UNIT 11 CHANNELS OF DISTRIBUTION I

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Structure
11.0 Objectives
11.1 Introduction
11.2 What is a Channel of Distribution?
11.3 Functions of Channels of Distribution ,
11.4 Channels of Distribution Used
11.4.1 Channels of Distribution Used for Consumer Goods
11.4.2 Channels of Distribution Used for Industrial Goods

11.5 Factors Influencing the Choice of Channel

11.6 Intensity of Distribution
11.7 Let Us Sum U p
11.8 Key Words
11.9 Answers to Check Your Progress
11.10 Terminal Questions

11.0 OBJECTIVES
After studying this unit, you should beable to:
explain the meaning and role of distribution channels in overall marketing of
products .
describe the common distribution channels used
outline the factors influencing the choice of a distribution channel
explain the strategies relating to'the intensity of distribution.

11.1 INTRODUCTION
You have already studied about the two important elements of marketing mix, viz.,
product and pricing. You would, however, appreciate that merely producing a good
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product which has the desired attributes and is beautifully packed, branded and
reasonably priced, does not ensure success in the market. It is equally important that
the product is made available at a place where the customer would like to buy it. In
other words, the product should be available at the right time and at the right place. In
I order to ensure this, each firm has to take certain strategic decisions for the systematic
distribution of its products. One such decision is regarding channels of distribujion. The
/ present unit discusses this aspect. In this unit you will study the meaning, role and
functions of a channel of distribution, factors influencing the choice of a distribution
/ channel and the strategies relating to the intensity of distribution.

11.2 WHAT IS A CHANNEL OF DISTRIBUTION?

The distribution system is concerned with the movement of goods from the point of
production to the point of consumption which involves a variety of functions. The main
participants in the distribufion systeh are: (1) themanufacturers, (2) the
intermediaries, (3) the facilitating agencies, and (4) the consumers. Manufacturers

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produce the goods. This is.the starting pqint'in t b istribution system. The second
, category of participants i.e., intermediarics, $&jnvo ved in direct negotiation between
Distribution the manufacturers who produce various products, identify the needs of the consumers
and distribute the goods. In the process, they perform various functions like buying,
selling, assembling, standardisation and grading, packing and packaging, risk bearing.
etc. Facilitating agencies are the independent business organisations other than
intermediaries. These agencies facilitate the smooth distribution of goods from
producers, through intermediaries, to consumers. The major facilitating agencies are
banking institutions, insurance companies, transportation agencies and warehousing
companies. The fourth category of participants in the distribution system i.e.,
consumers, are the final destination for goods in the distribution system.
A Channel of distribution is mainly concerned with second participant i.e., the
intermediaries. The term 'Channel of Distribution' refers to the route taken by goods
as they flow from the producer to the consumer. This flow of goods may mean its
physical distribution and/or the transfer of title (ownership). Channels of distribution
are mainly concerned with the transfer of title to a product which may be effected
directly or through a chain of intermediaries. You know most producers do not sell
goods directly to the consumers. They make use of a variety of intermediaries known
as middlemen. These middlemen who take title to goods or assist in iransferring the
- title to goods as they move from the producer to the consumer is called the channel
of distribution. Thus, the channel of distribution is a network of institutions that perform
a variety ofinterrelated and coordinated functions in the movement of goods from
producers to consumers.
A distribution channel creates place, time, form and possession utilities to the products
by prompt and efficient performance of the function of physical distribution. In modem
societies the production of goods takes place on a large scalein factories concentrated
in few localities while the consumers are scattered throughout the country. For
instance, textile mills are concentrated at few >laceslike Bombay, Ahmedabad,
Coimbatore, etc., while the cloth is used by all the people in the country. Similaily,
Maruti cars are manufactured at Delhi while the users are spread in all parts of the
-. country. Samething is true of agricultural commodities. Apples are produced mainly in
Kashmir Valley and Himachal Pradesh whereas they are consumed by people
throughout the country. Another such example is tea which is mainly produced in
Assam while it is consumed everywhere in the country. Thus, in most of the cases goods
are produced at one place while they are consumed at various other places and contact
the producers directly. Similarly it is not possible for all the producers to contact the
consumers directly and sell the goods. Hence, it is essential to move the goods from the
place of production to the markets where consumers can buy them. Otherwise,
production has no value and it becomes waste. Adistribution channel helps in the

