question_answer 25)

What do you mean by 'Channels of distribution'? What functions do they play in the distribution of goods and services? Explain.

Answer:

People, institutions, merchants and functionaries, who take part in the distribution of goods and services are called 'Channels of Distribution'. Channels of distribution are set of firms and individuals that take title or assist in transferring title, to particular goods or services as it moves from the producers to the consumers. Channels of distribution smoothen the flow of goods by creating possession, place and time utilities. They facilitate movement of goods by overcoming various barriers. The important function performed by middlemen are (i) Sorting Middlemen procure supplies of goods from a variety of sources, which is often not of the same quality, nature and size. These goods are sorted into homogeneous groups on the basis of the size or quality. (ii) Accumulation This function involves accumulation of goods into larger homogeneous stock, which help in maintaining continuous flow of supply. (iii) Allocation Allocation involves breaking homogeneous stock into smaller, marketable lots to sell them to different types of buyers. (iv) Assorting Middlemen build assortment of products for resale. There is usually a difference between the product lines made by manufacturers and the assortment or combinations desired by the users. Middlemen produce variety of goods from different sources and deliver them in combinations, desired by customers. (v) Product Promotion Middlemen also participate in some sales promotion activities, such as demonstration, special display, contests etc. to increase the sale of products. (vi) Negotiation Channels operate with manufacturers on the one hand and customer on the other. They negotiate the price, quality guarantee and other related matters with customers, so that transfer of ownership is properly affected (vii) Risk Taking In the process of distribution of goods, the merchant middlemen take title of the goods and thereby assume risks on account of price and demand fluctuations, spoilage, destinations etc.