TOPIC: DISTRIBUTION What are the retailers, their types, and describe their functions? Retailers sell products/ goods to final consumers for consumption or use. Retailers buy the products from different sources like manufacturers, wholesalers, traders, etc. basis the need and want in the market. They are considered the final link with the consumer in the marketing/ distribution channel. Most of the retailing in retail stores is through new concept of retailing called non-store retailing. This type of retailing is becoming popular. It is direct selling to customers via infomercials, telecalling, internet selling, ecommerce, direct mail, personal selling, etc. Retailers can be broadly classifies as small scale retailers and large scale retailers. i) Small scale retailers – a) Unit stores – these are general stores or single line stores like clothes, gift shops, grocery stores, utensils, book shops, bakery, etc. b) Street traders – they sell products on streets, footpaths, etc. They usually sell items that can be easily carried and are quite unique like, mobile accessories, gloves, fancy accessories, etc. They can often be found at bus stands, railway stations, etc. on busy places at times when people go out for shopping, to work etc. c) Market traders – these open for selling on specific days and move around wherever there is an event, or time specified market. They have a fixed location and arrangement made for selling like a selling van, setting a kiosk, outlet, etc. on a fixed location. For example, farmers market, magic event, crockery sales, etc. d) Hawkers and Peddlers – these retailers sell goods door to door on their cart, bicycle, etc. They carry items that are in demand and as the demand changes because of various reasons like season change, they start selling different products. A hawker selling woollen clothes in winter may change to selling clothes suitable for warm climate in summer. e) Cheap jacks – these retailers have a specific place in a locality but do change locations for business. They usually sell unbranded items like clothes, plastic vessels, kitchen utensils, shows, etc. They set up the business for a specific time before changing location. ii) Large scale retailers – a) Departmental stores – a departmental store has wide variety of products being sold under one roof. From there, one can find a raincoat to a pen. They sell a particular specialized product or an entire product line. b) Discount store – here standard items are sold at lower prices. The business is done on higher sales and lower profit margins. For example, Wal-Mart and 49-99. c) Chain stores – these are stores near residential areas selling the same kind of products in different localities. These can be in the entire region, state or nation. For example, Nike stores, Dell, Raymond, Big Bazaar, etc. They have their chains in almost all towns. These centrally owned and managed. They mostly deal in same products across all chains like, fast food chains, Nike products, etc. The items for sale are bought centrally and sent across to all the chains. Since it operates under the same brand, the prices and quality is standardized. For example, a McDonald’s outlet will have same kind of price range, and feel and appearance of the store in different locations. d) Mail order houses – through this the seller shares information about the product via different means like advertising, press, post, catalogue, telecalling, etc. The buyer doesn’t visit the seller but orders the product and receives it via post, courier, etc. The business is done by mail or other means without inspecting the product by the consumer. TV advertising like infomercials are considered as extension of mail order houses. Here the sellers provide as much information as possible to the consumer through different media as customer will buy the product basis the advertising. e) Super market – it is a large retail store which sells a variety of consumer goods with self-service. They sell food items and articles of daily needs like, cold cream, bakery, vegetables, meat, groceries, fruits, dairy, etc. They deal in credits and consumers move around the store to choose products of their choice from a wide variety. f) Super stores – These are oversize department stores and also known as hypermarkets. They carry a wide range of general merchandise and FMCG’s. A customer can get services like haircuts, salons, restaurants, banking, etc. at these stores. g) Convenience stores – These are small stores that deal in limited-line of high selling goods at a higher price. They are like mini-supermarkets. They are located at the corner and have fast food franchise or fast food items also. h) Consumer cooperative – It is an association of consumers themselves who buy products in large bulk for members as well as non-members. The consumers or locality residents themselves manage all the activities from designating a manager to setting the policies of the store. Below are major functions of retailers- 1. Buying and Assembling – A retailer deals with different kind of products from different manufacturers and brands. They buy these products from different wholesalers and store them in their shops or stores to be bought by the consumers. They buy from the most economical source to have maximum profit margin. Different retailers have different business objectives which can be profit oriented or quality oriented. 2. Warehousing and storing – Retailers assemble products from different suppliers and store them to be supplied to the consumers on time. They keep enough supply stored with them so as to meet the demand in the market. 