Types of Distribution Channel

The flow of goods from the producer to the ultimate consumer may take place through different types of distribution channels.

The structure of distribution channel describes the arrangement and linkages of its members. The marketing experts have described different types of distribution channels for consumer and industrial products.

The types of distribution channel can be studied under the following heads:-

1. Channels of Distribution Related to Consumer Products 2. Channels of Distribution Related to Industrial Products.

The channels of distribution related to consumer product includes:-

i. Conventional Distribution Channels ii. Non-Conventional Channels of Distribution.

The channels of distribution related to industrial products include:-

i. Direct Distribution Channels ii. Indirect Distribution Channel.

Some of the other types of distribution channels are:-

i. Zero Level Channel ii. One-Level Channel iii. Two-Level Channel iv. Three-Level Channel v. Manufacturer – Wholesaler – Retailer – Consumer Channel.

vi. Manufacturer – Sole Selling Agent – Wholesaler – Retailer – Consumer Channel vii. Manufacturer – His Own Depots – Retailer – Consumer Channel viii. Manufacturer – Retailer – Consumer Channel ix. Manufacturer – His Chain Shops – Consumer Channel x. Manufacturer – Consumer Channel.

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Learn about the Types of Channels of Distribution

Types of Channel of Distribution – Channels of Distribution Related to Consumer Products and Industrial Products

The flow of goods from the producer to the ultimate consumer may take place through different types of distribution channels. The structure of distribution channel describes the arrangement and linkages of its members. The marketing experts have described different types of distribution channels for consumer and industrial products.

1. Channels of distribution related to consumer products.

2. Channels of distribution related to industrial products.

Type # 1. Channels of Distribution Related to Consumer Products:

i. Conventional Distribution Channels:

In conventional distribution channels, it is assumed that each enterprise working in the channel is separately owned and operated concern. Conventional distribution channels are the fragmented network wherein the manufacturer and the consumers are loosely linked by intermediaries in the process of exchange.

Conventional channels are of two types:

a. Direct Distribution Channels

b. Indirect Distribution Channels

a. Direct Distribution Channels:

A producer of consumer goods may distribute his products direct to his consumers. This is the shortest and simplest channel where no middlemen are involved.

There are three alternatives in making direct sales to ultimate consumers:

(1) By own sales shops i.e., multiple shops.

(2) By mail order or by telephone.

(3) By traveling sales representatives.

b. Indirect Distribution Channels:

Indirect Channel is one in which the manufacturer sells his products with the help of intermediaries. A chain is followed to complete the distribution process.

Some of the indirect channels are as follows:

(1) One Level Channel of Distribution:

A producer may take help of middlemen for the distribution of his products; Middlemen may be a retailer or wholesaler. In this distribution channel manufacturer allows the retailers / wholesalers to have direct access to him. This is also simplest, easiest, oldest and most popular type of distribution channel.

These channels are most suitable where the merchandise require elaborate outlets and are sold in bulk. It is also suitable for perishable products which are of everyday use and the demand for the product is constant.

(2) Two Level Channel of Distribution:

A manufacturer may choose to distribute his goods with the help of two middlemen. These two middlemen may be wholesaler and retailer. This is the most traditional channel for many of the consumer goods. Under this channel the producer sells his products in large quantities to the wholesalers.

The wholesalers distribute the products to the retailers as per their requirements in small quantities. The retailers finally sell the same to the ultimate consumers. In areas where the size of the retailing institutions is small and widespread, a wholesaler is essential to co-ordinate the retailers. Products requiring a balanced or an equitable distribution also require this elaborate channel.

(3) Multi Level Channel of Distribution:

A manufacturer may distribute his goods to consumers with the help of more than two middlemen. These middlemen may be agents, wholesalers and retailers. This is an extension of the above described channel and is needed when elaborate distribution arrangements are required.

This is the longest channel of distribution and is mostly used by small scale companies who cannot afford to develop a sales force of their own. Usually, the manufacturer passes on the risk of marketing the products to the selling agents and he concentrates only on production. This channel is generally used by the manufacturers who have multiple product portfolio and producing consumer non-durables on large scale, enjoying national and international markets.

ii. Non-Conventional Channels of Distribution:

Non – Conventional or integrated channels of distribution are the networks in which channel components participate in a full co-ordination and cohesion manner rather than working in a loose manner.

The non-conventional channels are of two types:

i. Vertical Marketing System:

A Vertical Marketing System is one in which the main members of a distribution channel – producer, wholesaler, and retailer – work together as a unified group in order to meet consumer needs. In conventional marketing systems, producers, wholesalers and retailers are separate businesses that are all trying to maximizing their profits.

With the effort of one channel member to maximize profits comes at the expense of other members, conflicts can arise that reduce profits for the entire channel. To address this problem, more and more companies are forming vertical marketing systems. In other words, VMS is a system whereby hierarchical channel of distribution members coordinate marketing efforts to reduce conflicts.

Various VMS can be employed. One method is for an organization to own both the production and distribution operations. In this situation all distribution conflicts are eliminated. Another VMS is coordinated and controlled by the channel captain. Contractual agreements between channel members can also be employed to determine mutual responsibilities.

