Channels of Distribution

Meaning:
A Channel of Distribution sometimes called as marketing channel is a group of individua ls
and organisations that direct the flow of products from producers to customers.
Definition:
The American Marketing Association defined the term as “the structure of intra company
organisations units and extra-company agents and dealers, wholesalers and retailers through which
a product or service is marketed.”
Functions of Middlemen:
 Many producers do not have the resources to engage themselves in direct marketing.
 Middlemen reduce transactions to an optimum number.
 Middlemen are capable of eliminating discrepancies in quantity that is distributed.
 The producer can concentrate on the production function leaving the marketing problem
to middlemen.
 The main function of middlemen is to provide the connecting link between the producers
and their respective markets
 Middlemen help to stabiles the prices too.
Middlemen:
The term middlemen refers to those institutions or individuals in the channel which either
take title to the goods or negotiate or sell in the capacity of an agent or broker. On the basis of
taking title to goods, these middlemen are divided into Merchant middlemen and Agent
middlemen.
Classifications of Middlemen:
1. Merchant Middlemen:
Merchants, such as wholesalers and retailers, buy and re-sell their goods. They take
ownership of inventory and bear the expense of storing and distributing the product. They make
money by selling the goods at a higher price than its cost to them. The difference is called the
“markup.”
i) Wholesaler:
The term ‘wholesaler’ applies only to a merchant middleman engaged in selling the goods
in bulk quantities. Wholesaling includes all marketing transactions in which purchases are intended
for resale or are used in marketing other products.

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a. Hawkers:
A hawker is an individual who sells wares by carrying them through the streets also a
person who travels about selling goods, typically advertising them by shouting.
b. Peddlers:
Peddlers are also found on the street, selling many different things, from jewelry to DVDs.
c. Market Traders:
Market trader are those retailers who open their shops at different places on fixed days
known as ‘Market days’. Such days may be on weekly or monthly basis.
d. Street Traders:
The very name indicates that this type of sellers carry on their business in the busy streets
or on footpaths of busy town roads.
ii) Retailer:
A retailer or retail store is a business enterprise which sells primarily to ultimate consumers.
Retailing on the other hand, includes all activities directly related to the sale of goods or services
to the ultimate consumer.
a. General Stores:
A retail store located usually in a small or rural community that carries a wide variety
of goods including groceries but is not divided into departments.
b. Departmental Stores:
The departmental store is defined as a large scale retailing business unit which handles
a wide variety of shopping and speciality goods and is organized into separate departments for
the purpose of promotion, service and control.
c. Mail Order Business:
This is also referred to as shopping by post or selling by post. A mail order house is that
type of retail institution which solicits patronage by means of catalogues sent through the mail
and containing detailed descriptions or merchandise for sale.
d. Super Markets:
The super market is a large-scale retail institution specializing in necessaries and
convenience goods. They have huge premises and generally deal in food and non-food articles.
2. Agents:
An agent, in legal terminology, is a person who has been legally empowered to act on
behalf of another person or an entity.

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i. Mercantile Agent:
A mercantile agent is a person who is appointed by those in business to act on their behalf
or to represent them in dealing with other persons. The person on whose behalf he acts as an agent
is known as the ‘Principal’.
a. Broker:
An agent who buys or sells for a principal on a commission basis without having title to
the property.
b. Auctioneers:
An auctioneer is a person who manages an auction, or a public sale at which people can
bid on items.
c. Underwriters:
Underwriting is one of the most important functions in the financial world wherein an
individual or an institution undertakes the risk associated with a venture, an investment, or a loan
in lieu of a premium. Underwriters are found in banking, insurance, and stock markets.
d. Clearing Agents:
A clearing agent is essentially an agent who specifically takes care of the customs clearance
aspect of the business.
e. Commission Agents:
someone who sells a company's products and receives a part of the money paid for
the goods for doing the activity.
f. Forwarding Agent:
a Freight Forwarder is a multi-function agent/operator who undertakes to handle the
movement of goods from point to point on behalf of the cargo owner.
ii) Facilitating Agent:
A business firm that assists in the performance of distribution tasks other than buying,
selling, and transferring title and the facilitating agents/agencies are Banking, Insurance, Transport
and Warehousing.
Elimination of Middlemen:
 Middlemen are just between manufacturers and retailers and hence they just add to cost of
marketing.
 Middlemen are obstacles between producers and consumers and hinder the path of trade
relations between them.