3. Selling for final consumption – The retailers sell products to final consumers for use and consumption. They are the final link in the distribution channel. 4. Promotion of brands – The manufacturers and wholesalers encourage retailers to display their products on shelves and selling counters to increase sales. Retailers help a brand in getting exposure in the market. Manufacturers try to give higher profit margins to retailers for meeting certain sale targets. Retailers try their best to make sales through salespersons, display on shelves, window displays, hoardings, etc. to maximize sale of products that gives them higher profits. 5. Credit facilities – The retailers sell products on credit to buyers. They try influencing buyers by accepting payments on installments, etc. and bear the risk of bad debts. 6. Risk bearing – Like wholesalers, retailers also bear the risk of handling the purchased products. They carefully handle products in their stores till the product is made available to the consumers. For example, Perishable commodities like milk and bread need to be sold before the expiry date and feeble products like glass and television sets needs careful handling. The products are exposed to natural risks like fire, earthquakes, rains, etc. Customer preferences also change so the already purchased products with retailers may have a reduced demand in the market. If these products are not sold the retailer has to bear the risk. 7. Grading and packaging – many times the products which are not graded or packaged by wholesalers are packaged by the retailers for convenient selling. The products are packed in small containers of packages with proper information for the convenience of the customers. 8. Source of market information – Since the retailers are in constant touch with the consumers, they are the best source of information for doing market analysis by the manufacturers and wholesalers. They have ready data available regarding the sales of the product in the market, likes and dislikes of consumers, their feedback, their preferences, etc. 9. Customer education – manufacturers ensure that the retailers are well educated about their products. Sometimes they even have their representatives sent to retailers for answering queries of salesmen as well as customers. Retailers play a big role in passing on the information to the customers about the functions, benefits, utility, and characteristics of a product. 10. Cater to the needs of all kinds of customers – Retailers cater to the needs of all kinds of customers’ basis their financial as well as social status. Retailer’s advice consumers about products that suits his/ her needs. For example, a clothes merchant will advice a rich person to go for branded jeans, while a customer will less paying capacity will be advised of much cheaper options. Functions of Wholesalers Wholesalers are the organisations that buy and resell products to other resellers like retailers, other merchants or to industrial buyers, and not in significant amount to end users. They take title to the products they trade in. They buy the products in large quantities and break down the bulk basis the requirement for distribution to retailers, etc. They provide range of services to buyers as well as manufacturers like transportation, buying on credit, etc. Below are the major functions of Wholesalers- 1. Buying and assembling – The wholesalers buy products from various manufacturers and assemble them for supply to retailers. They store these products in their warehouses, and ensure supply of product as per demand in particular region. 2. Warehousing – The wholesalers not only buy products but also store them in their warehouses. The quality of the products is kept intact. The products are shipped to retailers on time, basis the demand ensuring the time lag between manufacturing and consumption is efficient and effective. The products reach the consumers as intended by the manufacturer without wear and tear. 3. Breaking the bulk – It is not feasible for manufacturers to manufacture and supply products in small quantities in the target market. The job of breaking the bulk is done by wholesalers. The consumers buy products for household purposes in small quantities. This helps retailers in storing products in small quantities to meet the demand of the consumers in the marketplace. When the stocks of the retailers are exhausted, the retailers approach the wholesalers to buy products in small quantities. 4. Dispersing of products to retailers scattered in the target market – the wholesalers help in dispersing the products all over the market to the retailers. This helps manufacturers as the task of dispersing the products is no longer with them and they can focus on other marketing functions. The wholesaler becomes a source of all buying for the retailers. The retailers don’t have to contact the manufacturer. 5. Source of market information – The wholesalers are important source of information for the manufacturers. The information about demand, competitors, customer preferences as well as substitute products is available with wholesalers. They receive this information from the retailers. Not only they receive information, they also disperse information from the manufacturers to retailers as well as other players in the market. For example, launch of a new product by a manufacturer, market position of a manufacturer, etc. 6. Financing – The wholesalers do business on credit with retailers as well as manufacturers. The retailers receive the goods on credit which helps new retailers in the market who cannot buy products by giving large sums of money. Similarly, wholesalers give advance money to the manufacturers for the products that will be received later by them. This function helps in easy flow of products even when the money is not immediately exchanged. 