The concept behind vertical marketing systems is similar to vertical integration. In vertical integration, a company expands its operations by assuming the activities of the next link in the chain of distribution. For example, an auto parts supplier might practice forward integration by purchasing a retail outlet to sell its products.

Similarly, the auto parts supplier might practice backward integration by purchasing a steel plant to obtain the raw materials needed to manufacture its products. Vertical marketing should not be confused with horizontal marketing, in which members at the same level in a channel of distribution band together in strategic alliances or joint ventures to exploit a new marketing opportunity.

VMS holds both advantages and disadvantages for small businesses. The main advantage of VMS is that your company can control all of the elements of producing and selling a product. In this way, you are able to see the whole picture, anticipate problems, make changes as they become necessary, and thus increase your efficiency.

However, being involved in all stages of distribution can make it difficult for a small business owner to keep track of what is happening. In addition, the arrangement can fail if the personalities of the different areas do not fit together well.

VMS can take several forms:

a) Corporate VMS:

In a corporate VMS, one member of the distribution channel owns the other members. Although they are owned jointly, each company in the chain continues to perform a separate task. In other words, it is a VMS that combines successive stages of production and distribution under single ownership. Channel leadership is established through common ownership.

b) Contractual VMS:

It consists of independent firms joined together by a contract for their mutual benefit. In other words, it is a VMS in which independent firms at different levels of production and distribution join together through contracts to obtain more economies or sales impact than they could achieve alone.

One type of contractual VMS is retailer cooperative, in which a group of retailers buy from a jointly owned wholesaler. Another type of contractual VMS is a franchise organization, in which a producer licenses a wholesaler to distribute its products.

c) Administered VMS:

In an administered VMS, one member of the channel is large and powerful enough to coordinate the activities of the other members without an ownership stake. In other words, it is a VMS that coordinates successive stages of production and distribution, not through common ownership or contractual ties, but through the size and power of one of the parties.

ii. Horizontal Marketing System:

Horizontal Marketing System is joining of two or more corporations on the same level for the purposes of pursuing a new marketing opportunity. Usually, a horizontal marketing system is established so that the individual members can combine resources to make the most out of the marketing Situation.

Products from each member can be marketed and/or distributed together, such as – a bottle manufacturer combining with a producer of dehydrated salad dressing preparations. The two products are marketed together, allowing the two companies to combine their marketing resources and accomplish much more than either one might accomplish alone.

Corporations in a horizontal marketing system also have the option of combining their capital and production capabilities, in addition to their marketing and distribution resources, to produce synergistic benefits for all members.

Type # 2. Channels of Distribution Related to Industrial Products:

The distribution channels for consumer products are generally longer than the distribution channels for industrial products. Distribution channels for industrial products are less complicated because industrial products have more or less fixed pattern of buying and selling.

A manufacturer of industrial goods may use any one of the following channels of distribution for the distribution of his products:

i. Direct Distribution Channels:

The goods may directly be distributed by a manufacturer to his buyers. This is the most popular and commonly used channel, especially for high cost items that need after sale support. The channel is suitable when fewer customers are clustered geographically. This help in maintaining close contact with customers and create opportunities for more sales.

ii. Indirect Distribution Channel:

A producer of industrial goods may take the help of wholesalers for the distribution of his goods. This channel is suitable when the market is scattered. This channel is useful for small scale manufacturer of equipment for boilers, tools and office supplies.

a. One Level Distribution Channel:

A manufacturer may take the help of agents to distribute his goods to the buyers. In this case manufacturer uses the services of selling agents who have enough resources, marketing network, expert knowledge and experience of handling technical products.

b. Two Level Distribution Channel:

This is the longest and popular channel of distribution which is mostly adopted by large sized industrial enterprises for selling their products. In this distribution channel, the manufacturer of industrial products uses the services of selling agents, to sell their output to industrial distributors, who in turn sell them to industrial users.

Textile Industry Distribution:

Distribution Channel:

For any industry it is very essential to have a cost effective and efficient distribution channel that adds value into whole value chain. Effective distribution channel and integrated supply chain management help in growth of industry and make it more competitive. India has large and diversified textile industry with different segments and sectors; therefore, it has fragmented sales and distribution network.

In Indian textile industry, products are distributed mainly through following intermediaries as a part of distribution network:

i. Importers

ii. Indenting Agents

iii. Distributors

iv. Wholesalers

v. Retailers

vi. Dealers

vii. Commission Agents.

Products are sold mainly through following marketplaces:

i. Small and Large Retail Outlets

ii. Supermarkets

iii. Retail Outlets situated in Malls

iv. Shopping Websites (using e-Commerce and Internet).

v. Company owned Showrooms and retail chains.

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Types of Distribution Channels

The distribution channels are used from transfer of goods from manufacturer to the ultimate user now-a-days.