There is another barrier which arises due to time lag between production and
consumption. The goods produced aEe not consumed at the same point of time. Some
goods are produced throughout the year, but their consumption is seasonal. For
example, umbrellas and raincoats are used only during rainy season, woollen garments
are used only during winter season. In some other cases, goods are produced during a
specific season while they are consumed continuously throughout the year. For example
foodgrains are produced by farmers during a particular season but are consumed-
throughout the year. Thus, in many cases, there is a time lag between production and.
consumption. The distribution channel makes it possible for the consumers to get the
product whenever they want them and, thus, creabs time utility to the products.
Similarly, a distribution channel makes it possible for the consumer to get the products
in a convenient shape, unit size, style and package. Thus it creates convenience value.
Distribution channel also makes it possible for the consumer to obtain goods at a price
he is willing to pay and under conditions which bring him satisfaction and pride of
ownership. Thus, it creates possession utility. Thus, it is the distribution system which
moves the goods from the place of production and makes them available to the
consumers at the right place, time and form.
The functions performed by the distribution channels may be grouped into three
categories as follows:
1) ~ransactionalFunctions
2) Logistical Functions
3) Facilitating Functions
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1) Transactional Functions: Functions necessary to a transaction of the goods are
called trmsactlonal f'unctlons. Buying, selling and risk bearing functions come under
this category. Participants in the channel of distribution undertake these three
functions. Producers sell the gonds and intermediaries buy them. Later
intermediaries sell the goods and consumers buy them. Because of this buying and
selling by the channel participants, title to goods changes hands and goods flow from
producer tobnsumer. If there is no willingness for buying and selling, there would
be no transaction. When goods are bought, it involves risk also. For instance, an
intermediary bought goods from the producer with the intention of selling at a
profit. But he may incur loss due to fall in price. All the participants in the
distribution channel assume such risk of loss.
2) Logistical Functloas: The functions involved in the physical exchange of goods are
called logbtlcal fimctlons. Distribution channel performs some functions like
assembling, storage, grading and transportation which are essential for physical
exchange of goods.
Goods are assembled in sufficient quantity to constitute an efficient selling and
shipping quantity. Sometimes, it is alsa,necessary to assemble a variety of goods to
provide an assortment of items desired by buyers. Grading and packing of goods
facilitate handling and sale of goods promptly. Proper storage of goods prevents loss
or damage as well as helps regular supply of goods to consumers whenever they
want. Transportation makes goods available at places where buyers are located. In
the channel of distribution all these functions are performed so that goods may reach
the market place at proper time and may be conveniently sold to the ultimate
consumers.
3) Facilitating Functions: These functions facilitate both the transaction as well as
physical exchange of goods. These facilitating functions of the channel include
post-purchase service and maintenance, financing, market information, etc. Sellers
provide necessary information to buyers in addition t o after sales services and
financial assistance in the form of Sale on credit. Similarly, traders are often guided
by producers t o help them in selling goods, while the traders also inform producers
about the customers' opinions about the products.
Thus, a channel af distribution performs a variety of functions such as buying, selling,
risk bearing, assembling, storage, grading, transportation, post-purchase service and
maintenance, financing, market information, etc. But the relative importance of
storage is more important for perishable goods and bulky material such as coal,
petroleum products, iron, etc. In the case of automobiles and sophisticated electronic
goods like computers, after sales service is very important.
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Check Your Progress A

1) What is a channel of distribution?