7. Grading and Packaging – The wholesalers not only break the bulk, but also package the goods in small quantities and grade the quality on the packaging. This is a very important marketing function which helps consumers make decisions. 8. Transportation – The wholesalers buy products from wholesalers and ship them to their warehouses and godowns. From there, the products are supplied to the retailers, etc. They may employ their own vehicles for transportation. As the wholesaler is in touch with the retailers, the supply is also done effectively (on time) and efficiently (lowest cost possible). 9. Risk bearing – Products are exposed to many risks like destruction – natural as well as unnatural disasters. They can get spoiled during transportation, climate change or may even get spoiled if not sold before the expiry date. The products also bear a risk of not sold because of less demand, reduced prices of competitor or substitute products. As the manufacturer has already sold the product to the wholesaler, this risk is borne by the wholesaler. To avoid such risks wholesalers carefully buy products in right quantities and opt for insurance of different kinds. 10. Advertising – The wholesalers also do advertising of new products via distribution of pamphlets, hoardings, mouth publicity, Television ads, etc. This helps manufacturers in market growth. The consumers learn about product launches and its benefits which helps them in making proper decision when buying a product. The functions of wholesalers also varies basis the kind of wholesaler. They are as below- a) Full function wholesaler – they buy products/goods from manufacturers and sell them to other resellers like retailers, traders, etc. below the marketing or distribution channel. They buy in bulk from different manufacturers, break down the bulk, store, sell the smaller lots for cash or credit, and also helps with information (advice, education, etc.) to whom he sells. As they take title to the products, they are also responsible for the risk factor involved. b) Converter wholesaler – as the name suggests, they buy the products in bulk, process them before selling them to the following channel members. For example, a wholesaler buys textile and bleaches it before selling it to other merchants. c) Industrial wholesalers – they sell the products to manufacturers instead of retailers. difference between wholesaler and retailers and their types. 1) Wholesalers – These are the organisations that buy and resell products to other resellers like retailers, other merchants or to industrial buyers, and not in significant amount to end users. They take title to the products they trade in. They buy the products in large quantities and break down the bulk basis the requirement for distribution to retailers, etc. They provide range of services to buyers as well as manufacturers like transportation, buying on credit, etc. There are different kinds of wholesalers and they can be broadly put into the below categories- a) Full function wholesaler – they buy products/goods from manufacturers and sell them to other resellers like retailers, traders, etc. below the marketing or distribution channel. They buy in bulk from different manufacturers, break down the bulk, store, sell the smaller lots for cash or credit, and also helps with information (advice, education, etc.) to whom he sells. As they take title to the products, they are also responsible for the risk factor involved. b) Converter wholesaler – as the name suggests, they buy the products in bulk, process them before selling them to the following channel members. For example, a wholesaler buys textile and bleaches it before selling it to other merchants. c) Industrial wholesalers – they sell the products to manufacturers instead of retailers. d) Drop shipper wholesaler – a drop shipper wholesaler doesn’t handles the product. They take orders and coordinates with the manufacturer to deliver the goods directly to the retailer or other merchants in the channel. As they take the risk of the products, they need to handle the products in case the retailer, etc. cancels the order. They trade in bulk like coal, sand, lumber, etc. 2) Retailers – Retailers sell products/ goods to final consumers for consumption or use. Retailers buy the products from different sources like manufacturers, wholesalers, traders, etc. basis the need and want in the market. They are considered the final link with the consumer in the marketing/ distribution channel. Most of the retailing in retail stores though new concept of retailing called non-store retailing is becoming popular. It is direct selling to customers via infomercials, telecalling, internet selling, ecommerce, direct mail, personal selling, etc. Retailers can be broadly classifies as small scale retailers and large scale retailers. i) Small scale retailers – a) Unit stores – these are general stores or single line stores like clothes, gift shops, grocery stores, utensils, book shops, bakery, etc. b) Street traders – they sell products on streets, footpaths, etc. They usually sell items that can be easily carried and are quite unique like, mobile accessories, gloves, fancy accessories, etc. They can often be found at bus stands, railway stations, etc. on busy places at times when people go