Some principal channels are as under:

1. Producer → Consumer……………… Direct Distribution Channels

2. Producer → Retailer → Consumer………… Indirect Distribution Channels

3. Producer → Wholesaler → Retailer → Consumer…………….. Indirect Distribution Channels

4. Producer → Agent → Retailer → Consumer…… Indirect Distribution Channels

5. Producer → Agent → Wholesaler → Retailer → Consumer……………….. Indirect Distribution Channels

6. Producer → Selling Association → Consumer………………… Indirect Distribution Channels

7. Producer → Selling Association → Retailer → Consumer…………………. Indirect Distribution Channels.

The first channels or medium or chain of above distribution channel is direct distribution channel and other all channels are indirect distribution channels. The channel that reaches to consumer through selling association too can be said a type of direct distribution channel because selling association is made by the producers.

However, the substance of selling association is distinct and its objectives are also different. It can therefore, considered more appropriate to include with the indirect channel.

Distribution Channels for Industrial Products:

The channels for industrial products are short as retailers are not needed. Direct channel is popular for selling of industrial products since industrial users place orders with the manufacturers of industrial products directly. Big producers of industrial retailers make use of the service of agents and wholesalers to distribute their products to the industrial users.

Determinants of Channels of Distribution or Marketing Channels:

Perhaps there is no other problem as major as that of determination of marketing route. It is determined that through which channels the produced product will reach to the ultimate user.

The producer who wants to select marketing channel for his product have several routes available. They can select an appropriate marketing channel matching with their firm and the product.

The marketing channels can be divided in three parts:

1. Direct Sale.

2. Indirect Distribution or Manufacturer Direct to Retailer.

3. Dual Distribution or Manufacturer to Wholesalers.

1. Direct Sale:

The producer does not use any mediator for the sale of his product under this method of selling. The products are directly delivered to the consumer.

Any of the following methods can be used for it:

(i) Manufacturer Direct to Consumer:

A producer directly sells its product to consumer in this method and the salesmen sells it at the shop or production centre. For example, sale by post and sale by a sweet seller at his shop. Bakery and dairy products are also sold with this very method.

(ii) Manufacturers through Salesmen to Consumer:

The salesmen of a producer visit one place to another to meet the consumers and receive orders from them under this method. This method is used within a limit and particularly, the firms producing calendar, greeting card, ice-cream, bakery products, and fashionable products use this method.

A few companies, manufacturing the products treated as raw material for other industry sold their products under this method.

(iii) Manufacturers through Own Store to Consumer:

Some producers open their shops in big cities for the sale of their product where the products of that producer are specially sold. This method is applied for routine goods as clothes, shoes, furniture, woolen clothes and wool etc. The companies selling heavy machines too use this method. This method is most popular.

2. Indirect Distribution or Manufacturer Direct to Retailer:

The services of wholesaler are not obtained under this method and a producer sells directly to retailers and they on their part sell the same to the consumers.

Following are the main forms of this method:

(i) Manufacturer Direct to Retailer:

The large companies appoint the several retailers in different cities as their salesman. They order directly to the producer and sell the products to the consumers. This method is specially applied for motor, scooter, radio, furniture, electric gadget etc., products.

The companies under this method sell their production directly to departmental store, super bazar, co-operative store, and postal order house and they sell to the ultimate user therefrom. Fashionable products too fall under it.

(ii) Manufacturer through Salesman to Retailer:

The producer of product sends their salesman to several cities under this method. They make their contact with retailers there and receive orders. This method is most popular and used for all kinds of products. The architecture material, books, clothes, medicines etc., are sold under this method.

(iii) Manufacturer through Salesmen to Retailer:

The producer opens its wholesale agency near main markets of country under this method from where the retailer receives the goods continuously. This method is used for petroleum product, fertilizers etc.

3. Dual Distribution or Manufacturer to Wholesalers:

A producer under this method does effort to sell its product with the help of middlemen to the consumers.

Following are its main features:

(i) Manufacturer to Wholesaler through Salesmen:

The salesman of a producer under this method, establishes relation with the wholesalers, open this depots at different places from where the businessman of that area buy the things of their requirement. It is done particularly to make available the goods to wholesalers time to time. The companies selling tyres etc., use this very method.

(ii) Manufacturers to Wholesalers through Brokers:

A producer under this method, sells his product to wholesaler through the broker. These brokers take guarantee of the product and receive commission for their services.

It is not necessary that only marketing channel is used and they can use two or three channels simultaneously. For example, the firm manufacturing toilet items can sell its goods to wholesaler and retailer both simultaneously. Similarly, a firm manufacturing electric gadgets sells its product directly to industrial consumers, wholesalers and retailers.

However, the sales price through separate channels and the conditions should be different at each stage otherwise three or more than three channels will not be properly utilised.

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Types of Distribution Channels

“Channels of Distribution” can be defined as various trade links connecting the manufacturer or producer on the one end and the consumer or end-user of a product on the other. Channels of Distribution are considered to be the most important element among all the elements of marketing mix.

The main function of this element is to find out the appropriate ways through which goods are to be made available to the market. It is a managerial function and hence decisions are to be taken in this matter even before the commencement of commercial production.

Types of Channels:

The channels of distribution can broadly be grouped into two categories as follows:

Type # 1. Direct Selling:

This method is also known as Manufacturer – Consumer Channel. Under this channel, a manufacturer or a producer maintains direct contact with the ultimate user of goods. This method is most common in industrial marketing, particularly in respect of capital goods. Marketing of industrial chemicals, machinery installations, heavy equipments, is generally done through channel. Moreover, Ancillarisation is also a kind of direct marketing channel.

