The choice of an appropriate channel of distribution, as an important marketing decision, depends on a variety of considerations like nature and type of products, nature of services to be rendered, stability of production, costs involved, and the type of promotional efforts undertaken by the marketing management.
So, the distribution channels to be employed should be different for consumer goods, industrial goods, and agricultural products.
These are explained below in brief:
1. Channel of Distribution for Consumer Goods:
Let us consider the types of channels that exist:
The above forms of channels are only suggestive and variations do occur. In the case of consumer goods, a major portion of output is sold through the traditional channel i.e. Wholesaler and retailer. However, in some cases, the goods are sold through retailer bypassing the wholesaler.
Channel Type A:
Certain manufacturers like Bata Company sell their products to the consumers direct through their own shops.
Channel Type B:
It is undertaken by those firms which have efficient sales force to assume the marketing functions of the wholesalers. The development of super markets and departmental stores is of direct assistance to the manufacturers to choose this channel.
Channel Type C:
It is the most traditional one. The distribution channel between the manufacturer and the consumers is dominated by the wholesalers and retailers wherein the wholesaler purchases the goods from the manufacturers and sells them to the retailers for ultimate piece-meal sales to the consumers. In the process, the wholesalers act as middlemen and enjoy a good profit margin.
Since the wholesalers stock products of different manufacturers, they can manipulate the sales of a particular producer. Because of close touch with the retailers, they are well-informed of the changes in the fashion, tastes and demand which are of great advantage to the manufacturers.
Channel Type D:
It involves the method of distribution through an agent that stands between the manufacturer and wholesaler. The agents may be a broker, commission merchant, or an export merchant. This channel is used by those firms who cannot afford to develop a sales force of their own. In order to reach the masses, most consumer goods must pass through various retail outlets scattered’ throughout the country.
Thus if a firm is to engage in all stages of distribution it must operate all such retail outlets. However, it is worthwhile for a firm to bear the immense overhead cost of maintaining such a huge distribution network when its turnover is very high and where its products enables it to dispose of a number of products in the same shops.
We can think of A.H. Wheeler and Company which is having stalls in all big railway stations in India.
However, a firm with diversified product mix may find it more appropriate to adopt a variety of distribution channels. Where a firm’s turnover is large enough and where its range of products is sufficiently closely related to make the ownership of retail outlets worthwhile, it can reduce the burden of overhead costs by retailing other firms’ products.
For example, Dey’s Medical Ltd. retails its own products but also carries the products of other firms that are available in a chemist’s shop.
Must manufacturing firms find it uneconomic to perform the whole of the distribution function. So, it becomes necessary to depend on wholesalers who perform the specialised function of distributing products to a large number of retail outlets throughout the country. But there are some firms which are not so dependent on wholesalers.
They can derive a number of advantages in selling direct to independent retailers. Firstly, a manufacturer can maintain close contact with the ultimate market and can become sensitive to changes in market requirements than where a general wholesaler intervenes. The visits of the manufacturing firm’s salesmen at the shops will enable a close control over the display and conditions of sales of the goods.
2. Channels of Distribution for Industrial Goods:
Let us consider the types of channels that exist in an industrial market:
Channel Type A:
It is the most common in industrial marketing where capital goods like plant and machinery are directly marketed. The number of outlets for the capital goods is small and the average value per sale is high. The average overhead marketing- cost in relation to the value of sales is also lower.
The firms selling capital equipment find it essential to employ technically qualified marketing executives and service engineers, especially where there are complex problems of installation or use, and here often sales service must be maintained.
Thus, this channel of distribution direct from producer to user is suitable in these cases. For instance, one can think of the sales of furnaces by G.E.C. Ltd. The market for such sophisticated equipment is well-established, limited in size, and attention has to be paid to the special requirements of the users.
Channel Type B:
This channel is most suitable for the introduction of new products in the market, as the agents know the industrial markets and take extra efforts having been tempted by higher rate of commissions and profits usually granted at the initial stage of the products. Small or medium-scale firms who do not have own marketing departments find this distribution channel very convenient.
Channel Type C:
This channel is a convenient way of distribution of small accessories and equipment’s to the users. The manufacturers engage distributors on a commission-basis according to the identified market segments and authorise them to operate business activities in the assigned areas. Such distributors stock the products to meet the requirements of industrial users.
Channel Type D:
This channel is the combination of the channel types B and C. This is followed by those firms which do not have marketing system of their own.
The agents, for and on behalf of the manufacturers, assume full marketing responsibility and engage industrial distributors to meet the varying conditions on the basis of geographical factors. This method offers economy in the marketing and selling efforts of a manufacturing firm.