out for shopping, to work etc. c) Market traders – these open for selling on specific days and move around wherever there is an event, or time specified market. They have a fixed location and arrangement made for selling like a selling van, setting a kiosk, outlet, etc. on a fixed location. For example, farmers market, magic event, crockery sales, etc. d) Hawkers and Peddlers – these retailers sell goods door to door on their cart, bicycle, etc. They carry items that are in demand and as the demand changes because of various reasons like season change, they start selling different products. A hawker selling woollen clothes in winter may change to selling clothes suitable for warm climate in summer. e) Cheap jacks – these retailers have a specific place in a locality but do change locations for business. They usually sell unbranded items like clothes, plastic vessels, kitchen utensils, shows, etc. They set up the business for a specific time before changing location ii) Large scale retailers – a) Departmental stores –a departmental store has wide variety of products being sold under one roof. From there one can find a raincoat to a pen. They sell a particular specialized product or an entire product line. b) Discount store – here a standard items are sold at lower prices. The business is done on higher sales and lower profit margins. For example, Wal-Mart, 49-99. c) Chain stores – these are stores near residential areas selling the same kind of products in different localities. These can be in the entire region, state or nation. For example, Nike stores, Dell, Raymond, Big Bazaar, etc. The have their chains in almost all towns. These centrally owned and managed. They mostly deal in same products across all chains like, fast food chains, Nike products, etc. The items for sale are bought centrally and sent across to all the chains. Since it operates under the same brand, the prices and quality is standardized. For example, a McDonald’s outlet will have same kind of price range, and feel and appearance of the store in different locations. d) Mail order houses – through this the seller shares information about the product via different means like advertising, press, post, catalogue, telecalling, etc. The buyer doesn’t visit the seller but orders the product and receives it via post, courier, etc. The business is done by mail or other means without inspecting the product by the consumer. TV advertising like infomercials are considered as extension of mail order houses. Here the sellers provide as much information as possible to the consumer through different media as customer will buy the product basis the advertising. e) Super market – it is a large retail store which sells a variety of consumer goods with self-service. They sell food items and articles of daily needs like, cold cream, bakery, vegetables, meat, groceries, fruits, dairy, etc. They done deal in credits and consumers move around the store to choose products of their choice from a wide variety. f) Super stores – These are oversize department stores and also known as hypermarkets. They carry a wide range of general merchandise and FMCG’s. A customer can get services like haircuts, salons, restaurants, banking, etc. at these stores. g) Convenience stores – These are small stores that deal in limited-line of high selling goods at a higher price. They are like mini-supermarkets. They are located at the corner and have fast food franchise or fast food items also. h) Consumer cooperative – It is an association of consumers themselves who buy products in large bulk for members as well as non-members. The consumers or locality residents themselves manage all the activities from designating a manager to setting the policies of the store. Channel of distribution, Supply Chain Management and Logistics Management. The organizations invest heavily in making a product of customer’s choice. If the organisation don’t make arrangements to deliver or make it available to prospective buyers at the right time and the right place, it is sure to fail in the market. Imagine a customer has to contact the manufacturer for the products like shampoo, soaps, etc. and arrange his own transport. It will be a big hassle for the customer who would rather prefer something that is easily accessible. Making the products available effectively and efficiently to the end consumers is taken care under the place concept of the marketing mix also known as marketing channel or distribution channel. Decisions concerning distribution channels are of utmost importance to manufacturers. It is concerned with how the product gets through the producer to the consumer. Most of the manufacturers do not sell the products to the end users. They use a set of intermediaries which perform different roles in the channel network. Each member in this chain or channel serves as a link in the distribution network linking the manufacturer to the end user. Supply Chain Management involves the management of materials, information, etc. from the suppliers to the physical distribution of the finished products to the consumers which encompasses logistics, material handling, and purchasing. This area of marketing if properly executed reduces costs to a great extent. This is the reason this arm of marketing is gaining much importance, and organizations constantly strive to employ a right candidate for this role. Advertisements Management of the supply of materials and information from the suppliers (source) to the end customer is Supply Chain Management. All the organizations that are part of the process of producing, promoting