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2) State whether the following statements are True or False.
1) Only buying and selling activities are carried on by a distribution channel.
ii) Transportation is the primary function of a distribution channel.
iii) Risk bearing is one of the functions o f ~ distribution
a channel:-
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iv) In a distribution channel facilitating agencies take title to goods.
v) Channels of distribution create corlveniencc value to the goods.

11.4 CHANNELS OF DISTRIBUTION USED

You have learnt about the nature and functions of channels of distfibution. We shall
now discuss the channels of distribution commonly used by the producers. We can
classify the distribution channels into two broad categories: 1) direct channels and
2) indirect channels.
Direct Channels
When the producers sell their goods directly to the consumers, it is called a direct
channel. No middleman is present between the producer and the consumer.
For direct selling, the first option involves supplyingthe product to the customer using
your own salesmen and arranging your own deliveries. The second option is using the
medium of post office. You obtain orders from your customers who respond by mail or
telephone to your advertisements or to letters mailed directly to their houses. YOU
deliver your products to them through mail or through some other canier. The next
alternative is to establish your own retail stores. Bata Ltd., for example, has established
its own retail stores throughout the country. This practice has also been adopted on a
smaller scale by a number of textile mills which have their own retail shops like Calico
Mills, Rayrnonds, etc. DCM has franchised a number of retailers to sell their products
to the consumers.
Direct channel is also called zero-level channel as there is no middleman in between
producer and consumer. The three major ways of direct selling are shown in Figure
11.1.

Producer 4 Travelling Salesman ----, Consumer

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Producer -4 Retail shop/showroom Consumer

-
I

. .
Producer Mail ordermelephone Consumer

Figure 11.1: Direct Channels of Distribution

company which markets vacuum cleaners and water purifying equipment. It believes
that if the market is in the customer's house, the best way to get there is to knock at the
door. The company has clearly demonstrated that door-to-door selling can be effective
in Indian conditions. Its salesforce of over 500 people spread out over nearly 40 branch
offices in 29 towns make it the country's largest commercial direct sales organisation.
Between 1982-83and 1985-86, their sales of vacuum cleaners, water purifiers, etc.,
have gone up frofi Rs.3.3 to Rs. 11 crore. They took the cue from Electrolux, the
world's leading manufacturer of vacuum cleaners, and a firm believer in door-to-door

Indirect Channels
In the case of other products it is not possible for the manufacturer to supply goods
directly to the consumers. So middlemen like wholesaler. rctailer and mercantile
 in the distribution channel, it is called an inkrect channel. As shown in Figure 11.2 there C~olDlsMbotiwI
could be four indirect channels.

Producer Retailer Consumer

-

-
Producer Wholesaler Consumer

Producer Wholesaler Retailer Consumer

Producer -4 Agents - wholesaler Retailer

'L

Consumer

m&re 11.2 Indirect Channels of Distribution

The manufacturer may supply goods directly to reatil traders. In this case the producer.
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ascertains the requirements of retailers at periodical intervals and goods are supplied
accordingly. As and when required, the retailer may also procure goods from the
producer's godown located in that region. In the same way, the producer can supply
goods to the consumers by using the services of the wholesale trader. Since there is only
one middleman, (either retailer or wholesaler) in these two channels, this is referred to
1s one level channel. Alternatively, the producer can use the services of the wholesaler
3 well as the retailer. In this case the manufacturer may supply his products in bulk to
uholesalers. The retailer may buy periodically from the'wholesaler and sell the same to
the consumers located in his locality. As there are two middlemen (both wholesaler and
retailer) in this channel, it is referred to as two level channel. Another alternative
channel of distribution consists of mercantile agent, wholesaler and retailer. In this
case, the manufacturer deals with a mercantile agent. Then the wholesalers buy the
goods from the agents and sell the same to retailers. In turn the retailer sells it to the
ultimate consumers. This type of channel is referred to as three level channel as there
are three types of middlemen involved in the distribution.
We have understood that there are a number of channels of distribution prevalent.
From the producer's point of view, more the number of middlemen used, lesser is the

