Introduction

A distribution channel is the network of businesses, individuals, and

intermediaries facilitating the journey of a product or service from the manufacturer to
the end consumer. It encompasses the various pathways used to deliver goods to their
final destination, such as wholesalers, retailers, and the Internet.
Distribution channels are a cornerstone of successful business operations for
multiple reasons. Firstly, they enable companies to broaden their market access,
tapping into diverse customer segments across different regions. Secondly, these
channels streamline the product's journey, resulting in operational efficiency and cost
reduction. Moreover, distribution partners often possess specialised knowledge and
resources that can boost marketing efforts and improve overall sales strategies. Beyond
these benefits, distribution channels provide invaluable market insights, help companies
navigate global expansion, and serve as a source of competitive advantage, ensuring
that businesses can stay agile and adapt to the evolving marketplace.

Types of distribution channels

In marketing there are three types of distribution channels they are as follows:
 Direct: With the direct channel, the company sells directly to the customer. For
example, a brewery that brews its own beer and sells it to customers at its own
brick-and-mortar location employs a direct channel of distribution. The seller
delivers the product or service directly to customers. The vendor might also
maintain its own sales force or sell its products or services through an e-
commerce The direct channel approach requires vendors to take on the expense
of hiring and training a sales team or building and hosting an e-commerce
operation.
 Indirect: Indirect channels use multiple distribution partners or intermediaries
to distribute goods and services from the seller to customers. Indirect channels
can be configured in the following ways: With the single-tier distribution model,
vendors develop direct relationships with channel partners that sell to the
customer. In the two-tier distribution model, the vendor sells to distributors that

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 provide products to channel partners, which, in turn, package products for the
end customer. Two-tier distribution helps smaller channel partners that would
have difficulty establishing direct sales relationships with large vendors.

 Hybrid: Hybrid channels combine the characteristics of direct and indirect

channels. The seller uses both direct and indirect methods. For example, a
manufacturer might sell an item on its e-commerce website, but then an
intermediary delivers the physical product to the customer. The customer still
has a direct interaction with the seller, but an intermediary is also involved.

Each type of intermediary represents a channel with its own distinct

characteristics

VARs, for example, are often local companies that sell horizontal products, such
as office productivity apps or vertical IT products, such as healthcare services to
businesses in their geographic region. VARs provide value beyond the original order
fulfillment. They're distinct from the manufacturer and customer, and help the product
get to the customer with added value.
Benefits of working with a value-added reseller VARs package and customize
third-party products and resell them with additional offerings bundled in Systems
integrators might be large, national companies that work on highly complex,
multivendor. IT projects. Consultants might not resell products but rather influence
sales through product recommendations to customers. A vendor develops a marketing
strategy called a channel strategy, also known as a distribution channel strategy, to
determine what types of intermediaries to target and how to optimize partner
relationships to increase sales and improve distribution.
There are three main levels of distribution that describe which type of intermediary sells
the company's product and how involved the intermediaries are:
1. Intensive distribution
2. Selective distribution
3. Exclusive distribution

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 Steps for building better distributor relationships Distributor relationships are an
important part of managing the distribution channel. This applies to the indirect
distribution method, because it involves intermediaries. Indirect product distribution
strategies fall into three categories: intensive, selective and exclusive.

 Intensive distribution:
This involves a large number of intermediaries. The vendor tries to place its product in
as many sales outlets as possible. This method is used with products that have a high
consumption frequency and a low cost of production. Examples include common
grocery items, such as eggs, bread and potato chips; bathroom products, such as toilet
paper; and tobacco products, including cigarettes.

 Selective distribution:
This involves a smaller number of intermediaries, using criteria set by the vendor such
as geographic region, service and support capabilities. The reputation of the
intermediaries is important in this method because vendors need to have a stronger
relationship with retailers in order to be selective. For example, a clothing manufacturer
might select certain small shops to distribute clothes versus using a large chain.
 Exclusive distribution:
This involves only a few intermediaries that agree to exclusively sell the vendor's
products. Deals are exclusive and limited to just those intermediaries.

Examples of distribution channel intermediaries

Intermediaries are used in indirect channels to distribute, sell and promote goods and
services. Intermediaries may more commonly be referred to as middlemen. Examples of
intermediaries include the following:

 Wholesalers are intermediaries between manufacturers and retailers.

 Agents represent a person or entity and serve as an intermediary between
buyers and sellers.