Modern marketers have five ways of direct selling.

These are as follows:

a. Mail order selling – This is mostly done by the manufacturers through postal and courier services.

b. Sale through travelling sales force – Door-to-Door Selling.

c. Multiple shop selling – Sale through retail shops of manufacturer.

d. Internet selling – Receive orders through internet and deliver through couriers or such other means.

e. Ancillarisation – Small manufacturers directly supply the parts, components and sub­assemblies required by the large producers.

Type # 2. Indirect Selling:

Apart from direct selling, the other option open to a manufacturer is selling through market intermediaries or middlemen. This is popularly known as indirect selling. There are four alternative channels of indirect selling.

They are:

a. Manufacturer—Retailer—Ultimate consumer channel;

b. Manufacturer—Wholesaler—Retailer—consumer channel;

c. Manufacturer—Agent-Wholesaler—Retailer—consumer channel;

d. Manufacturer—Wholesaler—consumer channel.

a. Manufacturer—Retailer—Ultimate Consumer Channel:

This channel had its origin in the idea of eliminating wholesalers from the channel of distribution. This is a short trade channel where the manufacturer simultaneously assumes the functions of a broker and a wholesaler. He acts as a broker in the sense that he will have to find out bulk buyers. As a wholesaler, he performs the marketing functions together with ‘breaking’ the bulk function. However this channel requires an efficient sales force.

This channel option is preferable when buyers are large retailers such as Departmental Stores, Chain Stores. Super-market, big mail order house, co-operative stores and so on. It is also suitable when products are perishable and speed in distribution is extremely essential. Automobiles, appliances, shoes, etc., are pertinent examples of this channel.

b. Manufacturer—Wholesaler—Retailer—Consumer Channel:

This channel is also known as the traditional channel. Quite apparently ‘breaking the bulk’ function in this channel is discharged by the wholesalers who buy and store in bulk quantities and sell in small quantities to a large number of buyers. This channel is invariably used in respect of groceries, drugs, drug goods, etc.

This channel option is particularly suitable for such producers:

i. Who have limited financial resources?

ii. Whose product line is narrow?

iii. Whose products are durables and not subject to fashion changes or physical deterioration.

c. Manufacturer—Agent—Wholesaler—Retailer—Consumer Channel:

In this channel the manufacturer, instead of using wholesalers, uses the services of an agent- middleman such as – sales agents, commission merchants, export merchants, etc. An agent-middleman in turn may sell to the wholesalers or large retailers who in turn sell to the retailers. Usually, a manufacturer uses this channel either when he wants to get rid of marketing task or when he cannot afford to invest the amount required to develop a sales force of his own.

Many textile mills have sales agents for distribution. We have large national distributors such as Voltas, acting as sole selling agent for many manufacturers. Agent middlemen generally operate at the wholesale level. They are common in agricultural marketing.

d. Manufacturer—Wholesaler—Consumer Channel:

As the very name of this channel implies, retailers are by-passed in this channel. Goods are sold to the wholesalers who, in turn, sale directly to the consumers or end-users. But the scope of this channel is extremely limited. Retailers may be by-passed only when there are large number of institutional buyers such as Government, Consumer co-operatives, educational institutions, big business houses, public enterprises and the like.

Channels for Consumer Products:

The following channels of distribution are suitable for consumer goods:

a. Manufacturer – Consumer – This is the shortest and simplest channel where no middleman is involved. The producer effects house-to-house selling with the help of his own salesmen or through mail order system.

b. Manufacturer—Retailer—consumer – This channel option is preferable when buyers are large retailers such as – Departmental Stores, Chain Stores, Super-market, big mail order house, co-operative stores and so on. It is also suitable when products are perishable and speed in distribution is extremely essential. Automobiles, appliances, shoes, etc., are pertinent examples of this channel.

c. Manufacturer—Wholesaler—Retailer—consumer – This channel is also known as the traditional channel. Quite apparently ‘breaking the bulk’ function in this channel is discharged by the wholesalers who buy and store in bulk quantities and sell in small quantities to a large number of buyers. This channel is invariably used in respect of groceries, drugs, drug goods, etc.

d. Manufacturer – Agent-Retailer-Consumer – Instead of using wholesalers the producer may have his own exclusive agents. This is mainly to achieve more control over the distribution channels. Hardware, sports goods, etc., are the merchandise dealt in through this channel.

e. Manufacturer—Agent-Wholesaler—Retailer—consumer – In this channel the manufacturer, instead of using wholesalers, uses the services of an agent-middleman such as sales agents, commission merchants, export merchants, etc. An agent-middleman in turn may sell to the wholesalers or large retailers who in turn sell to the retailers. Textile companies generally use this channel.

