FLASHBACK NOTES// CLASS XII

MARKETING// TOPIC: PLACE AND DISTRIBUTION

MEANING OF DISTRIBUTION CHANNEL

According to Philip Kotler, “According to Philip Kotler,
“Every producer seeks to link together the set of
marketing intermediaries that best fulfil the firm’s
objective, This set of marketing intermediaries is called
marketing channel.”
William Stanton, “A distribution channel for a product
is the route taken by the title to the goods as they move
from the producer to the ultimate customer.”

PARTICIPANTS OF CHANNEL OF DISTRIBUTION

Participants of channel of Distribution

Manufacturers Intermediaries Facilitating agencies Consumers

Channels of distribution are mainly concerned with the transfer of title to a

product which may be affected directly or through a chain of intermediaries.
It comprises of set of four participants of distribution system:
(1)Manufacturers: The starting point of distribution is the Manufacturer
who produces the goods after identifying the needs of the
consumers. For Example the manufacturer might be a remote
location and consumers are scattered geographically
throughout India. The goods can only reach the consumers
with the help of intermediaries in between the manufacturer
and consumer

(2)Intermediaries: The second participant being Intermediaries, they are in

direct negotiation between buyer and seller. They identify the
needs of the consumers and the manufacturers who produce
various products. In the process, they perform various
functions like buying, selling, assembling, standardisation and
grading, packing and packaging, risk bearing. etc.

(3) Facilitating agencies: The third participant being the Facilitating

agencies are the independent business organisations other
than intermediaries. These agencies facilitate the smooth
distribution of goods from producers, through intermediaries,
to consumers. The major facilitating agencies are banking
institutions, insurance companies, and transportation agencies
and warehousing companies.
(4) Consumer: The fourth category of participants in the distribution system
i.e., consumers, are the final destination for goods in the
distribution system. Who consumes the goods for the
satisfaction of wants.

FUNCTIONS PERFORMED BY CHANNEL OF DISTRIBUTION

Transactional Functions

Functions Performed by
Logistical Functions
channel of distribution

Facilitating Functions

The functions performed by the middlemen in distribution channels may be

grouped into three categories as follows:

1) Transactional Functions: the primary function of distribution channel is to

bridge the gap between production and
consumption for which various transactions
performed for movement of the goods from one place
to another are called transactional functions. Buying,
selling and risk bearing functions come under
this category. Buying takes place as producers sell
the goods and intermediaries buy them. Later
intermediaries sell the goods and consumers buy them.
Because of this buying and selling by the channel
participants, title to goods changes hands and goods
flow from producer to consumer.

2) Logistical Functions: The functions involved in the physical exchange of

goods are called logistical function. The goods are
produced by producer /manufacturer and
assembled in different assembly lines. Assembling
refers to the process of keeping the goods,
purchased from different places, at a particular place.
Assembling of goods is done only after they have
been bought. Not only assembling but also storage,
grading, sorting and transportation are essential
for physical exchange of goods which forms
logistical functions of physical distribution.
3) Facilitating Functions: These functions facilitate both the transaction as
well as physical exchange of goods. These
facilitating functions of the channel include post-
purchase service and maintenance,
financing, market information etc. Sellers
provide necessary information to buyers in
addition to after sales services and financial
assistance in the form of Sale on credit.
Similarly, traders are often guided by
manufacturers to help them in selling goods,
while the traders also inform manufacturers
about the customers' opinions about the products.

MEANING OF PRODUCT PROMOTION

Types of channel of distribution

Direct
Channel Indirect Channel

One level Two level Three level

channel channel channel
It involves advertising and sales promotion activities organised by
manufacturers. Middlemen are also involved in various activities like
demonstration of product, display and contest etc. to increase the sale of
products.

MEANING OF NEGOTIATION
Negotiation takes place between manufacturers
and customers before closing a deal. Negotiation
in terms of quality of product, guarantee, after sale
services and finally price takes place before the
transfer of ownership is done.

TYPES OF CHANNEL OF DISTRIBUTION

A manufacturer can choose from direct distribution channel to indirect
distribution depending upon the kind of product or market they serve. The two
main types of distribution channels are as follows:

I. Direct Channel
II. Indirect Channel
I. Direct Channel (Zero level)
The most simple and the shortest mode of distribution is direct channel. In this
channel, the manufacturer directly provides the product to the consumer. In
zero level there are no intermediaries involved, the manufacturer is selling
directly to the customer. This is called the 'direct channel’ or direct selling.
In this the manufacturer or producer supplies the product to the customer
through its own retail outlets and salesmen present there (e.g. Mc Donald,
Patanjali stores).
Example: Maruti Udyog selling it cars through NEXA company owned
showrooms is direct channel.

II. Indirect Channel:

In this channel, a manufacturer doesn’t sell directly to the consumer
rather chooses various intermediaries to sell a product to the consumer
that is why called indirect channel. When a manufacturer/producer
employs one or more intermediary to move goods from point of production
to point of consumption also called indirect marketing channel.

a. One level channel (Manufacturer-Retailer-Consumer): In this only one

intermediary is involved. Normally the manufacturer supply goods directly to
retail which finally sell to the end consumer. In this case the producer
ascertains the requirements of retailers at periodical intervals and goods are
supplied accordingly. As and when required, the retailer may also procure
goods from the producer's godown located in that region. For Example:
Maruti Udyog selling it cars through company approved retailers like DD
Motors is called indirect channel.
b. Two level channel (Manufacturer-Wholesaler-Retailer-Consumer):
When the manufacturer can use the services of the wholesaler as well as the
retailer. This is the most common adopted distribution network for consumer
goods. In this case the manufacturer may supply his products in bulk to
wholesalers. The retailer may buy periodically from the 'wholesaler and
sell the same to the consumers located in his locality. As there are two
middlemen (both wholesaler and retailer) in this channel, it is referred to
as two level channels (2 level channel) and helps in covering a larger market.
For Example: Consumer goods like oils, cloths, sugar, pulses and soaps etc
sold through nearby retail outlets.

c. Three level channel (Manufacturer-Agents-Wholesaler-Retailer-

Consumer): Another alternative channel of distribution consists of
mercantile agents, wholesaler and retailer. In this case, the manufacturer
deals with a mercantile agent. Then the wholesalers buy the goods from the
agents and sell the same to retailers. In turn the retailer sells it to the
ultimate consumers. This type of channel is referred to as three level channel
as there are three types of middlemen involved in the distribution. This
level is used particularly when the manufacturer carries a limited product
line and has to cover a wide market where an agent in the major areas are
appointed who further contact wholesalers and retailers.

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