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  Brokers are similar to agents but represent a person or entity on a limited, per-
transaction basis.
 Catalogs are collections of products gathered in a publication and distributed at
regular intervals.
 Consultants are individuals who connect distributors with intermediaries lower on
the supply chain and give advice on how to distribute product effectively.
 Distributors are in direct contact with the manufacturer but sell to end users.
 Retailers either buy from the manufacturer or another intermediary or distribute
to consumers through shops, grocery stores or websites.
 Independent software vendors are vendors that sell their software using a
marketplace.

Who is an wholesaler in a business:

A business unit which and resells merchandise to retailer and other merchants
and/ or industrial, institutional, and commercial users, but which does not sell in
significant amounts to ultimate users. In the basic materials, semi-finished-goods end
tool and machinery trades, merchants of this type are commonly known as
“distributors” or “supply houses”. Generally, these ,merchant render a wide variety of
service to their customers. Those who render all the services normally expected in the
wholesale trade are known as full-service wholesalers; those who render only a few of
the wholesale service are carry wholesalers, who do not render the credit or delivery
service, drop-shipment wholesaler who sell off or deliver the producer direct to the
buyer truck wholesalers, who combine selling, delivery, and collection in one operation
and mall-order wholesalers, who perform the selling entirely by mail.

Agent: A business unit which negotiates purchase or sales or both but does not take
file to the good in which it deals. The agent usually performs fewer marketing functions
than does the merchant. He commonly receives his remuneration in the form of a
commission or fee. He usually does not represent both buyer and seller in the same

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transaction. Examples are brokers, commission merchants, manufacturer‟s agent,
selling agents and resident buyers.
One conceptual problem still remains to be cleared regarding the precise status of
agents wholesaling middlemen. Some authorities do not feel comfortable when
reference is made to agents as wholesale, they would rather call them agent
wholesaling middlemen. The discomfort is that as we saw in the definition of the
American Marketing Association given above, a wholesaler by definition buys his stock
and so takes title to them. in that case, there would be a contradiction in terms to
speak of agent wholesalers since an agent does not have title; what we shall do to
avoid this contradiction is to refer to both as wholesaling middlemen made up of
merchant wholesalers and agent wholesaling middlemen.

Typologies of merchant wholesalers

As already slated, merchant wholesaler take title of the good which they sell,
nevertheless there are different types as the following discussion will show. They may
be classified on the pass off.
i. The range of functions performed
ii. Ownership of the wholesaling establishment
iii. The geographical location or area served, and
iv. The position of the wholesalers in the channel structure
We shall now explain each of them briefly:

Classification by Range of Function Performed

There are two types of under this heading full function or full-service and limited
function or required service.
Function wholesalers: is a type wholesaler provide for the retailer and the producer
the entire range of service usually rendered by merchant wholesalers. These function
are as follows:

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 i. The determination of the needs of the retailer through casual or formal
research so as to communicate information about consumer needs to the
producer;
ii. communicating information about producer‟s merchandise offering to
retailers;
iii. making contact with supplier and retailers to patronize him;
iv. helping both producer and the retailer to transport the goods;
v. making fast delivery of orders to retailers thus making it unnecessary for
retailers to keep larges stock;
vi. Provision of credit to retailers in respect of purchase and
vii. Providing the retailer with market information such as those relating to
general market information such as those relating to general market
conditions, shift in demand, new products and price trends.

Service or full function wholesalers may be further classified on the basis of the range
of offered in this regard they are:
1. Single-line wholesalers
2. Speciality wholesaler; and
3. General merchandise wholesalers

Line wholesaler: they are full service merchant wholesalers who carry a wide
assortment of goods within a product line or merchandise category. The emphasis is on
competence or nearness in a given line or category of merchandise so that retailers and
other customers supplied all they need as far as the line or category is concerned. For
example, a wholesaler who handles “provisions” (grocery) as his line will stock
everything the retailer who shipping from manufacturers to user or retailer reduces the
cost of handling. Drop shippers also handle products such as sand and other bulky
construction materials. Drop shipper tend to force the storage function on the
manufacturer who may not have the required expertise. Additionally, the post of direct
shipment of small order to retailers may be high. For this reason is doubtful if drop
shipping saves distribution costs as much as is often assumed.

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Truck or wagon Jobber
Truck or wagon jobber are limited service merchant wholesalers, who sell for cash,
carry limited stock and deal in only nationally advertise fast-moving perishable
merchandise, usually food products including fruits and vegetable. In the early days of
their existence before the trucks, they operated out of wagon from which they served
the smaller retailers who constitute the bulk of their customers. The high fixed
investment in trucks and the low unit or order continue to make them high unit cost
operation.