, distribution vary from one type of product to another. Basically we can classify thei
goods into two categories: 1) consumer goods, and 2) industrial goods. Let us now
discuss briefly about the channels of distribution used for these two categories of

11.4.1 Channels of Distribution Used for Consumer Goods

As you know, the goods which are consumed by the household consumers are called,
consumer goods. Under this category you can find a very wide range of items such as
food items, stationery, cars, clothing, shoes, household electrical appliances, TV sets,
transistors, etc. The channel of distribution used for different productsis not the same.
Channels are different from one type of product to the other. Look at Figure 11.3
carefully. It gives the idea about the channels of distribution for some of the customer

As shown in the figure, consumers sometimes go directly to the factory and buy the
goods or order the goods from thekatalogue. Durable consumer goods like cars,
clothing, furniture, textbooks, shoes, etc., are generally distribuGd through retailers.
In many cases showrooms are established by the manufacturer himself which undertake
the retail trade. For example, Bata Shoe Company sells shoes through its showrooms.
Consumer goods like auto spare parts, stereos, video recorder, etc., are distributed
through wholesalers and retailers. Consumer goods df Gaily need like foodgrains,
sugar, salt, edible oil, soap, paper, pencils, efe:; are generally distributed through agent
or broker, wholesaler and retailer.

Prcnlucrr Producer Producer Producer

Wholesaler Wholesaler

Con5umer Consumer Consumer Consumer

Catalogue shopp~ng Can Stereos Fdotl ~tems

D~rectlactory huying Clorhlng V~deorecorden
f extbookl
Furn~ture Auto parts

11.4.2 Channels of Distribution Used for Industrial Goods

As you know, the goods which are consumed for further production of goods are called
industrial goods. Under this category there are a variety of products such as machinery,
equipment, industrial raw materials (e.g., sugarcane, cotton, coffee, oilseeds, iron ore,
etc.), electrical and electronic components, etc. The channels of distribution are not
similar for all the products under this category. Look at Figure 11.4 carefully. It presents
the major channels of distribution for some of the industrial goods.
High value industrial goods like mainframe computers, aircraft, heavy machinery, etc.,
are supplied directly to the buyers. In these cases manufacturers procure orders by mail
on the basis of catalogues and price lists. Sometimes salesmen are also used to contact
the buyers. Relatively less expensive items like trucks, conveyor systems, etc., are
supplied through distributors. You know industries consume many agricultural
products. For instance, tea leaves are processed to prepare tea powder which we use for
preparing tea. Agricultural products like corn, coffee, soyabeans, etc., are procured by
the industrial buyers through agent middlemen. When electrical components are
ilnported from foreign markets, they are procured through an agent and industrial
distributor.
 \ \
Agent Agent
\ \ \ 1

v \ \
Industrial Industrial
1
Distributor Distrbutor
\ \ \

v v I
\
Industrial Buyer Industrial Buyer Industrial Buyer Industrial Buyer
\ \
Mainframe . Conveyor systems Industrial food Electrical cbmponents
computers Aircraft ' Trucks products (corn, coffee, from foreign markets
Heavy Machinery soybeans, etc.)

Figure 11.4 Channels of Distribution for Industrial Goods

Check Your Progress B

1) Distinguish between a direct channel and an indirect channel.
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2) From which type of intermediary (wholesaler/retailer/dealer/showroom)
you buy

Type of Intermediary

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iv) Wooden Furniture ..............................................

vi) Children's Garments ..............................................

+
vii) , Vegetables ..............................................
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3) Visit a local retail store in your neighbourhood area and find out what type of items
he procures from manufacturers, wholesalers and distributors.