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  In some cases, wholesaler is the sole distributor of goods in an area, and the retailers and
consumers have to depend on him for their supplies.
 Sometimes middlemen sell goods at unreasonable prices by making maladjustments
between the factors of demand and supply, with a view to earn more profits.
 They do not allow the development of personal relations between the producers and
customers/ consumers.
 Some wholesalers give partial treatment to some retailers.
 Middlemen do not take interest in increasing sales volume in spite of large incentives given
to them.
Importance of Channels of Distribution:
 Transfer of title to the goods involved
 Physical movement from the point of production to the point of consumption
 Storage Functions
 Communication of information concerning the availability, characteristics and price of the
goods.
 Utility of products are created by marketing and performed promptly in physical
distribution.
Functions of Channels of Distribution:
1. Information:
It involves collecting and sharing market research and intelligence, important for marketing
planning and decisions.
2. Contact:
It involves finding and communicating with prospective buyers.
3. Financing:
Financing basically involves acquisition and allocation of funds to cover the costs of the
distribution channel in a cost effective manner.
4. Matching:
Matching is to adjust the offer to suit a buyer’s need, including grading, assembling and
packaging.
5. Negotiation:
Negotiation is to reach at an agreement on quality, price and other terms of the offer.

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6. Physical Distribution:
Physical Distribution is basically is to transport and store the goods in the warehouses.
7. Risk Taking:
It is to assume some inherent commercial risks by operating the channel. For example,
holding stock for precautionary or speculative motive.
Factors involved in determining the choice of selecting distribution channel:
1. Nature of Market:
The selection depends firstly on the requirements of the market: what the consumer wants
and how much is wanted? A manufacturer must also determine what he himself wants, what share
of the market he wishes to attain and how much he is willing or able to invest in order to attain it.
2. Nature of Product:
Product features will also exert influence on the decisions of suitable channels:
a. Perishability:
Perishable products require more direct marketing because of the dangers associated with
delays and repeated handlings.
b. Size:
Products that are bulky usually need short channels so that distance and number of
handlings from producer to ultimate consumers may be reduced.
c. Style:
This is a dangerous element and often necessitates frequent change in the channels.
Manufacturers prefer selling direct to retailers, especially when the goods are subjected to fast
style changes.
d. Newness of the Products:
When new products are introduced, new channels are preferred.
3. Consumer’s Buying Habit:
As far as convenience goods are concerned, long channels are preferred. Shopping and
speciality goods, on the other hand, are marketed more directly. This difference in channels is
caused by differing buying habits followed by the buyers.
a. Seasonal character of sales:
In spite of the fact that seasonal goods will have only seasonal markets, the distribution
must be arranged on a continuous basis.

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b. Concentration of Customers:
If the market for a product is fully concentrated and localized, direct selling would be
beneficial.
4. Competition:
This also influences the decision of a seller to decide on the channel to be selected. This
factor needs thorough analysis and careful consideration. Mostly, in practice, similar types of
channels used by the competitors are preferred.
5. Financial Consideration:
Financial strength of the channel members also is considered when selection is made. This
is needed to tide over the temporary and seasonal difficulties that may arise in course of time.
6. Cost of Channel:
Yet another factor considered is the cost involved in distribution. Needless to say, cost of
distribution would reflect in the price of the product. Direct marketing is costlier and distribution
arranged through middlemen is more economical.
Types of Distribution Channel:
1. Direct Channel (or) Zero Level Channel:
The producer can sell directly to his customers without the help of middlemen, such as
wholesalers of retailers.
a. Selling at Manufacturer’s plant:
It is one of the earliest, easiest and cheapest methods of distribution of goods and known
as direct selling. The goods are sold by the producers directly to the consumers under this system,
and it is usually preferred in case of perishable products like bread, milk, ice-cream, fish, meat,
egg, vegetables and agricultural products, etc.
b. Door to Door Sales:
Manufacturer employed salesmen for a door-to-door marketing. They move door-to-door
to introduce the new product at the door of a customer. Dealers may not have knowledge of the
goods or they require a good margin of profit or they do not want to stock unknown products; for
them this system is good.
c. Sales by own shops:
The producers of perishable and non-perishable goods sell their products to customers, by
opening their own retail shops. Manufacturers can push the goods quickly through retail shops and
can offer satisfactory service to customers, thereby building goodwill. It also helps the producers
to study the market trends, fashion preferred by buyers and style trend of people. This system
offers a two way communication and the price is regulated.