Channels for Industrial Goods:

Following are the major channels generally used for distribution of industrial goods:

a. Manufacturer-Industrial user – This is the most commonly used channel in the distribution of industrial goods. Manufacturers of machinery prefer to adopt this channel to avoid unnecessary expenditure such transport and insurance. Ancillary goods also come under this channel.

b. Manufacturer-Industrial distributor-user – This channel is used in the distribution of necessary equipments which are frequently required by the users. The users cannot always approach the manufacturers for their requirements. As such, they arrange area wise distributors.

c. Manufacturer- Agent-Industrial user – Small manufacturers who do not have their own marketing departments find it convenient to have agents at different selling points. This arrangement is considered good for introducing new products.

d. Manufacturer-Agent-Industrial distributer-user – It is a combination of the above two channels adapted to suit varying conditions on the basis of geographical factors.

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Types of Distribution Channels – 4 Important Types

(i) Direct Channel or Zero Level Channel:

This is the shortest and simplest channel involving direct sales of goods and services by the producers to the consumers. No intermediary is present between the producer and the consumer. The producer may sell directly to the consumer through telemarketing, direct mail, door-to-door salesman, internet, etc.

This distribution channel is fast and economical. In recent years, direct selling has become very popular due to increase in competition, wide product lines, technical upgrades, etc.

(ii) One-Level Channel:

In this method an intermediary is used. Here a manufacturer sells the goods directly to the retailer instead of selling it to agents or wholesalers. This method is used for expensive products like home appliances, high value durables, perishable products, etc. This method is also useful for selling FMCG (Fast Moving Consumer Goods). This distribution channel is popular for selling to departmental stores, shopping complexes and supermarkets.

(iii) Two-Level Channel:

In this method, a manufacturer sells the material to a wholesaler, the wholesaler to the retailer and then the retailer to the consumer. This channel is suitable for small producers and retailers where the producer has limited finance or a narrow product line. This medium is mainly used to sell soap, tea, shampoo, salt, cigarette, sugar, etc.

(iv) Three-Level Channel:

Under this, one more level is added to two-level channel in the form of agent. An agent facilitates to reduce the distance between the manufacturer and the wholesaler. This is the longest distribution channel. This channel is suitable when the producer has a limited product line and a wide market is to be covered.

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Types of Distribution Channels – 6 Types

Channels of distribution are many and varied in nature. Broadly speaking, there are six important channels used for the distribution of consumer goods.

These channels are as noted below:

1. Manufacturer – Wholesaler – Retailer – Consumer Channel.

2. Manufacturer – Sole Selling Agent – Wholesaler – Retailer – Consumer Channel.

3. Manufacturer – His own depots – Retailer – Consumer Channel.

4. Manufacturer – Retailer – Consumer Channel.

5. Manufacturer -His chain shops – Consumer Channel.

6. Manufacturer – Consumer Channel.

Let us, now, consider the details of these channels of distribution for consumer goods.

Type # 1. Manufacturer – Wholesaler – Retailer – Consumer Channel:

This is one popular and extensively used marketing channel. It is rightly called ‘traditional channel’ for the distribution of goods. In this channel, the manufacturer utilizes the services of two middlemen for the distribution of goods. The wholesalers and retailers render valuable services in the distribution of goods. In fact, manufacturer sells goods through them only. However, he has to be very careful while selecting the wholesalers.

The wholesalers selected should have better contacts with the retailers. They must have adequate warehousing facility and should be able to perform some other marketing functions such as transporting, advertising and sales promotion. In addition, they should also be able to give financial support to manufacturer in the case of need. As far as possible the manufacturer should select wholesalers who do not deal in the product/products which directly compete with his own product/products.

This lengthy channel has certain advantages. For example, this channel is convenient from the view point of the manufacturer as it brings about division of labour. It enables the manufacturer as to concentrate fully on production and not to bother about distribution. He is also relieved from the anxiety regarding selling of goods. This marketing channel widens the scope of marketing. Finally, it reduces the need of extensive advertising and publicity programmes.

Thus manufacturer enjoys a number of advantages from this channel. However there are certain limitations as well. The serious drawback of this channel is that due to the existence of middlemen and their commission, goods become costlier to consumers. Similarly, the middlemen resort to various malpractices such as adulteration, artificial scarcity and price rise. This affects sales and profit of the manufacturer.

The manufacturer also loses his control over the marketing of his products soon after the delivery of goods to wholesales. The manufacturer has to depend fully on the middlemen for marketing his products. This lengthy channel is suitable for large scale distribution of large number of consumer goods like soaps, detergents and cosmetics.

Such goods are usually supplied to consumers through this traditional channel. For instance; Hindustan Lever Ltd., makes use of this channel extensively for the sale of its products. The same is the case with many other leading manufacturers of consumer goods.

Type # 2. Manufacturer – Sole Selling Agent – Wholesaler – Retailer – Consumer Channel:

In this lengthy marketing channel, the manufacturer appoints some dealers as sole distributors for his goods in a particular region or territory. The sole distributor accepts the entire responsibility of marketing of products within his area. He is paid commission for his services. The sole distributors selected must have considerable marketing influence in a concerned territory. They must have efficient sales organization and sufficient financial backing at their disposal.

The appointment of sole selling agents facilitates planned production and control over the sale of product. It also lowers overhead expenditure and provides incentive to distributors. The manufacturer gets the benefit of the reputation of sole distributors. Thus, in this channel, goods flow from manufacturer to sole distributors and finally to consumers through wholesalers and retailers. Naturally, this channel is lengthy with three marketing middlemen.