Truck jobbers or Merchandisers

The types of wholesaler go his name „rack jobbers from the rack on which the product
he supplies and merchandise are displayed (a jobber is a wholesaler) they assist retailer
in displaying and shelving their wares. The rack jobber as wholesaler grew out of the
need and practice of supermarkets to sell retail items other than the traditional food
items which from the lack of their merchandise.
The rack jobber deals in such non-food items which the supermarket retailer is
interested in being to improve his profit margin but which he can handle only in small
quantities because of for nature of his operation. This is to say that a regular stationary
stores, for example will not need the service of a rack jobber. This is because the
volume and assortment of a regular knowledge which directly benefit the retailer at no
extra cost of the retailer. Runs a “provision” stores will need the completeness of their
offering through their offering though in a given merchandise category, enables the
retailer to deal with fewer wholesalers.

Special wholesalers
These wholesalers handle a very narrow range of product within a given product line.
For example instead of offering a full range of foodstuff, the specialty wholesaler may
specialize in certain kinds of food such as fruits or grains. The benefit of specializing in
this way is better product knowledge and probably more useful product advice to
retailers. Others are limited capital investment. Higher stock turnover, and therefore,
higher profit prospects. However, it is possible that they have less attraction for

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retailers who see operational economics in dealing with on wholesaler for many items
rather than several for the same number of items.

General merchandise wholesalers

The general merchandise wholesaler is a full-service merchant is a full-service
wholesaler who carries a wide assortment of goods in several unrelated merchandise
lines. He can handle grocery appliance, furniture and even more lines, all at the same
time. He is generalists. The kind of business requires considerable investment in
inventory. The marketing objective of such a setup is to achieve sale volume through
concentrated sales specially in dealing with general stores or department stores.

Limited function wholesalers

The limited function wholesaler performs only some of the full range of functions
normally performed by wholesalers. The different types of limited function wholesalers
are as follows:
i) The cash and carry wholesalers;
ii) Drop-shippers of desk jobbers
iii) Truck or wagon jobbers
iv) Rack jobbers or rack merchandisers
v) Mail order wholesalers; and
vi) Cash and carry wholesalers

Cash and carry wholesalers

Cash and carry wholesaler require their customer to call at their business premises to
obtain the merchandise for which they must pay cash at the time of purchase. They
carry only fast-moving items and only a limited line of these. Contact with customers
through salesperson is limited. Of course, the cash and carry approach means that no
credit is given nor is delivery made to customers. These fact, added to the high
inventory turnover make this type of operation relatively more profitable to the
individual wholesaler. It has however, been suggested that wholesaling the cash and
carry way may be adding to the total cost of marking through increased cost of retailers

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visits to the wholesaler. Cash and carry operations are typical of most wholesale
transactions with small retailers in Nigeria.

Drop Shippers
Drop shippers or desk jobbers eliminate the storage function in order to reduce costs
and improve profits. This is achieved through direct shipment of orders from the
manufacturer‟s wale house to the retailer. Drop shipper usually sells bulky items that
will be inherently expensive and difficult because of bulkiness and weight. For such
products, direct.

Mail order wholesaler

The mail order wholesaler sells merchandise by mail. For this purpose he publishes
catalogues as a basis for obtained order from customers. His customer who are
retailers do not stock the merchandise listed in the catalogues. The retailer in turn
places and order with the wholesaler behalf customers. The retailer, then, is merely an
order taker for merchandise carried in the catalogue. Mail order wholesaling is
potentially a high cost operation but the use of deep location and facilities helps to
ameliorate this.

Classification of wholesalers on the basis of ownership

On the basis of ownership three types of wholesalers can be identified
a) Manufacturer owned wholesaling unit;
b) The independent wholesaler; and
c) Wholesale enterprises owned by retailer co-operatives.
They are owned either by manufacturers or by retailer co-operation. They give rise to
vertically integrated distribution channels whereby a manufacturer own wholesale or
outlets or whereby a wholesale and retail organization are commonly owned by the
size.

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Classification of wholesalers on the basic of territory covered
In the term of the territory covered, wholesaler can be divided into:
a) National wholesalers;
b) Regional wholesaler, and
c) Local wholesalers
The national wholesaler covers a substantial part of the national market. Regional
wholesaler service a given which is less than the national market but more than the
area served by local wholesaler who may cover no more than a town or one local
government area.