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4) Write the names of two items which are distributed under the following channels
i) Manufacturer + consumer.
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ii) Manufacturer + wholesaler + consumer
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iii) Manufacturer + wholesaler + retailers + consumer
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11.5 FACTORS INFLUENCING THE CHOICE OF

CHANNEL
We have learnt that there are a number of channels used for distributing the goods.
There are direct channels and indirect channels, short channels as well as long channels.
.
We also learnt that the different channels are used for different types of products.
When there are alternative channels available, the selection of an appropriate channel ,
becomes a very important decision for the producers. The choice of a channel for - %

distribution of any product should be such that it should effectively meet the needs of
customers in different markets at reasonable cost. The factors which generally influence
the choice of the channel of distribution may be categorised under four groups as
follows:
1) Market considerations
2) Product considerations
3) Middlemen considerations
4) Company considerations
Product Considerations
1) Perishability:The nature of the product influences the choice of channel. Perishable
products like eggs, milk, etc., are supplied either directly or through the short
channels. If long channels are opted for perishable goods, they may get spoiled by
the time they reach the consumer. So products which are perishable must be speeded
through the short channels.
2) Bulkiness: In the case of heavy and bulky products (e.g., cement, steel, heavy
machinery, etc.) where distribution and handling costs are more, short channels are
preferred. On the other hand, long channels are found in the case of light-weight
and small-size items like dress material, readymade garments, pocket calculators,
stationery, toothpaste, toothbrush, etc.
3) Technical nature of the product: Sophisticated electrical and electronics equipment
which require careful handling are also generally distributed directly or through
short channels. In the case of sophisticated equipment like computers and Xerox
machines, considerable amount of presale and postale service is required.
Wholesalers and retailers may not be able to provide such services. So
.
manufacturers often distribute them directly. However, simple mechanical products
like electronic toys, time-clocks, etc., are supplied through long channels for
intensive distribution.
4) Product value: Unit value of tI?e product is also an important consideration while
deciding the channel of distribution. Normally larger channels are preferred for
products whose unit value is low. However, short channels may be equally
economical when such products are sold in bulk or are combined with other

Market Considerations
1) Size of the customers: If the number of customers is large, long and multiple channels
are necessary for intensive distribution of goods. Short channels and direct selling