and delivering a product to the end customers are considered part of the product’s Supply Chain. It begins from the suppliers who provide raw materials, etc. to manufacturers for production and follows the distribution of the finished product till the end consumer. This includes the storage activity as well of the materials and products. Supply chain management encompasses the flow of materials and information up and down the chain. All the activities of managing the supply as well as storage incurs the costs for the organization. Marketers strive to bring efficiency in this function to reduce the costs. These costs finally get added to the price of the product. If this function is managed most efficiently, the price of the final product will be less and will help the organization gain competitive advantage. It also gives great opportunity to increase the cost to profit margin and increased profits to the organization. Reducing costs is part of supply chain. Value Chain is another term used interchangeably with the term supply chain. Definition of Supply Chain Management – “Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all Logistics Management Activities.”– Council of Supply Chain Management Professionals. Most of the organizations produce products at a certain location for efficiency through large-scale production. The buyers of these products are spread all over the world. This necessitates the function of making the products available to buyers. This function of connecting the manufacturer with the buyers by distribution of goods and information comes under Marketing Channels. Marketing Channel involves all the people and organizations that are focused on providing value to the customer (downstream) via buying, selling and promoting the product to the customers. These organizations that perform the marketing activities of buying, selling and promoting a product are called as intermediaries, middlemen or resellers. For example, the producer of raw materials that supplies these to the manufacturers for making a product forms part of the Supply Chain and not Marketing Channel. Marketing channel is only concerned about the channel flows (physical goods, ownership, payments, etc.) to-and-fro among manufacturer, any intermediaries, and end consumers. These are set of organizations linked to each other which are concerned with making an offering available for the user. The characteristics of all these organizations (middlemen, intermediaries, resellers) help an organization to determine which of these intermediaries to utilize or to not utilize them at all. That is to make a decision of selling the offering directly to the consumer or via intermediaries. As involvement of marketing channels results in costs, important decisions are made on selection of these channels and designing an effective and efficient marketing channel network. Advertisements Definitions of Marketing Channel – Marketing channels are set of interdependent organizations involved in the process of making a product or service available for use or consumption. – Philip Kotler. Marketing channel or Marketing intermediaries are organizations that are responsible for the distribution function of connecting manufacturers to consumers. One who specialises in performing operations of rendering services that are directly involved in the purchase and sale of goods in process of their flow from producers to the users. – Definition of middlemen by American Marketing Association. Various intermediaries like wholesalers, retailers, agents, etc. form the marketing channel. Supply chain encompasses all the organizations involved in producing, marketing and delivering of products to consumers. It consists of flow of information and materials upstream as well as downstream. It includes suppliers as well as intermediaries. Supply chain management ensures supply of inbound materials and outbound finished products Logistics refers to the physical flow of materials in the supply chain. Logistics management is part of the supply chain management that is concerned with planning, implementation and control for effective and efficient flow of goods, services, and information up and down the supply chain. importance/ objectives/ role of marketing channels. Marketing channels from the soul of the marketing function. Consider a product of customer’s choice made by a manufacturer at the right price. Now when a customer wants to buy the product, he will have to locate a manufacturer who may be in a different region. Just making enquiries about the product, getting it, etc. will take immense effort from the customer. It has been noted that most of the products in the market fail if they are not made available to the target customer at the right time and at the right place. The roles, functions and benefits of marketing channels are listed below- 1) When the product information is available (promotion), the customer is bound to make enquires with different retailers, ecommerce sites, wholesalers, etc. It becomes important for the manufacturers to ensure the product is easily available to the customers. Else a competitor will take advantage of this opportunity and introduce the product with different intermediaries for the customer. 