Meaning, Definition and Types of Channels of Distribution

The prime of object of production is its consumption. The movement of product from producer to consumer is an important function of marketing. It is the obligation of the producer to make goods available at right place, at right time right price and in right quantity. The process of making goods available to the consumer needs effective channel of distribution. Therefore, the path taken by the goods in its movement is termed as channel of distribution. The goods may be sent to the consumer directly or indirectly through middlemen. The channel of distribution may be classified as:

Selling through direct channels

This is the oldest, shorter and the simple channel of distribution. The producer sells the product directly without involvement of any middle man. The sale can be made door to door through salesman, retail stores and direct mail. Certain industrial and consumer goods such as clothes, shoes, books, hosiery goods, cosmetics, household appliances, electronic goods etc., may be sold through direct contact. Perishable goods such as vegetable and fruits can also be sold directly.

Advantage of selling through direct channels

  • It is simple and fast.
  • It is economical.
  • The producer has full control over distribution.
  • Satisfies the desire to reduce dependence on middle men.
  • Cash sales.

Disadvantages of selling through direct channels

  • Non-availability of expert services of middle man.
  • Large investment is required.
  • Unsuitable for small producers.

Methods of selling through direct channels

  • Selling goods through own retail outlets.
  • Selling goods through postal services.
  • Selling goods through courier services.
  • Selling goods against orders received, by telephone, email and fax is know as telemarketing. This method is being used by Asian Sky Shop. The product is delivered to the customer through producer's own vehicles, V.P.P. or courier.

Suitability of selling through direct channels

  • Costly industrial goods such as computer, aircraft, heavy machinery etc.
  • Perishable gods like fruits, vegetables, eggs, butter, milk etc.
  • Household appliances.
  • If customers purchase large quantities.
  • In case the number of suppliers is small.

Selling through indirect channel

According to this method of indirect selling, product is passed on to the customers through intermediaries, known as wholesalers, retailers and agents. These channels may be as under:

Producers -> Wholesalers -> Retailers -> Customer Two level Channel: It is commonly used channel of distribution. It is also known as traditional or normal channel of distribution. This channel is useful for small producers for small means. The channel is used for consumer goods. The common practice is that the manufacturer sells goods in large quantity to wholesalers, who sell goods to retailers in small quantity. Finally goods are sold to customers in pieces.

Producer -> Agent -> Retailer -> Consumer or Two level Channel: The common practice in this two level channel is that the goods are sold to the agent in bulk. The agent sells goods to retailer, who sells goods to customers in pieces. This channel is suitable where the retailers are few and geographically centered. This channel is commonly used in textile, machinery, equipment and agricultural products.

Producer -> Agent -> Wholesaler -> Retailer -> Customer or Three level Channel: The common practice in this three level channel is that goods are sold by the producer to the agent, who sells it to the wholesaler, who sells to the retailers who finally sells goods to customers. This is the longest channel of distribution. This practice is useful, when the producer wants to the relieved of the problem of distribution. This channel is popularly used in textile.

Producer -> Retailer -> Customer or one level Channel: Under this channel the producer sells goods to retailers, who sell the goods to customers. This channel is popular with the departmental stores, chain stores and supermarkets etc., because these are large scale retailers. Generally readymade garments, shoes home appliances and automobiles are sold through this channel.