The advantages and limitations of the first channel are equally applicable to this channel of distribution. Consumer goods as well as capital goods are distributed through this channel. For example, Kelvinator has appointed Blue star as their selling agents. Blue Star sells Leonard refrigerators to large number of dealers in different towns and cities. Finally, consumers purchase them from local dealers. This channel is longer as compared to the previous one as three middlemen are involved in the distributive process.

Manufacturers of mass consumption goods having a nationwide market do not want to deal directly with large number of wholesalers. They appoint sole selling agents for various regions who sell to wholesalers, who in turn sell to retailers.

Type # 3. Manufacturer – His Own Depots – Retailer – Consumer Channel:

In this marketing channel, an attempt is being made to eliminate one middleman (wholesaler) from the distributive process. Here, the manufacturer supplies goods directly to retailers through his own marketing organization. For regular supply to large number of retailers, the manufacturer opens this own depots at important commercial centres. Goods are directly supplied to retailers through his own marketing organization. For regular supply to large number of retailers, the manufacturer opens his own depots at important commercial centres.

Goods are directly supplied to retailers from these depots. The manufacturer keeps stocks in these deposits as per the requirements of the area. In addition, the manufacturer collects orders from the retailers through his salesmen and supplies goods to them.

Sometimes, large retail trading organizations such as departmental stores and super markets purchase directly from the manufacturer. This channel is now, popular in business world. This is because efforts are being made by the manufacturers and retailers to eliminate wholesalers from the system of distribution.

This marketing channel has the following advantages:

i. The wholesaler and his commission are eliminated.

ii. This channel is a shorter channel and there is no scope for malpractices (of wholesalers) in this channel.

iii. The manufacturer has effective control on the whole marketing process and hence he prefers this channel.

iv. The profit of the manufacturer is likely to increase as commission is not required to be paid to the wholesalers.

v. In this channel, a manufacturer has close contact with the market situation. This enables him to adjust his production and marketing plans and policies as per the need of the situation.

This Marketing channel has the following Limitations:

i. In this channel, the manufacturer has to shoulder the responsibility of production as well as marketing of goods.

ii. The manufacturer has to maintain depots at different places and engage staff for collecting orders from retailers. This puts heavy financial and administrative burden on the manufacturer.

iii. The manufacturer has to give attention to various marketing functions including warehousing pricing, packaging, and transportation, advertising and risk-bearing. Naturally, this channel puts heavy burden on the manufacturer.

iv. Small manufacturers with limited financial support find it difficult to use this channel of distribution. They naturally prefer to use the services of wholesalers for the distribution of goods.

This lengthy and time consuming marketing channel is convenient and is used mainly by large scale manufacturers with huge financial backing. Tata’s and Hindustan Lever have their own distributive system. Tea companies use this marketing channel for large-scale distribution. They have their depots in all major towns for the supply of tea to thousands of retailers directly. These organizations supply their products directly to retailers regularly and thereby eliminate wholesalers.

Type # 4. Manufacturer – Retailer – Consumer Channel:

This shorter marketing channel is rather similar to the previous channel as wholesalers are eliminated in both. Here, the goods move directly from the manufacturer to retailers and finally to consumers. There is only one middleman in the distributive process. The manufacturer keeps close contact with retailers and supplies them goods regularly for onward distribution to consumers.

He has to keep huge sales organization for supplying goods regularly to large number of retailers. Sometimes, even retailers keep direct contact with the manufacturer, keeps close contact with retailers and supplies them goods regularly for onward distribution to consumers. Large retail shops like co-operative stores, chain shops and departmental stores purchase goods in large quantities directly from the manufacturers and supply them to consumers.

In brief, manufacturers and retailers find this shorter marketing channel convenient and economical. This channel is used for the distribution of consumer goods (shoes, clothing and food items) as well as machinery, automobiles and other durable products. The wholesalers are bypassed in this channel and naturally their functions are undertaken by manufacturers.

Advantages:

(i) It is a short channel as the wholesalers are eliminated. The commission to them is also eliminated. This gives benefit to manufacturers and consumers.

(ii) The cost of distribution is brought down considerably in this channel.

(iii) The malpractices of wholesalers are also eliminated.

(iv) In this channel, the distribution is done quickly and hence it can be used even for the distribution of perishable goods within a small area.

(v) Consumers get goods at lower prices as they have not to share the burden of commission of the wholesaler.

Limitations:

(i) The manufacturer has to look after the production and marketing at one and the same time. This puts heavy financial and administrative pressure/burden on him.

(ii) The manufacturer has to maintain huge marketing organization and naturally he has to invest more capital in the business.

(iii) The wholesaler is eliminated in this channel but not his functions. They are shared by the manufacturer himself.

(iv) This channel is not convenient for the distribution of perishable commodities which need quick marketing and shortest channel.

Type # 5. Manufacturer – His Chain Shops – Consumer Channel:

In this shorter marketing channel both the wholesalers and retailers are eliminated. The functions of the wholesalers and retailers are performed by the manufacturer himself. Here, the manufacturer’s opens his own retail shops/Branches in different parts of the country and sells his goods directly to consumers. The services of middlemen are not necessary in this shorter channel.