2) Presence of intermediaries reduces the number of links between the manufacturers and the buyers. As shown in the figure, for example, if the producer 1 manufactures shirts and producer 2 manufacturers shoes. So a customer looking for both these items will have to contact these 2 manufacturers separately. This effort will be greatly reduced if both of these items are available with an intermediary like a retailer. This not only benefits the customer but also the manufacturer in meeting its marketing strategy, sales, etc. 3) The presence of the marketing channels ensure market coverage and a successful marketing strategy for the organization. The intermediaries provide a variety of products from different manufacturers at one place. The customer doesn’t needs to make extra efforts to reach the manufacturers. The intermediaries not only provide producers products but also act as hub of information about the products and manufacturers. A customer can get all the required information on the product like its features, quality, warranties, guarantees, and also have a first-hand experience of experiencing the product via demo. 4) The intermediaries provide a variety of products at one place. The buyers get a great opportunity of comparing the products and their substitutes from different manufacturers. 5) The intermediaries perform the function of product storage as well as transportation. In their absence, the manufacturer will have to perform these functions. They take the risk of transportation and storage. 6) The intermediaries reduce the transaction costs because of the lower number of links between manufacturers and buyers. 7) They are the source of information for manufacturers. The intermediaries provide information about the market like demand, competitors, consumer behaviour, consumer buyer behaviour, etc. (marketing environment) which helps manufacturers in altering marketing strategies or identifying new needs and wants in the market (information on opportunities and threats). 8) Intermediaries take the risk of new product launches. Irrespective of the acceptance of a new product in the market, the intermediaries take the risk of managing the new product that requires investment in time, effort and money. 9) Time utility function – the intermediaries perform the function of making the product available at a convenient time. 10) Place utility function – the product is made available at a convenient location. 11) Products are made available in small as well as large quantities – Break of bulk services. For example, a customer can buy a single tooth brush or half-a-dozen at a time from an intermediary. To entertain each and every request of different quantities from the buyers in the marketwill be a difficult task for the manufacturer. 12) The intermediaries help promote products via different in-store promotion activities like distribution of pamphlets, display, assigning shelf space, store salesman, etc. For example, customers do ask the store representatives about the value of the product, any complaints from other customers, etc. 13) Knowledge of the region – a manufacturer will need help of local people in the target market on the expertise on the local language, culture, etc. The retailers, etc. perform this function, and help the manufacturer in implementing its marketing strategies. We can conclude that the presence of intermediaries, middlemen or resellers fill the below gaps between the manufacturer and the consumer- a) Space gap – manufacturer location is at different location from the buyer. Intermediaries make the product available at the convenient place to the buyer. b) Time gap – As manufacturing takes place at a different place from the buyer’s location, product reaching the buyers place at the time of need is not possible. Intermediaries store the products in advance to ensure the product is readily available when needed. c) Offerings gap – Intermediaries store different kinds of goods from same as well as different manufacturers. The customer can buy groceries, clothes, shoes, etc. from a single retailer now days. For example, shopping malls, supermarkets, etc. d) Quantity gap – Products are made available in small as well as large quantities. e) Information gap – Intermediaries educate the customer about the product through demo, etc. This function helps buyers to compare different products, understand the value delivered by the product, etc. f) Product variety gap – Intermediaries store goods from different manufacturers. Buyers don’t need to contact the manufacturer individually for comparison, etc. The manufacturer can decide to skip the intermediaries. Usually large organisations directly sell to consumers like Apple store, Vodafone mini store, etc. Here the manufacturer saves the costs on intermediary margins and reduces the cost of the product. The lower cost increases the profit margins. Some examples are direct selling through company sales representatives, mail, vending machines, phone calls (telemarketing), infomercials, internet selling, etc. Types of Marketing channels / Channel Levels and Channel Flows. The producer and the end consumer are the starting and end point of the marketing channel. The presence of number of intermediaries depends on the marketing objectives of the organisation. Selecting the right channel is a critical task as it can be the reason for failure or success of the product. We will look at the Levels of marketing as shown in the figure above. Manufacturer – Consumer channel, there is absence of intermediaries. Here the manufacturer opts to sell directly to the customer. Hence, this level is also known as Direct-marketing channel. The internet, television (cable networks) gives great opportunity to manufacturers to reach their prospective customers. Manufacturers understand the power of retailers as the final link to the customers. To reduce this influence of retailers, organisations