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Banking Marketing Aptitude Channels of Distribution Marketing Aptitude - Channels of Distribution

Marketing Aptitude - Channels of Distribution

Category : Banking

 

Introduction

 

Most producers do not sell their goods directly to the final users, between them stands a set of intermediaries performing a variety of functions. These intermediaries constitute a marketing channel. So, marketing channels are a set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption by the consumer or business user. A channel of distribution is the path a product takes from the producer or manufacturer to the final user.

 

  • Importance of Distribution Channels
  • Distribution channel reduces the cost of any transaction by routinisation of purchasing decisions.
  • They act as communication agent which often guide the consumers in right direction to fulfill their wants.
  • A distribution channel is important for understanding the logistics of the business.
  • It helps in managing, planning, producement, transporting and storage of products.
  • They help to reduce the storage cost.

 

  • Functions of Distribution Channel

            The main functions of distribution channel are

  1. Contact between Producer and Consumers

Through distribution channel producer comes into the contact with the consumer, which is useful to collect some important information regarding product and behaviour of the consumer.

  1. Satisfaction to the Consumer

Distribution channels provide satisfaction to the consumer by providing services and by supplying products in different varieties, colours, sizes and according to fashion.

  1. Transferring the Title

Distribution channel materialises the transfer to product's title. Title is transferred through sales and purchase. It delivers right product, at right place, at right time and at right price to the consumer.

  1. Fixing Prices

The institutions functioning as distribution channel assist the manufacturer and buyers in determination of price.

 

  • Types of Channels of Distribution

            The various channels used for distribution can be described as follows

  1. Conventional Distribution Channels

These distribution channels assume that each enterprise working in the channel is separately owned and operated concern.

They are as follows

            (i) Direct Channel or Zero Level Channels When the manufacturer instead of selling the goods to the intermediary sells it directly to the consumer, then this is known as zero level channel, e.g., retail outlets, mail order selling, internet selling.

            Manufacturer \[\xrightarrow[{}]{{}}\] Consumer

            (ii) Indirect Channels when a manufacturer gets the help of one or more middlemen to move goods from the production place to the place of consumption, the distribution channel is called indirect channel.

Following are the more types of it.

(a) One Stage Channel of Distribution In

This case, there is one middleman, i.e., the retailer. The manufacturers sell their goods like refrigerator, air conditioner, washing machine, etc. to retailers who in turn sell it to the consumers.

Manufacturer \[\xrightarrow[{}]{{}}\] Retailer \[\xrightarrow[{}]{{}}\] Consumer

            (b) Two Stage Channel of Distribution In this case, there are two middlemen namely, wholesaler and retailer. This is applicable to products where market is spread over a large area, value of individual purchase is small and the frequency of purchase is high.

Manufacturer \[\xrightarrow[{}]{{}}\] Wholesaler \[\xrightarrow[{}]{{}}\] Retailer \[\xrightarrow[{}]{{}}\] Consumer

            (iii) Three Stage Channel of Distribution When the number of wholesalers in the chain is large and they are scattered throughout the country, the manufacturers often use the services of mercantile agents who act as a link between the producer and the wholesaler. They are also known as distributors.

Manufacturer \[\xrightarrow[{}]{{}}\] Agent \[\xrightarrow[{}]{{}}\] Wholesaler \[\xrightarrow[{}]{{}}\] Retailer \[\xrightarrow[{}]{{}}\] Consumer

  1. Non-Conventional Distribution Channels

These 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.

They are of two types

            (i) Vertical Distribution Channels these are rationalised and capital intensive networks, designed to achieve technological, managerial and promotional economics through the integration, co-ordination and synchronization of marketing flows from points of production to points of ultimate uses.

They are of three types

            (a) Corporate System/Channel In this distribution channel, a single firm owns both production and distribution facilities. e.g., Bata, Tata, Modi, Godrej, DCM, etc. with their own production units and retail outlets.

            (b) Administrated Vertical System/Channel These channels are coordination of all the functions of production and distribution achieved through the use of programme developed by one or the number of limited firms throughout the whole marketing system.

            (c) Contractual Marketing System/Channel Under this distribution channel, independent channel    components    manufacturer, wholesalers and retailers are employed on a voluntary basis to develop a more efficient system on a contractual basis, so as to obtain economies of scale and increases market impact.