Classification of wholesalers on the basic position in the channel

Classification of wholesaler this basis is pertinent in Nigeria. This is because it
enable us to understand the varying degrees of influences exerted by different
categories of wholesalers of the high prices of goods in Nigeria position in the channel
structure, we mean the source of the wholesaler‟s supplies. Because a limited number
of manufacturers and the relatives profitability of wholesaling, it is not usual to have
three or more layers or wholesaler in a distribution channel. They consist of:
Those who obtain their supplies directly from the manufacturer or the producer; and all
the wholesalers who obtain their supplies from other wholesalers.

Manufacturers supplied wholesaler may be big or small in term of the size of his
operations. While some member in this group is regular wholesalers, a great advantage
of them can be classified only as part-time wholesaler. To a large extent some of the
part-time wholesaler owes their direct access to the manufacturer for supplies to their
political and social influence and not necessarily to their performance as big time
wholesaler. This type of wholesales thrives mainly government owned manufacturing
earns which produce essential, scarce but highly demand and highly profitable products
group as they come and go with each change of government and political fortune which
as ever so often.

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Indirectly supplied wholesaler obtains their supplies from the manufacturer supplied
wholesales. Since their regular business is trading they are usually prepared to obtain
their bodies from some of the members of the first group at all cost. The high cost is
eventually owed to the consumer through the retailer.

Types of agent middlemen

Agent middlemen differ from the merchant wholesaler, in that though he negotiate
sales record, he does not take title to the goods. That is he does not become the owner
of the bodies compared to the merchant wholesaler he enjoy low operating cost
because he time lower function than even the limited function merchant wholesaler. He
receives a regression or fee from his principle. The following are the more common
types of agent middlemen:
1. Brokers
2. Commission men;
3. Selling agents
4. Manufacturers agent; and
5. President buyers

Broker: negotiates the buying or selling or product as a representative of either the

buyer of seller. He does not physically handle the products he sells and thus delivery is
made directly to seller to the buyer. He has limited power over price and term of sale
the relationship between the broker and his principal is ad hoc or discontinuous in
nature; that is mantua relationship ends at the conclusion of each transaction. The
broker is important advantage producer or buyer he represents because of his specialist
knowledge. He is best small producer of seasonal products who find it uneconomical to
have a standing Sales force. Through the broker, the sellers/producer can be exposed
to a wider range of buyers, similarly, the buyer is exposed to a wider range of sellers.
The broker is also found in the stock market and the commodity market both of which
are organized wholesale markets. He reduces the cost of conduct and hence marketing
costs generally.

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Commission Men
The commission man can take physical possession of the goods he sells. He represents
only the seller and has more power than the broker over the price of product and terms
of sale. He usually arrange s for the goods to the delivered to the buyer. He can extend
credit and receive payment on behalf of the seller-client to whom same is remitted after
the deduction of his commission. The freedom to determine the price of the goods he
sells sometimes makes him unattractive to manufactures especially when such
manufactures can use other middlemen, or when there is no market glut and when
their products are not perishable.

Selling Agent
Selling agents or sales agents are different from other agents mentioned above in that
they have a continuous relationship with their principal. Often in the form of extended
contracts. They sell either a specific line or merchandise or the total output of the
producer. They fully determine the prices and other condition of sale. They sell in a
limited territory and give credit and promotional assistance to the producers they
represent. Small producers find the use of selling agents most beneficial because they
give them broader market coverage than is otherwise possible. The problem, however,
is to find a sales agent who can maintain a healthy balance between his desire to
collect his commission and the need to obtain a good price for the product of the
producer.

Manufacturer’s Agent
A manufacturer‟s agent is an agent middleman who like the sales agent maintains a
continuous contractual relationship with his principal. There ends the similarity. Unlike
the sales agent, the manufacturer‟s agent operates in a more limited territory and
possesses limited authority with regard to prices and terms of the sale. He is invaluable
to a manufacturer entering into a new territory and a producer with limited demand in
particular territory. He is also useful to a manufacturer‟s introducing a new product into
a new territory. Most agent middlemen in Nigeria are manufacturer‟s agent but mainly
to foreign producers and a few local manufacturers.

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Other Wholesaling Middlemen
The other wholesaling middlemen are manufacturer‟s sales branches. It was observe
earlier that a producer‟s wholesaling activities do not make him a wholesaling
middleman. However when a producer establishes wholesaling institutions, he can be
regarded as a wholesaling intermediary. Manufacturer‟s sales branches are wholesaling
organizations owned and operated to store and deliver stock. The reason for the
existence of manufacturer‟s branches has been summarize by McCarthy as “the desire
to avoid paying for unwanted functions or to provide others more effectively”.