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 are possible in the case of fewer customers purchasing large quantities at regular
intervals and if they are concentrated in a small area.
2) Potential volume of sales: The choice of channel depends upon the target volume of
business. The ability to reach target customers and the volume of sales varies
between different channels. If one outlet is not adequate for achieving the target,
more channels need to be used. Of course, the competitive situation must be taken
into account while examining the potential volume of sale through different
channels.
3) Concentration of buyers: If the buyers are concentrated in a few areas, it is possible
for the manufacturer to establish sales divisions in'such areas and sell directly to the
buyers. Thus, short channels may be feasible when buyers are concentrated in fewer
locations. On the other hand, if buyers are spread over a large geographic area,
short channels may become uneconomical and the manufacturer may have to go for
long and multiple channels.
4) Size of the purchase order: Manufacturer can distribute directly or through a short
channel in the case of large scale buyers. Normally long channek are effective and
economical in the case of buyers whose purchase orders are usualiy too small to
justify direct sale.
Middleman Consider~tions
1) Types of middlemen: Availabilitjl of suitable middlemen in the channel of
distribution is another factor in the selection of the channel. This is because different
functions like standardisation, grading, packing, branding, storage, after-sale
servicing, etc., are expected to be performed by middlemen. Efficiency of
distribution depends upon the size, location and financial position of middlemen, If .
the middlemen in a specific channel are dependable and efficient, that channel may
be preferred by producers.
2) Channel competition: There are different situations in whichmanufacturers compete
A i t h each other for availing the services of particular wholesalers. Similarly,
wholesalers often compete with each other to deal with particular retailers or
I
carrying particular brands of products. Sometimes producers use the same channel
which is used by their competing producers. If any producer arranges exclusive
distribution through a particular wholesaler, the other producers also do the same.
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Thus selection of a channel may deperid on the competition prevailing in the
distribution system.
3) Availability of middlemen: The producer may wish to make use of the services of
specific category of middlemen, but such middlemen may not be available in the
market. They may be carrying the competitors' products and may not wish to add
another product line. In such situations, the manufacturer has to make use of the
services of the middlemen whoever available in the market.
Company Considerations
I) Cost of distribution: The various functions carried out in the channel of distribution
add to the cost of distribution. While choosing a channel, the distribution costs of
each channel should be calculated and its impact on the consumer price should be
analysed. A channel which is'less expensive is normally preferred. Sometimes, a
channel which is convenient to the customers is preferred even if it is more
expensive. In such cases the choice is based on the convenience of the customers
rather than the cost of distribution.
2) Long-run effect on profit: Direct distribution, short channels, and long channels
have different implications with regard to the profits in the short-run and long-tun.
If demand for a product is high, reaching the maximum number of customers
through more than one'channel may be profitable. But the demand may decline in
course of time as competing products appear in the market. Itmay not be
economical than to use long channels. So while choosing a channel one should keep
in mind the future market im'plications as well.
3) Epperience and ability: A manufacturer who has reasonable experience and
exp'ertise in marketing the products may prefer to distribute his products on his own.
 But the manufacturers who do not have marketing know-how prefer to make use of
the services of middlemen.
4) Financial stt-eogth:Lots of financial resources are required to establish a distribution
system. So only a finan~iallystrong manufacturer can establish his own distribution
system and a financially weak firm may have to depend on middlemen.
5) Extent of channel contrd: Producers who want good control over the distribution of
their products prefer short channels. Controlling of the channels is necessary to
undertake aggressive promotion, to maintain fresh stocks and retail prices.
Thus in making a choice, the manufacturer has to consider his objectives, resources and
the channels available to him, nature of the product and characteristics of the buyers.
He would like to use the channel of distribution which will produce the combination of
sales volume and cost that yields.him the maximum amount of profit. There are no. set
guidelines for channel selection and the manufacturer will have to make his own
decision in the light of his own judgment and experience. However, most companies do
uSe multiple channels gf distribution to ensure that their products reach the maximum
number of people.
The task of manufacturer does not end after the channels have been selected. He has
to review the services performed by the agencies involved at fairly frequent intervals,
keep in close touch with the developments related to the distribution gf his product and
seek to improve his marketing methods constantly. He may also realise that the best
channel when the product was introduced, may not be the most effective one when the
product is established. The following criteria may be used for the evaluation of channel
members: 1) their sales performance, (ii) their marketing capabilities, (iii) their
motivation to increase the volume of sales, (iv) competition faced by them, and (v) their
growth prospects.