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2. Indirect Channel:
Under this system, distribution of goods is performed by middlemen or intermediaries like
wholesalers’ stockiest distributions etc. There is one middleman like a Sole Selling Agent who
distributes the goods through a number of middlemen subsequently.
a. One-level Channel Only one intermediary between producer and consumers is present here. It
may be a retailer or a distributor.
B.Two-level Channel – Two intermediaries, namely, wholesaler/distributor and retailer and
present here.
c. Three-level Channel – Three intermediaries, namely, distributor, wholesaler and retailer are
present and it is also used for convenience products.
d. Four-level Channel – Four intermediaries, namely, agent, distributor, wholesaler and retailer are
present here. This channel is similar to the previous two. This type of channel is used for consumer
durable products also.
3. Hybrid Distribution Channel or Multi Channel System:
Several companies have adopted multi-channel distribution systems, it is often called
hybrid marketing channels. Multi-channel marketing like these occurs when a single firm sets up
two or more marketing channels to reach one or more customer segments. The use of hybrid
channel systems has increased greatly in recent years.
Advantages of Direct Channel of Distribution:
1. It is owned by the company itself:
The major benefit of company-owned channels of distribution is that the company has
complete control over its outlets. This direct control enables the company to maintain consistency
in service provision. Control over hiring, training and motivating employees is also a benefit of
company owned channels.
2. Individual relationship with customers:
In direct channels, the skilled workers or professionals develop individual relationships
with customers. Therefore, the customers develop loyalty for the individual service employee or
for the company. For example, most men are loyal to certain hairstylists.
3. It suits for local service providers:
Direct channels are suited for local service providers such as doctors, dry cleaners,
consultants, interior decorators, etc., whose area of distribution is limited.
4. Able to obtain direct feedback:
Companies are able to obtain direct feedback from customers on their existing needs. Thus,
they can also understand how the perceptions of the customers towards offerings are changing.

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5. Greater Confidentiality:
Greater confidentiality can be maintained with information relating to the customer. For
example, maintenance of secrecy of customer accounts is very important in banking services.
Direct channels enable the bankers to enjoy the trust and confidence of their customers.
6. Elimination of Middlemen:
Direct channels eliminate the role of middlemen and hence the consequent cost of
commission, brokerage etc. This leads to lower distribution costs thereby enhancing the
profitability of the organization.
Disadvantages of Direct Channel of Distribution:
1. Company must bear all financial risks:
Probably, the largest impediment to most service chains is that the company must bear all
the financial risks. While expanding, the company must mobilize all the capital required for store
proliferation, advertising, service quality or new service developments.
2. Cant able to adapt their business formats to suit local needs:
Companies rarely enjoy expertise in local markets. When companies expand into other
unfamiliar regions or other countries, they are not able to adapt their business formats to suit local
needs. In such situations, joint venturing is preferable.
Wholesaler:
The term ‘wholesaler’ applies only to a merchant middleman engaged in selling the goods
in bulk quantities. Wholesaling includes all marketing transactions in which purchases are intended
for resale or are used in marketing other products.
Functions / Services rendered by Wholesalers:
1. To the manufacturers:
 He collects and provides the information required for planning the production ahead
 He maintains stock and thus assures equitable distribution
 He shoulders all marketing functions.
2. To the retailers:
 Because of wholesalers, the retailers need not stock goods in large proportions.
 The credit provided by the wholesalers is an attractive and helpful activity.
 The wholesaler bears the risk involved in the marketing procedure.

