What is Channel of Distribution?
Channel of Distribution refers to the intermediaries involved in the distribution process. These intermediaries can include wholesalers, retailers, agents and even online media. Each marketing channel serves a specific purpose in the distribution chain, contributing to the overall success of the marketing strategy.
Channel of Distribution plays an important role in the success of every business. Producers utilize them as the means to reach the end consumer with their products and services. Effective management of marketing channels is essential for businesses to achieve their target market efficiently and maximize their sales possibilities.
Producers refer to the route goods and services follow from them to users as a Channel of Distribution, Marketing Channel, or Trade Channel. In the case of service marketing, the Distribution Channel is direct due to its intangible nature. Channel of Distribution therefore require at least one seller and one buyer. The buyer can either be an end consumer or an industrial consumer. In addition to buyers and sellers, a marketing channel typically involves various middlemen. Middlemen may be dealers, wholesalers, distributors or retailers.
The marketing or distribution channel is the movement of goods and services between the point of production and the point of consumption through an organisation that performs a variety of marketing activities. The major participants in the distribution channel are producers, intermediaries and consumers.
Definition of Channel of Distribution
As per E.W. Cundiff and R.S. Still, “Channel of distribution is a path traced in the direct or indirect transfer of the title to a product as it moves from a producer to ultimate consumers or industrial users”.
According to William J. Stanton, “A Channel of distribution for a product is the route taken by the title to the goods as they move from the producer to the ultimate consumers or industrial user”.
As per the American Marketing Association, “A channel of distribution or marketing channel is a structure of intra-company Organization, units and intra-company agents and dealers, wholesalers and retailers through which a commodity product or service is marketed”.
According to Philip Kotler, “Every producer seeks to link together the set of marketing intermediaries that best fulfil the firm’s objectives. This set of marketing intermediaries is called the marketing channel (also trade channel or channel of distribution)”.
A major focus of channels of distribution channels is the aspect of delivery. Distribution is the key to effectively making public and private goods and services accessible for utilization or consumption. The emergence and arrangement of a wide variety of distribution-oriented institutions and agencies, typically called intermediaries because they stand between productions on the one hand and consumption on the other.
Functions of Channel of Distribution
There are the following major tasks and responsibilities marketing channel as given below:
1) Matching Buyers and Sellers
The most important activity of the marketing channel members is to match the needs of buyers and sellers. Normally, many sellers lack knowledge regarding the avenues through which they can reach potential buyers. Similarly, buyers are also unaware of the channels through which they can reach potential sellers. From this perspective, the role of the marketing channel to meet the needs of both buyers and sellers becomes important.
2) Assortment of Products
This activity leads to customer convenience because channels of distribution help the consumers to buy goods in convenient units, lots, packs and assorted varieties of products. To use the economies of scale and to minimise the overall production cost, goods and services are produced in bulk.
3) Information Provider
Middlemen have a role in providing information about the market to the manufacturer. Developments like changes in customer demography, psychography, media habits the entry of a new competitor or a new brand and changes in customer preferences are some of the information that all manufacturers want. Since these middlemen are present in the marketplace and are close to the customers, they possess the ability to furnish this information without any extra charge.
Middlemen finance manufacturers’ operations by providing the necessary working capital in the form of advance payments for goods and services. Payment is required in advance, even if the manufacturer might offer credit because it has to be made before the products are bought, consumed and paid for by the ultimate consumer.
5) Time and Place Utility
Channels of distribution help consumers buy goods at the time and place they need them. They create time and place utilities for the buyer. Thereby, the spatial discrepancy can effectively be reduced, which refers to the distance between the producer and the consumer during the buying process. By reducing the distance the overall efficiency and effectiveness of the purchasing process can be improved.
6) Price Stability
Maintaining price stability in the market is another function performed by a middleman. Many times, middlemen absorb an increase in the price of the products and still charge the customer the same old price. This is because of the intra-middlemen competition. The middleman maintains price stability by effectively managing his overhead costs.
7) Provide Salesmanship
Marketing channels also provide salesmanship. In particular, they help in introducing and establishing new products in the market. In many cases, buyers go by the recommendations of the dealers. The dealers establish the products in the market through their persuasive selling and person-to-person communication. They also provide pre-sale and after-sale services to the buyers.
Promoting the products in his territory is another function that middlemen perform. Many middlemen design their own sales incentive programs, with the primary goal of attracting more customers to their various outlets. Additionally, channels of distribution perform promotional activities like advertisement, personal selling, sales promotion etc. to assist the producer in achieving greater market share in sales and market coverage of the product.
Most middlemen take the title to the goods, services and trade in their name. This practice helps them to reduce the risk between both the manufacturer and middlemen. Additionally, it enables middlemen to have direct physical access to the goods as well as helps them to meet customer demand at the very moment it arises.
In product pricing, the producer should invite suggestions from the middlemen who are very close to the ultimate users and know what they can pay for the product. The pricing structure may be different for different markets or products depending upon the channel of distribution.
11) Help in the Production Function
The producer can concentrate on the production function leaving the marketing problem to middlemen who specialise in the profession. Their services can be most effective for selling the product. The finance required for organising marketing can be profitably used in production where the rate of return would be greater.
12) Matching Demand and Supply
The chief function of intermediaries is to assemble the goods from many producers in such a manner that a customer can affect purchases with ease. The objective of marketing is to align the segments of supply and demand.
13) Provide Market Intelligence
Channels provide market intelligence and feedback to the principal. Like things, channels are in a good position to perform this task, since they are in constant and direct contact with the customers. They constantly monitor the market’s pulse.
14) Standardising Transactions
In the realm of business, standardising transactions is another important function of marketing channels. Taking the example of the milk delivery system, the distribution is standardised throughout the marketing channel so that consumers do not need to negotiate with the sellers on any aspect, whether it is price or quantity, location of the product or method of payment. Marketing channels play an important role in streamlining the flow of products from manufacturers to customers by implementing transaction standardization.
15) Assist in Merchandising
Merchandising is another important function performed by marketing channels. Through merchandising, they help reinforce the awareness of the product among customers. When a customer visits a retail shop, his attention can be captivated by an attractive display of the product or brand, thereby enhancing their awareness and interest. Merchandising, especially display, enhances the sales efforts of a company and serves as an unspoken sales representative at the retail store.