11.6 INTENSITY OF DISTRIBUTION

As discussed earlier, the number of levels in a channel may range from one level which
is the most direct (manufacturer-user) upto three levels, depending upon various
factors. After deciding the number of levels, each firm has to decide about the number
of intermediaries at each level of the channel. Here comes the question of intensity of
distribution. Intensity of distribution refers to the number of intermediariesat each level
of marketing channel. Let us assume that a manufacturer of refrigerators has opted for
a one level structure consisting of the manufaeturer, retailer and consumer. The
decision with respect to intensity of distribution in this case concerns the number of
retailers who would be selling the firm's product. In other words, whether a few retailers
would be entrusted the role of distribution o r a very large number of retailers would be
employed to distribute the firm's products. In short, three broad alternative optiqrls are
available to a firm with regard to intensity of distribution. These are: 1) intensive
distribution, 2) selective distribution, and 3) exclusive distribution.
1) Intensive Distribution Policy: Intensive distribution policy refers to sale of products
through a very large number of outlets. This policy aims at giving maximum
exposure to the pradr~ctfor sale in the market. Generally the producers of
convenience goods such as soft drinks, cigarettes, eggs, bread, toilet soap, biscuit,
toothpaste, chewing tobacco, etc., adopt the policy of intensive distribution. All
these products have low unit cost but are purchased frequently and haye large
turnover.
The objectiveof this policy is to reach every potential buyer so that not even a single
chance of making a sale is missed. It enables the firm to spread distribution overhead
cost over a wider network of dealers and minimise delay in communication in
reaching a large number of buyers. However, it is an expensive policy as the firm has
to csllect hbd serve small orders from a large number of outlets.
.
2) selective Distribution Policy: As the name suggests, this policy puts a limit to the
number of outlets that will be carrying a product. Thus, as against using all possible
intermediaries at a particular level, a careful selection is made of the outlet through
 which the product will be distributed. The manufacturers of shopping goods such as
fabrics, fans, washing machines, coolers, TV sets, mopeds, scooters, etc., (for the
purchase of which the consumers ark willing to make some extra efforts) generally
opt for selective distribution.
This policy is more suitable for products having brand prefcmnces because the
eonsumera of such products are expected to approach the channel used by the firm.
As the marketing firm does not have to dissipate its efforts over many outlets,
including many marginal ones, this palley Is kse costly than the intensive distribution
policy. Also it enable8 the manufacturer to gain adequate market coverage with
greater contra] as campared to the intensive policy.
Exclusive Distribution Policy: Under this policy a limited number of dealers are
granted the exclusive right to distribute the fi~m'sproducts in their pespective
territories. Under this policy there is an agreement between the manufacturer and
the middlemen where the manufacturer commits to channelise his products
exclusively through the middleman in the whole market or a part thereof and the
middleman, in turn, Serves the manufacturer exclusively in terms of the products
handled and the market served. When an agreement is made with an agent
middleman, it is known as soleselllngagency. But when such agreement is between
p manufacturer and a merchant, it is known as dealership at wholesale level and
distrib@n~~I~lp at retail level.
Exclusive distribution policy is particularly suitable for those products which are
slow-moving, have high unit value and,require after sales service. Thus, a large
number of manufacturers of mopeds, scooters, cars, trucks, etc., adopt exclusive
distribution policy for their products. For example, Maruti Udyog Ltd., Ashok
Leyland, Bajaj Scooters, and Lohia Machines Ltd., have appointed
dealers/distributors in different territories for the distribution of their products.
The policy of exclusive distribution allows maximum control over prices, promotion,
services, etc., by the manufacturer firm. Thus, exclusive distribution is usually
undertaken when the manufacturer desires more aggressive selling on the part of
middleman or when increased control over distribution is deemed tg be important.
Another adva~tageof exclusive distribution is that it leads to ~ ~ e h a ~ i s a ton
i a the
n
part of the dealer which results in improved after-galas serviees to the customers.
However, there may be problems in getting moperation from the dealers. As such
there is a need for careful management s f the channel members in this arrangement.
Also, many a time such an;angements In our country have been declared
anti-competitive b y the M R Commission.
~
The decision with respect to intensity of distribution is an important aspect of channel
structure and is often considered as a key factor in the firm's basic marketing strategy.
It also reflects the firm's overall business policies. For example, marketing strategy that
seeks to blanket the market with a product would require a channel structure thai has
very high level of distribution intensity. But a low intensity or a high degree of
selectivity would be required to be built into the channel structure when the marketing
strategies focus on carefully chosen target market. In general, when a firm's basic
markgting strategy requires mass appeal for its products, intensive distribution is used.
But when the strategy calls for stressing more narrQW segmentation, a more selective
channel is used.
k

,Check Your Progrm C

' 1) Distinguish between multiple ehannels of distribution and intensive distribution.

2) Distinguish between selective distribution and exclusive distribution.

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3) What is intensity of distribution?
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4) List out the factors which influence the choice of channels of distribution.
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5) State whether the following statements are True or False.
i) Normally direct channel is preferred for heavy engineering machinery.
ii) Intensive distribution policy is followed for distributing bread.
iii) Intensive distribution means using multiple channels for the same product.
iv) Direct channel is suitable when there are a few big buyers concentrated in one
area.

v) Manufacturer can have more control over distribution in the case of short
channels.

c .