follow this channel. This channel structure is also economically viable as the manufacturer doesn’t needs to give sales or profit margins to intermediaries. Some examples of this channel are: mail order, door-to-door selling, internet selling, Television commercials (infomercials), telemarketing, and manufacturer store outlets. Manufacturer – Retailer – Consumer channel has one intermediary. This intermediary is generally a retailer in consumer markets. For example, producers of televisions, appliances, etc. sell their products to large retailers who buy these products in bulk. These retailers have large distribution network. They break down the large bulk quantities into smaller ones and distribute to their stores in the market. For example, departmental stores, shopping malls, super markets, etc. The manufacturer performs the function of the wholesaler. There are many reason for adopting this channel- a) Sometimes, the product needs immediate distribution and cannot be stored for long (perishable products), b) more proximity to end consumers to study their response, c) shorter channel has better control. Manufacturer – Wholesaler – Retailer – Consumer: Smaller retailers cannot buy in bulk from producers. Here the producers sell the bulk to wholesalers who break the bulk and sell it to retailers. For example, hardware, drugs, food items, etc. Manufacturer – Agents/Brokers – Wholesalers – Retailers – Consumers: This three-level channel has three intermediary levels. When the manufacturers don’t have many clients they take benefits of agents/brokers. When manufacturers find it difficult to reach the wholesalers through their representatives or branches, they take help of agents or brokers on commission basis. Agents/brokers negotiate purchases or sales, or both, but do not take ownership of the goods. They are likely to have several contacts or clients in the market and can arrange variety of product. For example, imported goods, textile goods, agricultural goods, etc. Marketing channels with more levels are also found in some organisations. But each intermediary in paid a margin for its service. This adds to the cost and price of the product. Also, more the number of intermediaries lesser is the manufacturers control on the channel. In Business marketing channels, the manufacturer’s sometimes use their own sales people to sell to industrial buyers. The industrial distributors also help an organization increase its market presence in industrial markets. They have large client base and their expertise helps an organisation expand its business. Depending on the scale of business, the organisation can directly sell through the industrial distributors, or its representatives and sales branch can sell to industrial buyers through industrial distributors. Channel Flows – Supply Chain Management involves the management of materials, information, etc. from the suppliers to the physical distribution of the finished products to the consumers which encompasses logistics, material handling, and purchasing. The entire management in Supply Chain from the source to the consumer and back involves forward flow as well as backward flow. Apart from flow of physical products, the other flows are information, ownership, money (financial transactions), and risk. Physical flow starts from the source of the channel that is suppliers. This flow, mainly via transportation is among suppliers, manufacturers, intermediaries, and consumers. There may be backward flow of physical goods in case of returns for various reasons like defects, etc. Title flow involves transfer of ownership through the channel. The flow of ownership accompanies physical flow most of the times but not all the intermediaries take title of the product. Brokers and agents negotiate deals but don’t take title of the product. Payment flow or financial flow is movement of payment of goods within the channel. It may involve financial institutions like banks, finance firms, etc. Payment can be in cash or credit and it flows in the direction opposite to the flow of physical flow. Information flow involves negotiation, terms of sale, advertising, etc. It is the flow of information within the channel among different intermediaries, consumers, manufacturers, and suppliers. It may be a feedback, an appreciation, a request, or even a complaint from the consumer, and a reply to this from the manufacturer, wholesaler or a retailer. Risk flow involves all kinds of risks in handling the product. It usually flows with the flow of physical flow and affects all the members of the channel. Product becoming outdated, passing its expiry date, defects, price changes, etc. are many of the risks that affect the buyers and sellers. All the members on the channel try to reduce the risk by various means like insurance against damage, finance firms increase interest rates, etc. DIFFERENT KINDS OF INTERMEDIARIES Intermediaries, also known as middlemen and re-sellers, are organisations that perform the different functions in the marketing channel to connect the manufacturer to the buyer. These can be organizations as well as individual business men. There are two types of middlemen, one those who take title to the products (merchant middlemen), and others who just facilitate the sale and purchase of product without taking title of them (agent middlemen). The first category are known as merchant middlemen which are known as wholesalers and retailers. The agent middlemen are the agents and brokers who negotiate purchase or sales, or both and do not take ownership of the product. Example of agent middlemen