Channels of Distribution

• Channels of distribution serve as the route products take from production to consumption.
• They form a link between producers and consumers.
• This link creates time, place, and possession utilities, bridging the gap between production and consumption.

Functions of Distribution Channels

• Sorting: Middlemen gather goods from diverse sources that vary in quality, size, nature, and color.
• The intermediaries sort these goods into similar groups based on size, quality, nature, etc.
• Accumulation: Goods are accumulated into larger stocks to maintain a consistent supply flow.
• Allocation: Homogeneous stock is broken down into smaller, marketable lots.
• Assorting: Middlemen obtain various goods from different sources, delivering them in combinations preferred by customers.
• Retailers collect a variety of consumer goods and deliver them to households.
• Product promotion: Middlemen advertise the products they keep and engage in sales promotion through demonstrations and special displays.
• Negotiation: They negotiate to reach agreements on price and terms of sale.
• Risk taking: They bear the risk of demand changes, transit damage, theft, spoilage, and destruction.

Types of Channels/Channel Levels

• A distribution channel connects the producer and the consumer through intermediaries.
• The number of intermediaries determines the channel length.
• The number of intermediaries is referred to as channel levels or channel types.

Direct Channel/Zero Level/Direct Marketing

• Direct channels provide goods directly to consumers from the manufacturer, without intermediaries.
• Examples include mail order, internet sales, direct sales forces, and retail outlets like Bata, McDonald's, and Eureka Forbes.

Indirect Channels

• Indirect channels use one or more intermediaries to make goods available to consumers.

One-Level Channel

• Involves a retailer directly supplying products to customers.
• Maruti Udyog sells cars through company-approved retailers.

Two-Level Channels

• Manufacturers sell to retailers who then sell to consumers.
• Two level channels represents a common distribution network for consumer goods such as soaps, oils, clothes, rice, and sugar.

Three-Level Channels

• The longest distribution channel with agents, wholesalers, and retailers.
• Manufacturers use selling agents or brokers to connect with wholesalers and retailers.

Factors Determining Channel Choice

• Product-related factors.
• Market-related factors.
• Company-related factors.
• Competitive factors.
• Environmental factors.

Product Related Factors

• Nature of Product: Industrial, technical and expensive products go through the direct channel, whilst consumer products tend to go through intermediaries.
• Perishable vs. Non-Perishable: Perishable goods use short channels, while non-perishable items need longer channels.
• Unit Value: High-value products benefit from direct channels while less costly items use longer channels.

Market Related Factors

• Nature of Market: Consumer markets use longer channels, while industrial markets prefer shorter ones.
• Size of the Market: Shorter channels match small markets, but large markets require indirect channels.
• Geographical Situation: Direct selling works when buyers are in a limited area; scattered customers need middlemen.
• Size of Order: Many intermediaries are used for small orders, but direct channels suit large orders.

Company Related Factors

• Financial Strength: Well-funded companies can create their own distribution channels. Financially weaker companies rely on middlemen.
• Desire for Control: Companies seeking tight control prefer direct channels; otherwise, indirect channels are suitable.
• Management: Firms with distribution knowledge may choose direct selling; those without sufficient knowledge depend on middlemen.

Competitive Factors

• Channel choice is affected by competitors' channel selections within the same industry.
• Companies may select similar channels or avoid those used by competitors.

Environmental Factors

• Encompasses factors such as economic conditions and legal constraints.
• Marketers might use shorter channels in a depressed economy to distribute goods.