11.7 LETUSSUMUP
Channel of distribution refers to a network of institutions that perform a variety of
interrelated and coordinated functions in the movement of products from producer to
consumers. Distribution channels play a very important role in achieving the marketing
objectives of an organisation. They create time, place, ownership and convenience
utilities to the product and thereby add to its value. The functions performed in the
channels of distribution are of three kinds: (i) transactional functions which are , ,
I
necessary for purchase and sale, (ii) logistical functions which are required for physical
exchange of goods, and (iii) facilitating functions which facilitate the transactions as
well as physical exchange.
Channels~ofdistributions can be groupad into two categories: (1) direct selling by
manufacturers (direct charinel) and (2) use of middlemen such as agepts, wholesalers
and retailers (indirect channel). Channels of distribution for consumer goods of daily
use consist of agehts or brokers, wholesalers, and retailers as intermediaries: Durable
consumer goods are generally distributed thrqugh showrooms of manufacturers, or
through retailers called dealers. Capital goods are often sold directly by manufacturers.
Sometimes distributors, dealers or agents are employed for supply of sukh goods.
The choice of a channel for the distribution of any product depends upon a number of
factors such as characteristics of the product (perishability, bulkiness, technical nature,
unit value), nature of the market (size of the customers, concentration of buyers, size
of purchase order, potential volume of sales), middlemen considerations (type of
middlemen, channel competition, availability of middlemen) and company
considerations (cost of distribution, long-run effect on profits, experience and ability,
financial strength). However, while selecting the channel, manufacturer will have to
make decision in the light of his own judgment and experience. Normally most of the
companies use multiple channels of distribution to ensure that their product reaches the
maximum number of people.
The channels of distribution perform all such functions which facilitate transfer. A
significant decision in the area &channels is with respect to intensity of channels, which ..
means deciding about the number of intermediaries to be used-at each level of
marketing channel. The threk alternative options with respect of intensity of
distribution are (i) intensive distribution, (2) selective distribution, and (3) exclusive
distribution. In general, when a firm's basic marketing strategy requires mass appeal,
intensive distributibn policy is adopted.

Channel of Distribution: A network of institutions that perform all the activities

necessary for moving a product and its title from the manufacturer to the ultimate
consumers or users.
Direct Distribution: The method of distribution under which manufacturers directly sell
the products to consumers without engaging any intermediary.
Exclusive Distribution: Distribution of products through some limited outlets which are
granted exclusive rights to distribute the firm's products in their respective territories.
Indirect Distribution: The method of distribution under which the products are moved
from producers to users with the help of one or more intermediaries.
Intensity of ~istribution:Distribution of products throukh a very large number of
intermediaries at each level of marketing channel.

Selective Distribution: Distribution of products through a limited number of

intermediaries at each level oEthe distribution channel. I

A2 i) False ii) False iii) True iv) False v) True

C5 i) True ii) True iii) False iv) True v) True

1) A new soft drink manufacturing company which has successfully launched its cola
and lemon drinks in Bombay is planning to introduce these products to the other
three metropolitan cities in the country. What kind of distribution channel would
you recommend to the company? What factors would you take into consideration
while selecting the appropriate channel for this company?
2) In your opinion which policy (intensive, selective, or exclusive) is suitable for
distributing the following products? Give reasons also.
i) Cotton fabrics
ii) Readymade garments for children
iii) Industrial machinery
iv) Soft drinks
v) Washing machines
vi) Fast food products like Potato Chips, Noodles, etc.
2) A computer company at present is selling its products directly to institutions and
other buyers through a network of fifty salesmen. You have to persuade the
company to disco,ntinue direct selling and switch over to selling through
intermediaries. What do you suggest?
4) \Vhat is a channel of distribution? What factors do you keep in mind while selecting
dstritrution channel for your product?
5 ) Ch;~nnr.l> of distril~utic>n
arc diffcrcnt for different products, why?