Distribution channels

Distribution Channels

A distribution channel is the route through which goods or services move from the company to the customer or the transfer of payment happens from the customer to the company.
Distribution channels can mean selling of products directly or selling through wholesalers, retailers etc. The same applies for payment transfer from customers to company; it can move through a path or can be sent directly to the company.

Functions of Distribution Channels
Distribution channels basically function to deliver goods from the manufacturer to the customer.

The following are the functions of distribution channels −

** Facilitate selling by being physically close to customers

** Gather information about potential and current customer competitions, other factors and forces of the environment

** Provide distributional efficiency by bridging the gap between the manufacturer and the user efficiently and economically

** Assemble products into assortments to meet buyers’ needs

** Match segments of supply with segments of demand

** Assist in sales promotion

** Assist in introducing new products

** Assist in implementing the price mechanism

** Assist in developing sales forecast

** Provide market intelligence and feedback

** Maintain records

** Take care of liaison requirements

** Standardize transaction

Objectives of Distribution Channels
Objectives of a distribution channel are planned as per the target of the enterprise and executed respectively. The following are the various objectives behind the planning of distribution channels −

** To ensure availability of products at the point of sale
** To build channel member’s loyalty
** To stimulate channel members to put greater selling efforts
** To develop management efficiency in channel organization
** To identify the organization at the level
** To have an efficient and effective distribution system for making the products and services available readily, regularly, equitably and fresh.

Major Channels of Distribution
Here is a list of some of the major channels of distribution −

** Manufacturer → Consumer
** Manufacturer → Retailer → Customer
** Manufacturer → Wholesaler → Customer
** Manufacturer → Wholesaler → Retailer → Customer
** Manufacturer → Agent → Retailer → Customer
** Manufacturer → Agent → Wholesaler → Customer
** Manufacturer → Agent → Wholesaler → Retailer → Customer

Profit distribution decreases as the channel length increases.

Designing Distribution Channels
We have seen what a distribution channel is. Let us now see the designing process of a distribution channel.

The following steps are involved in the designing of a channel system −

** Formulating the channel objectives

** Identifying the functions to be performed by the channel

** Analyzing the product and linking the channel design to the product characteristics

** Evaluating the distribution environment, including legal aspects

** Evaluating competitor’s channel designs

** Evaluating company resources and matching the channel design to the resources

** Generating alternative designs, evaluating them and selecting the one that suits the firm best

Classification of Wholesalers
A wholesaler purchases from the manufacturer and further distributes the product to customers or retailers. Wholesalers can be classified into the following categories as per area of functioning −

** Merchant wholesalers
** Agents and brokers
** Manufacturer’s sales branches and offices