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S3. To the society:
 Provide marketing services to the public at a lower cost
 They introduce new changes in the market.
Retailers/Retailing:
It is the last link in the chain of distribution between the manufacturer and the ultimate
consumer.
Functions:
 The physical movement and storage of goods
 The transfer of title of goods
 The provision of ready availability
 The provision of providing information concerning the nature and use of goods.
Kinds of Retailers or Retailing:
1. Itinerant Retailers:
a. Hawkers:
A hawker is an individual who sells wares by carrying them through the streets also a
person who travels about selling goods, typically advertising them by shouting.
b. Peddlers:
Peddlers are also found on the street, selling many different things, from jewelry to DVDs.
c. Market Traders:
Market trader are those retailers who open their shops at different places on fixed days
known as ‘Market days’. Such days may be on weekly or monthly basis.
d. Street Traders:
The very name indicates that this type of sellers carry on their business in the busy streets
or on footpaths of busy town roads.
2. Fixed Shop Retailers:
a. Street stall Holders:
These street stall holder will have their stalls in streets where they find heavy traffic.
b. Second hand dealers:
These dealers deal in second-hand articles like books, furniture, clothes, etc. They sell such
goods particularly to those customers who cannot buy new goods at higher prices.

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c. Speciality shops:
In such shops, goods of a particular variety are sold. The dealers specialize and deal only
in one line of goods. Shops exclusively meant for books, leather products, and drugs.
d. General Shops:
These shops sell the whole line of products required for everyday use. Unlike other shops,
these shops claim permanent local consumers.
3. Small size retail shops:
a. Independent Stores:
These are small, non-integrated retail establishments having a lesser degree of
specialization in their management.
b. Vending Machines:
Vending machines have been become big business in recent years. It’s a machine that
dispenses small articles such as food, drinks when a coin or token is inserted.

c. Syndicate stores:
A syndicate store is in fact an extension of the chain and mail order house but relatively on
a small scale. One of the chief characteristics of syndicate stores is that while they offer a wide
variety of merchandise to customers, they seldom sell known brands.
4. Large Scale retailing institutions:
a. Departmental Stores:
The departmental store is defined as a large scale retailing business unit which handles
a wide variety of shopping and speciality goods and is organized into separate departments for
the purpose of promotion, service and control.
b. Chain or Multiple Stores:
A multiple shop system consists of a number of branch shops owned by a single
business firm. This is an attempt on the part of the manufacturers or the wholesalers to
establish a direct link with the consumers by avoiding middlemen.
c. Mail orders / e-commerce:
This is also referred to as shopping by post or selling by post. A mail order house is that
type of retail institution which solicits patronage by means of catalogues sent through the mail
and containing detailed descriptions or merchandise for sale.
d. Hire purchase and Installment Selling:
Hire purchase trading is a method by which the seller agrees to sell the article on the
condition that the buyer shall pay the purchase price by a fixed number of instalments. Under this

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method, the article is not legally sold out but is only hired by the buyer. Until the final instalment
is paid, he cannot become the owner.
e. Cooperative Retailing:
Severe criticism against wholesalers and various kinds of middlemen gave way to new type
of retailing. That is how the principles of cooperation were extended to the retailing scene.
f. Super markets & Hyper Markets:
Supermarkets offer executive customer experience to their customers with a warm
reception, professional services, and personal touch so that they can attract a large number of
customers while supermarkets do not implement strategies to attract customers and hypermarket
is a large retail outlet that sells large number and variety of goods under one roof at a discounted
rates while a supermarket is an extensive shopping where customers purchase different products
under one roof at market rates.

