities.
Manufacturers with ties to major domestic retailers may also be able to use
them to sell abroad. Many large retailers maintain overseas buying offices
and use these offices to sell abroad when practicable.
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A business may sell its products or services directly to end users in
foreign countries. These buyers can be foreign governments; institutions
such as hospitals, banks, and schools; or businesses. Buyers can be
identified at trade shows, through international publications, or through
government contact.
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representative knows about the exporter's industry, it is also valuable
market research in its own right.
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the sales force and try to assess its strength in the marketplace. If traveling
to each distributor or representative is difficult, the company may decide to
meet with them at local and worldwide trade
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performance requirements such as a minimum sales volume and an
expected rate of increase.
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Which country's laws (or which international convention) govern a
contract dispute? Laws in the representative's country may forbid the
representative from waiving its nation's legal jurisdiction.
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The middlemen perform the following marketing functions which are
listed in sequence.
a. Searching out buyers and sellers (contacting & Mechandising),
matching goods to the requirements of market.
b. Offering goods in the form of assortments or packages.
c. Persuading and influencing the prospective buyers to favour a
certain product and its maker (personal selling/sales promotion).
d. Implementing pricing policies in such a manner that would be
acceptable to buyers and ensure effective distribution.
e. Providing feedback information, marketing intelligence and sales
ore casting services for the regions to their suppliers.
f. Looking after the process of distribution where necessary.
g. Participating actively in the creation and establishment of a market
for a new product.
h. Offering pre and after sale services to consumers.
i. Communicating the use of technique of the product to the users.
j. Offering credit to retailers and consumers.
k. Risk bearing with reference to stock hoarding/transport.
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Indeed without the existence of middlemen goods produced on a mass
scale could not have reached the consumers at right time and place.
However the existence of middlemen may lead to several short comings.
The elimination of middlemen is based on the following grounds.
I. Excessive number: Often there are too many middlemen between
the manufacturers and consumers. As every middleman charges some
commission or profit, the ultimate consumer has to pay a very high price for
goods. They are social parasites thriving at the cost of the consumer and
their ultimate elimination will reduce prices and burden on consumers.
II. Superfluous: Most middlemen do not render any useful service in lieu
of profit or commission. They act as only transfer agents and unnecessarily
cause delay in the flow of goods. Their elimination will result in quick and
smooth flow of goods.
III. Limited risk taking: Middlemen do not bear the producers' risk such
as loss due to strikes, lockouts, depression and change in fashions and
habits, etc.
IV. Anti-social activities: They take undue advantage of adverse
conditions in business. Some businessmen (middlemen) indulge in anti-
social activities like hoarding and adulteration to earn huge amount to
profits.
V. Limiting consumers' choice: The middlemen often promote
products which are inferior in quality and get high margin of profit. Thus
they exploit consumers and limit their choice.
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VIII Risk-taking: A wholesaler bears risks of changes in demand and
prices, bad debts and damage to goods in the course of transportation and
storage. By undertaking various risks he simplifies the process of
distribution.
Role of Retailers
Retailers buy goods from wholesaler and sell them directly to
consumers. Thus he acts as a direct link between the wholesaler and
consumers. His role in distribution of goods is enumerated below:
I. Wide choice to consumers: The retailer anticipates needs of
consumers. He assembles goods from different sources and stocks
different varieties of products. Thus, he offers a wide choice to consumers.
They can buy according to their purchasing power and requirements.
II. Availability of goods in small quantities and at convenient
locations: A retailer provides ready supply of goods so that consumers
can buy conveniently and quickly in small lots without any inconvenience of
placing advance orders and waiting for supplies. By ensuring uninterrupted
and fresh supply of goods, he saves consumers from the botheration of
buying goods in bulk and storing them.
III. Home delivery: A retailer transports goods from wholesalers to
ultimate consumers. Some retailers provide free home delivery service to
their consumers. Thus they create place utility.
IV. Assurance of regular supply: He maintains adequate supply of
goods so that consumers are sure of getting regular supply at the time of
their need.
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V. Credit facility: Although retailers mostly sell goods for cash, they also
supply goods on credit to their regular customers.
VI. Close interaction with customers: A retailer brings new products
to the notice of customers and educates them in their uses. A retailer thus,
acts as a friend and guide to his customers. Indeed his interaction with
customers is of intimate personal nature and thus he is able to provide
feedback to wholesalers and manufacturers about consumers' preferences.
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and to stockpile goods in anticipation of seasonal sales peaks. Depending
on how close their relationships,
channel members may also work together to purchase goods or
services in greater quantity at discounts, passing the savings on to
customers Even for consumers, the distribution chain is handy beyond
handy, in fact! It has become a necessity in our society. What if there
were no supermarkets, for instance? Can you imagine how much more
time and money you would spend having to buy every item at its source?
How practical would it be to run out to the nearest farm to pick up a quart of
milk and some salad ingredients.
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BIBLIOGRAPHY
Books Referred
Business world
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Websites Referred
www.google.com
www.answer.com
www.smartmarketing.com
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