Retailing and Retailers

By definition, a retailer is a merchant, or occasionally an agent, whose main business is
selling directly to the ultimate consumer. He is a specialized marketing functionary who
links the wholesaler or producer with the final consumer. He is therefore, a middleman.
As a specialist in selling to the final consumer, he buys the assortment of merchandise
demanded by the consumer and makes them available to him at convenient points from
numerous sources through physical or non-physical contact. He then convinces the
consumer to buy, employing all the marketing variables at his disposal. He also makes it
possible for the consumer to buy the different products in small quantities with
minimum trouble and expense.

Evolution of Retailing
Retailing has evolved over the years as is evident in the different types of retailers and
the different functions performed by them over time. Three theories have been
advanced to explain the evolution of retail institutions. The theory of natural selection
maintains that the retail institution that adapts best to it environment will survive and
grow. The wheel of retailing theory, on the other hand asserts that retailing institutions
pass through a life cycle, beginning with low-margin, low price and minimum-service
offering as a competitive move. The next stage in the cycle sees the retailer upgrading
his facilities and offerings and adding more services in a bid to increase the volume of
sales and hopefully profit. These moves increased his cost and therefore his price thus

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making the competitive environment attractive to a new low cost, low margin and
limits-service competitor.
Finally, the accordion theory attempts to explain the fluctuations in merchandise
lines and assortment. According to this theory new comers to the retail business start
by handling just a few products and a limited assortment of merchandise, over time,
there is a tendency for him to increase his product mix. There is also a possible
contraction in the future. The reason for this expansion and possible contraction is to
adjust the business to changing markets and environment, to survive as is the case in
the natural selection theory. The tendency to start off with a limited number of
merchandise is often related to the limited initial capital resources of the retailer.
Limited knowledge of available products and sources of supply is also an important
limiting factor. These reasons are particularly tenable today in most developing
countries including Nigeria.
Increases in merchandise assortment are like in the life cycle theory, the result of
the need to increase revenue and profits through a wider target market. The increases
are made possible by the availability of financial resources. In Nigeria today, the need
to serve a wider market has led vegetable retailers to expand their offerings to include
cooking oil, condiments and grains on the other hand retailers who once concentrated
on selling only food items such as rice, beans, and corn have expanded their offerings
to include vegetable, yams, fish, cooking oil and anything else can get supply of.
Functions of the retailer
The functions of the retailers can be describe, in a nutshell, as performing
marketing and all ancillary services for the producer and the ultimate consumer. This
demands that the retailer:
1. Maintains a close contact with the consumer to determine how best to serve him
2. Communicates consumer product requirements and market trends to the
manufacturer either directly or through the wholesaler.
3. Assembles at convenient points the desire assortment of products either directly
from the manufacturer or through wholesaler.

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Price display promotes the products and advises consumer on merchandise benefit.
i. Sells desired products to consumers:
ii. Offer ancillary services such as credit and delivery to encourage consumer
patron;
iii. Ascertain post sale consumer satisfaction and relays the feedback to the
manufacturers and /or wholesaler:
iv. Inform and educates consumers on new product and avail them of the
opportunity to buy them

Types of Retailers
Retailer comes in many shapes and form. A multiplicity of retail types exists. What
differentials one from another constitutes the competitive tool or variable among the
variables on which retail outlets differ are the following:
Merchandise offered: Some offer a narrow range, other offer a wide range. For
example some sell books, other sell drugs or grocery. Some specialize, others do not.
Method of Operation: While for example, mail-order retail outlets deals via post,
some other types of stores rely on face-to-face contact or door-or-door selling or
automatic vending as the case may be.
Relative Emphasis on Price: Some stores place great deals of emphasis on price
unlike others. The discount stores is an example of a retail unit which attempts by all
means to cost so as to be able to sell at lower price than others. Specialty stores, for
example, do not emphasis price on the hand.
Ownership: they may be owned independently or by a manufacturer or by a consumer
co-operative.
Size of Operation: Many such as market stalls, kiosks, peddlers and hawkers are
small while other such as supermarket and chain or multiple stores are large.
Location: Location of the retail outlet may be sources of differences between one retail
shop and another since some retail outlets are located in the heart of the city while
other are in the outskirts of the city or even in fairly remote villages.

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Service Performed: A number of retailer offer a wide range of retailing services
deliver while some do not. Some other self-service.
Degree of Organization: some small retail organization is poorly organizaed and not
professionally run while other have sophisticated organization and professional
management.

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