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 Promotion
Meaning:
It refers to a process of informing, persuading and influencing a consumer to make choice
of the product to be bought. Promotion is done through means of personal selling, advertising,
publicity and sales promotion.
Definition:
According to American Marketing Association, promotion is “the personal or impersonal
process of assisting and persuading a prospective customer to buy a product or service or to act
favorably upon the idea that has commercial significance to the seller”
Objectives of Promotion / Promotional Mix:
 To provide information to prospective customers about the availability, features and uses
of products.
 To stimulate demand by creating awareness and interest among customers,
 To differentiate a product from competitive products by creating brand loyalty,
 To stabilize sales by highlighting the utility of the product.
Kinds of Promotion:
a. Informative Promotion:
All promotions, essentially, are designed to inform the target market about the firm’s
offerings. Informative promotion is more prevalent during early stages of product life cycle.
b. Persuasive Promotion:
The basic purpose of promotion is to persuade people to buy. It is designed to stimulate
purchase and to create a positive image in order to influence long term buyer behavior. When the
product enters growth stages persuasion becomes the primary goal of any kind of promotion.
c. Reminder promotion:
This is adopted when the production reaches maturity stage. Insisting and emphasizing
brand names and product features in competitive terms is the central aim of reminder promotion.
d. Buyer Behaviour Modification:
The effect of promotion is measured through the modification in consumer behavior. The
repeated advertisements and constant personal selling methods are designed to achieve this goal.

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Methods / Elements of Promotion (Promotional Mix):
1. Public Relations:
Public relations mean developing good relations with various stake holders by obtaining
favorable publicity, building up a good corporate image, and handling unfavorable rumors’, stories
and events. Public relations are used to promote products, people, places, ideas, activities and
organisations.
a. Press Relations:
Creating and placing newsworthy information in the news media.
b. Product Publicity:
Publicizing specific products.
c. Lobbying:
Building and maintaining relations with legislators and government officials to influence
legislation.
d. Lobbying:
Building and maintaining relations with legislators and government officials to influence
legislation.
2. Advertising:
Advertising is the most commonly used tool for informing the present and prospective
consumers about the product, its quality, features, availability, etc. It is a paid form of non-personal
communication through different media about a product, idea, a service or an organisation by an
identified sponsor. It can be done through print media like newspapers, magazines, and electronic
media like through radio, television, etc.
a. Public Presentations:
Advertising is a highly public mode of communication. Its public nature confers a kind of
legitimacy on the product. Therefore, buyers know that their motives for purchasing the product
will be publicly understood.
b. Amplified Expressiveness:
Advertising provides scope to dramatize the product through the artful use of print, sound
and colour.
3. Personal Selling:
When representatives of different companies try to persuade the customers personally it is
called personal selling. It is a direct presentation of the product to the consumers or prospective

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buyers. It refers to the use of salespersons to persuade the buyers to act favourably and buy the
product.
a. Personal:
Personal selling involves an alive and interactive relationship. Each party can observe the
needs and characteristics of the other closely and make immediate adjustments.
b. Cultivation:
Personal Selling allows cultivation of deep personal relationship.
c. Response:
Personal selling makes the buyer feel under some obligation to listen and respond.
4. Sales Promotion:
This refers to short- term and temporary incentives to purchase or induce trials of new
goods. The tool include contests, games, gifts, trade shows, discounts, etc.
a. Communication:
Sales Promotion tools gain attention and usually provide information that may lead the
consumer to the product.
b. Incentive:
Sales promotion contains some concession that provides value to the consumer.
c. Invitation:
Sales promotion includes an invitation to engage in the transaction now.
5. Publicity:
It is non-personal stimulation of demand for a product or service by placing commercially
significant news about it in a publication or obtaining favourable presentation of it upon radio, TV,
or stage that is not paid for by the sponsor.
6. Direct Marketing:
Direct marketing consists of any marketing that relies on direct communication or
distribution to individual consumers, rather than through a third party such as mass media. Mail,
email, social media, and texting campaigns are among the delivery systems used. It is called direct
marketing because it generally eliminates the middleman, such as advertising media.