The manufacturer looks after manufacturing and retailing. He keeps direct contact with the consumers. The branch managers are appointed for managing sales operations at the branch local level. They work as per the instructions of the head office. The manufacturers of textile, leather goods, readymade garments, ice creams and bakery products have opened their retail shops in big cities for effective distribution. The pricing policy is under their control.

The prices are lowered due to the elimination of middlemen. The manufacturer will know the market reactions and will be able to incorporate necessary changes in the marketing policies at the right time. However, his attention will be diverted from manufacturing activities as he has to perform all marketing functions along with manufacturing proper. The cost of operation will also increase considerably.

This channel can be used by large manufacturers who are financially sound and stable. In India, this channel of distribution is used by many manufacturers. Bata Shoe Company, for example, sells shoes to consumers directly through its branches. Similarly, Bombay Dyeing, Raymond’s and other companies have their retail shops for selling cloth.

Type # 6. Manufacturer – Consumer Channel:

This is the shortest marketing as there is a no middleman in the distributive process. It is an example of a simple, direct and economical channel. In fact, it need not be treated as a channel at all as there is no middleman involved in the process of distribution. In this case, the manufacturer establishes direct contact with the consumers and supplies them goods.

The goods are directly supplied to consumers either by establishing mail order house or through travelling salesmen or through retail shops. Bata, DCM (Delhi Cloth and General Mills), Binny and NTC (National Textile Corporation) sell their products directly to consumers. In mail order business, goods are sold through the medium of post office. In this channel, orders are collected by post and goods are sent to customers by V.P.P (Value payable by post).

The other method is to appoint a large number of salesmen for canvassing and sales promotion. The salesmen go from door to door and convince the prospects about the utility of the products. The salesmen are usually paid commission on the basis of their sales. Hence they do their best to promote sales. Small manufacturers sell their production in the local market directly.

In villages, village artisans sell goods directly to local people. Small business establishments like bakeries, dairies, hotel and sweetmeat stalls use this direct marketing channel. Even farmers sometimes sell their products directly to consumers. However, this channel is not convenient for a wide market. In advances countries, goods like cold drinks, milk and ice creams are sold through automatic machines.

Machines are installed at convenient places like gardens, petrol pumps and picnic spots. The buyer has to insert coins in the machines and collect the required commodity. Neither salesmen nor dealers are required to push the sales. Direct sale to consumers through retail shops is also possible under this channel. Similarly industrial goods may be sold directly to industrial buyers. In addition, services like water, electricity, gas, etc., are distributed by using this direct channel.

Manufacturer- Consumer channel has certain advantages. The manufacturer gets complete control over the process of distribution and gets first-hand information about market trends. The middlemen are eliminated from the distributive process. This gives more profit to the manufacturer without charging high price to consumers. Along with this, there are certain Disadvantages of this marketing channel.

For instance, there will be increase in the cost of operation. A manufacturer will also have to maintain a large sales force for conduction of door-to-door campaign. The manufacturer will also have to spend on advertisement and publicity. He will have to spend large amount of money on his sales organization. In brief, this channel is rather costly and not suitable for wider market.

Manufacturer- consumer channel of distribution is suitable under the following circumstances:

(i) When the market is local in character.

(ii) When the goods to be distributed are perishable in character.

(iii) When the manufacturer has financial support to establish his own distributive system.

(iv) When the goods to be distributed are costly and after-sales service is necessary.

(v) When the goods are to be distributed in a selected market or area.

(vi) When the manufacturer desires to have effective control on the entire marketing mechanism.

Manufacturer- Consumer channel is a direct one. However, it is very difficult to use it in the present day complicated marketing system. This is because a manufacturer finds it difficult to keep direct contact with growing number of consumers and also to give attention to other aspects of marketing including advertising, warehousing and actual retail selling.

It may be noted that every marketing channel has its own feature, advantages and limitations. Every channel is suitable for marketing under certain circumstances. A manufacturer can use one or more channels for the distribution of his products. In fact, the use of more than one channel is quite common in case of large manufacturers.

There is no hard and fast rule as regards the selection and use of a channel of distribution. The selection of marketing channel is entirely at his discretion. In general, shorter channel is better as it is quick and economical. The longer channel is always costly and time consuming. However, it is useful for large-scale distribution of goods.

Types of Distribution Channels for Industrial Goods:

The usual channels for the distribution of industrial goods are as noted below:

1. Manufacturer-Customer (industrial user) channel.

2. Manufacturer- Distributor – Customer Channel.

3. Manufacturer- Agent – Distribution- Customer Channel.

4. Manufacturer- Agent- Customer Channel.

Let us, now, consider brief details of these channels for the distribution of industrial goods:

1. Manufacturer – Customer/Consumer Channel:

This direct channel is most appropriate for marketing high priced complex products like locomotives, generators and computers. The purchases are limited and naturally manufacturer can sell as well as provide various services including after-sales services directly to the actual user of the product.