            (ii) Horizontal Distribution Channel System

Horizontal distribution channel is a new trend in distribution in which two or more companies join hands to exploit a marketing opportunity or opportunities, either by themselves or by creating an independent unit. e.g.. Associated Cement Company (ACC), Sugar Syndicate of India, Maruti Udyog and HDFC Bank, etc.

 

  • Factors Affecting the Choice of Distribution Channel

            The following factors have to be taken care of in choosing a specific distribution channel

 

  • Product Consideration
  • Nature of product
  • Perishability
  • Unit value
  • Weight and technolocity
  • Standardised products
  • Product line
  • Seasonality

 

  • Market Consideration
  • Consumer or industrial market
  • Number of customers
  • Geographical distribution
  • Buying habits of consumers
  • Size of order
  • Need of product

 

  • Company Consideration
  • Financial resources
  • Market standing
  • Volume of production
  • Desire for control of channel
  • Services provided by manufacturer's

 

  • Middlemen Consideration
  • Availability of middlemen
  • Attitude of middlemen
  • Services provided by middlemen
  • Cost of channel
  • Sales volume potentials
  • Financial ability

 

Marketing Middlemen

 

Middlemen are intermediaries who specialize in performing or rendering services that are directly involved in the purchase and sale of goods and services in the process of their flow from producer to the consumer.

 

  • Types of Marketing Middlemen

            Middlemen are broadly classified into two groups Merchant Middlemen

  1. Merchant middlemen normally take title to, and therefore own, the product they handle. The buy and sell for their own gain and derive their income from the margins arising from the sales {i.e., difference between buying price and selling price).

There are two categories of merchant middlemen and they are

Wholesalers Wholesalers may be defined as the middlemen who operates between the producers (from whom they purchase goods) and the retailers (to whom they sell goods). They deal with goods in bulk and reap the benefit of economies of scale. They provide goods in relatively small quantities to retailers and provide them with facility of credit purchase.

Retailers Retailers are middlemen who procure goods from the wholesalers and sell the product to the end-users or the consumers. They cater to the demand of the customers by providing a variety of products of different companies at one place. They also offer pro and after sales services and communicate to consumers the features of the products. Full service retailer, discount retailer, vending machine and super market are types of retailer.

  1. Agent Middlemen

All agent middlemen of marketing don’t own what they handle i.e., not take title to the goods. They derive their income from the fees they are paid by their clients or commissions given.

There are three categories of agent middlemen

Broker He brings the buyers and sellers together and negotiate between them. He generally specialises in a narrow range of products and possess in-depth knowledge of market   condition   in   his   area   of specialisation. A broker does not receive payment until the product is sold and has to ensure the best deal for the customer.

Commission Agent They procure goods on consignment and transport them to bigger markets to sell them for the best price in the market. They deduct the commission and the transportation costs and pay the rest of the money earned to the producer. They generally deal with agricultural products, sea foods, etc.

Auctioneer An auctioneer is an agent who sells goods by auction i.e., to the highest bidder in public competition. He has no authority to hold the goods sold and can deliver the goods only on receipt of price. He is the agent of the vendor.

 

  • Some Terms Related to Distribution of Products
  • Direct Marketing Direct marketing means cold calls where calls are made without any prior appointment with the customers. Under this method   of distribution, the manufacturers bypass the chain of middleman and approach the consumers directly and sell them their products.
  • Internet Marketing With the widespread use or computers and Internet, today it is possible to buy and sell products over the internet through websites maintained by producers. The manufacturer is able to cater to a larger number of customers sitting anywhere in the world, efficiently and speedily using Internet marketing.
  • Telemarketing Some producers / manufacturers approach the consumers over the telephone to tell them about the product and its uses and ultimately persuade them to buy the product. This method is often used to sell credit cards, subscription of certain books and journals and also membership of certain clubs, etc.


 

Tit-Bits

 

  • Mobile is the latest distribution system,
  • Retailing by manufacture includes mail order retailing, own retail stores and house-to-house selling.
  • Retail banking means bank financing to retail traders.
  • The Internet marketing can serve actual sales of product, promotion, customer service and market research.



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