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Factors Affecting Promotion Mix:
1. Nature of Product:
Promotion mix will vary according to the nature of the product. Consumer goods require
mass advertisement. But industrial goods require personal selling, advertising, displays etc.
Complex and technical products like computer need personal selling.
Non-technical products require advertising as promotional device. In case where there is
no brand differentiation personal selling should be the method of promotion. Where there is brand
differentiation advertising should be emphasized.
2. Nature of Market:
For industrial market, advertising plays an informative role, but for consumer market it
plays as informative as well as persuasive role. The promotion strategy varies with the target
groups depending on age, sex, education, income, religion etc.
3. Stage of the Product Life:
The marketing objectives and strategies are different at each stage of the product in its life
cycle. During the introductory stage intensive advertising and personal selling are required for
effecting product awareness.
During growth stage advertising should be extended to maximize the market share. During
maturity stage persuasive advertising and sales promotion techniques are beneficial. But at the
declining stage advertisement and sales promotion are reduced to the minimum.
4. Availability of Funds:
If the funds are adequate the firm can spend more for advertising and sales promotion. But
small firms with limited resources can depend on personal selling.
5. Promotional Strategy:
Promotion mix depends to a great extent on whether a company follows push or pull
strategy to create sales.
6. Readiness of Buyer:
Different tools of promotion are effective at different stages of buyer readiness. Advertising
and publicity are more effective during early stages of buying, whereas personal selling and sales
promotion are more effective during the later stages.

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Social Marketing:
Social marketing is the systematic application of marketing along with other concepts and
techniques to achieve specific behavioral goals for a social good.
Types of Social Marketing:
a. Organizational:
Universities, Government and Non-Government organisations, cooperative bodies are
some examples of organisations engaged in social marketing. Government Organisations may
work at central, State and Local Levels. Universities, colleges market educational services and
NGO’s market ideas and charitable causes.
b. People Based:
Individuals such as political candidates seek votes, volunteers seek donations etc.
c. Place Based:
Convention centres, industrial areas.
d. Idea Based:
No Smoking, Child Labour, and other ideas are marketed
e. Service Based:
Education, child care, community services and library services are some examples of
service based marketing.
Social Media Marketing:
Social media marketing is the use of social media websites and social networks to market
a company’s products and services.
Types:
1. Social Audio Platforms:
New social audio platforms (like Clubhouse) and formats (like Twitter Spaces) have
thrived during COVID-19 lockdowns while people have been at home with more time to join live
conversations.
The most significant advantage of audio social media platforms and formats is the high attention
and engagement you’re likely to get from opt-in listeners.
2. Video Social Media Platforms:
Video social media platforms are great for capturing attention, driving brand awareness,
and bringing products to life in a way that still photos can’t.

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 Any video content that you publish should be designed to entertain, educate, and/or inspire
your audience. Videos made purely to sell aren’t going to engage viewers.
3. Disappearing Contents:
Sending messages privately and publishing timely, in-the-moment content for all of your
followers to view for up to 24 hours. Ephemeral formats like Stories are well-suited for posting
timely content, such as announcements, limited edition items, or live events.
4. Discussion Forum:
Be genuinely helpful to your customers by lending your business’ subject matter expertise
and answering questions related to your industry. Bonus points if you can share information about
your brand and products in your answers, but that shouldn’t be your primary goal of participating
in discussion forums.
5. Social Media Live Streams:
Broadcasting live video to many viewers. Live video streams can range from one person
showing themselves and what they’re doing on their screen to professionally organized panels with
multiple speakers.
Effectiveness of Social Media Marketing:
1. Improved Sales:
Over half of the respondents have seen an increase in sales after using social media for at
least 3 years, and on the flip side the remainder have not realised growth. Though the report
highlights, that this could be due to a lack of measurement and associated tools, for companies to
be able to understand the true impact of social media on their business.
2. Increased exposure:
Over 95% gained business exposure even with as little as 6 hours a week allocated within
a year, to social media.
3. Growing Partnership:
Partnerships evolved from spending time engaging in social media, for companies who
were active for at least a year. 61% of respondents selling to businesses were more likely to acquire
partnerships, compared to 54% selling to consumers.
4. Reduced Marketing Expenses:
57% of companies with less than 10 employees realised efficiencies in expenditure,
whereas 60% of companies with more than 1000 employees disagreed.

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5. Increased Fan Loyalty:
Loyalty was more apparent with B2B companies compared to those in B2C, and time
invested in social media impacted this. Those spending 6 hours per week saw an increase in fan
loyalty compared to those investing 5 hours or less a week.

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