In this article we will discuss about the direct and indirect channels of product distribution adopted in India.
Direct Channel:
It involves the distribution of products directly by the producer himself without the use of the middlemen. Some producers prefer to do this by combining two distinct functions, production and distribution. It cannot be strictly called a ‘channel’.
Such direct distribution can be done in three ways:
(a) By opening multiple shops. A producer of consumer goods of daily necessity opens a number of retail shops with similar appearance at different parts of a city or of the country as a whole.
In India, the best example is the Bata Shoe Co. (India). Ltd. which markets its products through more than 5,000 shops scattered all over the country. There are many advantages of such multiple shops from the sides of the producers and the consumers as well as some disadvantages.
(b) By mail order business. The producer makes elaborate publicity for his products through different media and by direct mailing of catalogues to the potential buyers. The despatching of goods and payment of price take place through post. This is practised for small and durable consumer goods like books, toys etc.
(c) By sending sales representatives to the prospective buyers with samples. The sales representatives procure orders from the buyers which are executed by the producer directly. Generally this procedure is followed for marketing industrial goods like raw materials, machines, machine parts, tools, machine oils, etc.
The first two methods (a) and (b) are generally followed for consumer goods.
Most producers do not adopt direct distribution method as:
(i) It requires heavy investment, and
(ii) It involves additional managerial responsibility in the activities of disposal of goods and payments realisation.
Indirect Channel:
It means distribution of goods through middlemen or intermediaries. Either, in the channel there is one middlemen like a Sole Selling Agent who distributes the goods through a number of middlemen subsequently or, there may be a number of middlemen when the producer distributes the products through a number of agents or wholesalers or even retailers.
The whole process of indirect channel of distribution looks like a chain:
(a) At first the entire goods are supplied by the producer to a Sole Selling Agent, part by part, at regular intervals. Appointment of sole selling agent is common for industrial goods. The sole selling agent does the function of a wholesaler. He gets a commission on the total sales.
(b) A wholesaler buys the goods in bulk and then effects sales in smaller parts to retailers. A wholesaler may procure the goods from the producer directly without being a selling agent.
A wholesaler may or may not have a showroom but he has a selling counter and a godowns (or godowns) to store the goods. He gets a commission on the total value of goods purchased by him from the producer. He may get the supply from the sole selling agent of the producer, if any.
The wholesalers are of three types:
(i) Traditional:
These are the common types of wholesalers. Such a wholesaler may be of general type when he deals in varieties of goods (in the same line, e.g. textiles, cosmetics, medicines, etc.) as well as of different producers. A traditional wholesaler may be of specialist type who deals in the products of a very limited number of producers.
(ii) Cooperative:
With the development of cooperative system of distribution of consumer goods, the Cooperative Wholesale Societies or Apex Societies buy the goods and supply than to the different stores.
(iii) State:
The Government may take the responsibility of supplying some essential commodities directly from its warehouse to retailers (ration shops). This is also known as public distribution. The Government generally does it through some Government Agencies, e.g. the Food Corporation of India, the State Trading Corporation of India, etc. Some wholesalers do mail order business eliminating the retailers.
(c) From the wholesalers the goods reach the retailers who ultimately sell the goods to the consumers in smallest possible units. They buy the goods at a discounted price from the wholesalers or selling agents of the producers. Actually a part of the commission enjoyed by a wholesaler is given to the retailers. There are many types of retailers. Firstly, retailers can be classified into big and small.
The department stores and chain stores are the examples of big retailers. Other retailers are small retailers including consumers’ cooperative stores and tied shops. Through consumer cooperative stores middlemen may be eliminated to sate extent. Generally every retailer has a shop, big or small. Multiple shops are retail shops.
A department stores has different departments for different types of goods (textiles, leather goods, stationery, furniture, books, etc.) from where wide varieties of goods produced by different producers are sold.
When the same owner (or a group of owners) sells some selected types of goods produced by a limited number of producers, through a number or chain of similar shops, such shops are called chain stores. In tied shops each shop owner sells the product of a particular producer by contract.
In Calcutta, ‘Sheila’ in Chowringhee is an example of ‘department stores’. The textile shops owned by the Haralalka group are examples of ‘chain stores’. The petrol pumps are examples of ‘tied’ shops. Secondly, small retailers are further classified into ‘with shop’ and ‘without shop’. The pedlars, hawkers belong to the second group.
Most consumer goods producers prefer indirect channel as:
(a) They can avoid the trouble of distribution function,
(b) They find it difficult to market the products in remote areas and to maintain huge establishment, and
(c) The investment for such a large organisational set up may not be ultimately remunerative.