Moreover, such direct contact between the manufacturer and user is necessary for negotiations regarding price, terms and conditions of sale, extra facilities required and so on. The middleman may not be able to do this job properly due to lack of technical knowledge, etc. This channel is also quick and economical in operation. It is convenient to both the parties and hence used extensively.

2. Manufacturer – Distributor – Customer Channel:

This channel is normally used for the marketing of accessories, multi-purpose standardized machines, machine tools, metal and so on. Here, manufacturers frequently use distributors (called industrial distributors) in order to establish contacts with potential purchasers. The purchasers are quite large in number and manufacturers find it expensive to keep contact with them.

It is also profitable to promote sale through distributors rather than establishing separate sales organization or using the existing one. It is a little costly channel as the services of middleman are used on commission basis. The distributor is given title to the goods which they handle.

3. Manufacturer – Agent – Distribution – Customer Channel:

In this lengthy channel, one more middleman (i.e., agent) is added. Manufacturers of new industrial products (particularly without sales organization) prefer to appoint agents and use their services for promoting sales. Such agents are appointed on regional basis and they take interest in promoting sales.

Such agents are appointed on regional basis and they take interest in promoting sales within the territory assigned to them. The agent stands as link between manufacturer and distributor. He acts as manufacturer’s agent. This channel is also convenient to small manufacturers of industrial goods.

4. Manufacturer – Agent – Customer Channel:

In this short channel, the agents are appointed for sales promotion. The agents act as a manufacturer’s sales force. This channel is useful for marketing industrial products with high price and where personal contact with the customer is necessary. The agent is paid commission for his services. A manufacturer may prefer this channel in order to make entry in a new market.

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Types of Distribution Channels – Broadly Classified!

Several channels are used for the distribution of products of different types. They vary in the number and types of middlemen. Some channels are short and direct permitting the producer to have a close touch with the customers while others are long and indirect involving the use of several types of intermediaries.

The various channels of distribution may broadly be classified as under:

Type # 1. Manufacturer – Consumer (Direct Selling):

This is the shortest and simplest channel involving direct sale of goods and services by the producer to the consumers. No middleman or intermediary is present between the producer and the consumer. The producer may sell directly to consumers through door-to-door salesmen, direct mail, Telemarketing and through his own retail stores.

For instance, Bata India Ltd. has set up its own retail shops throughout the country to sell shoes and other products through direct contact with customers. Industrial products of high value are generally sold through this channel. Some firms use direct selling to distribute consumer products like shoes, clothes, books, hosiery goods and cosmetics. Small producers and those producing perishable commodities also sell directly to the local customers.

This channel is very fast and economical. The producer has direct contact with his customers and full control over distribution. But the expert services of middlemen are not available and the producer himself has to perform all the marketing activities. Large investment may be required to create facilities for direct selling.

In recent years, direct selling has become increasingly popular due to increasing competition, need for control over distribution costs, wide product lines, technical nature of products, availability of public warehouses and desire to reduce dependence on middlemen.

Type # 2. Manufacturer-Retailer-Consumer:

Under this channel, the manufacturer sells to one or more retailers who in turn sell to the ultimate consumers. Various marketing functions are performed by the producer and the retailers. This channel is popular when the retailers are big and buy in large quantities, e.g., departmental stores, chain stores and super-markets.

This channel is often used for the distribution of consumer durables and products of high value. Automobiles, home appliances, furniture, readymade garments, shoes and perishable products are often sold through this channel. This channel relieves the manufacturer from much burden of selling and at the same time provides him control over distribution.

Type # 3. Manufacturer-Wholesaler-Retailer-Consumer:

This is the ‘traditional’ or normal channel for the distribution of consumer goods. This channel is suitable where the producer has limited finance and a narrow product line or where the wholesalers are specialized and provided strong promotional support. Small producers and small retailers find this channel most convenient especially in case of products with widely scattered markets.

This channel is also used in case of consumer durables which are not subject to frequent changes in fashion. Producers of industrial goods may use an industrial distributor who serves as a wholesaler as well as a retailer. This channel facilitates wider distribution of the product and is suitable is case of products which are not subject to frequent changes in design, style, etc.

Type # 4. Manufacturer-Agent-Retailer-Consumer:

When the retailers are few or geographically concentrated, distribution through agents may be more economical than through wholesalers. For instance, a manufacturer may employ selling agents and brokers to sell his products to retailers. Sometimes even the retailer is bypassed and the agent sells directly to institutional buyers like consumer cooperatives, business firms, educational institutions and government agencies or departments.

This channel is commonly used to sell textiles, agricultural products, machinery and equipment, etc. In case of industrial goods, an agent may be used in place of industrial distributor to reach industrial users.

Type # 5. Manufacturer-Agent-Wholesaler-Retailer-Consumer:

This is the longest channel of distribution. It is used when the manufacturer wants to be fully relieved of the problem of distribution. The producer hands over his entire output to the selling agent who distributes it among a few wholesalers. Each wholesaler sells to a number of retailers who in turn sell to ultimate consumers. In case of cloth this channel is widely used. For the sale of many industrial products an industrial distributor is employed due to the storage facilities provided by him. This channel results in wider distribution of the product.

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