are agents, brokers, commission agent, forwarding and clearing agents. I. Merchant Middlemen – 1) Wholesalers – These are the organisations that buy and resell products to other resellers like retailers, other merchants or to industrial buyers, and not in significant amount to end users. They take title to the products they trade in. They buy the products in large quantities and break down the bulk basis the requirement for distribution to retailers, etc. They provide range of services to buyers as well as manufacturers like transportation, buying on credit, etc. There are different kinds of wholesalers and they can be broadly put into three categories- a) Full function wholesaler – they buy products/goods from manufacturers and sell them to other resellers like retailers, traders, etc. below the marketing or distribution channel. They buy in bulk from different manufacturers, break down the bulk, store, sell the smaller lots for cash or credit, and also helps with information (advice, education, etc.) to whom he sells. As they take title to the products, they are also responsible for the risk factor involved. b) Converter wholesaler – as the name suggests, they buy the products in bulk, process them before selling them to the following channel members. For example, a wholesaler buys textile and bleaches it before selling it to other merchants. c) Industrial wholesalers – they sell the products to manufacturers instead of retailers. d) Drop shipper wholesaler – a drop shipper wholesaler doesn’t handles the product. They take orders and coordinates with the manufacturer to deliver the goods directly to the retailer or other merchants in the channel. As they take the risk of the products, they need to handle the products in case the retailer, etc. cancels the order. They trade in bulk like coal, sand, lumber, etc. 2) Retailers – Retailers sell products/ goods to final consumers for consumption or use. Retailers buy the products from different sources like manufacturers, wholesalers, traders, etc. basis the need and want in the market. They are considered the final link with the consumer in the marketing/ distribution channel. Most of the retailing in retail stores though new concept of retailing called non-store retailing is becoming popular. It is direct selling to customers via infomercials, telecalling, internet selling, ecommerce, direct mail, personal selling, etc. Retailers can be broadly classifies as small scale retailers and large scale retailers. Small scale retailers – a) Unit stores – these are general stores or single line stores like clothes, gift shops, grocery stores, utensils, book shops, bakery, etc. b) Street traders – they sell products on streets, footpaths, etc. They usually sell items that can be easily carried and are quite unique like, mobile accessories, gloves, fancy accessories, etc. They can often be found at bus stands, railway stations, etc. on busy places at times when people go out for shopping, to work etc. c) Market traders – these open for selling on specific days and move around wherever there is an event, or time specified market. They have a fixed location and arrangement made for selling like a selling van, setting a kiosk, outlet, etc. on a fixed location. For example, farmers market, magic event, crockery sales, etc. d) Hawkers and Peddlers – these retailers sell goods door to door on their cart, bicycle, etc. They carry items that are in demand and as the demand changes because of various reasons like season change, they start selling different products. A hawker selling woollen clothes in winter may change to selling clothes suitable for warm climate in summer. e) Cheap jacks – these retailers have a specific place in a locality but do change locations for business. They usually sell unbranded items like clothes, plastic vessels, kitchen utensils, shows, etc. They set up the business for a specific time before changing location. Large scale retailers – a) Departmental stores –a departmental store has wide variety of products being sold under one roof. From there one can find a raincoat to a pen. They sell a particular specialised product or an entire product line. b) Discount store – here a standard items are sold at lower prices. The business is done on higher sales and lower profit margins. For example, Wal-Mart, 49-99. c) Chain stores – these are stores near residential areas selling the same kind of products in different localities. These can be in the entire region, state or nation. For example, Nike stores, Dell, Raymond, Big Bazaar, etc. The have their chains in almost all towns. These centrally owned and managed. They mostly deal in same products across all chains like, fast food chains, Nike products, etc. The items for sale are bought centrally and sent across to all the chains. Since it operates under the same brand, the prices and quality isstandardised. For example, a McDonald’s outlet will have same kind of price range, and feel and appearance of the store in different locations. d) Mail order houses – through this the seller shares information about the product via different means like advertising, press, post, catalogue, telecalling, etc. The buyer doesn’t visit the seller but orders the product and receives it via post, courier, etc. The business is done by mail or other means without inspecting the product by the consumer. TV advertising like infomercials are considered as extension of mail order houses. Here the sellers provide as much information as possible to the consumer through different media as customer will buy the product basis the advertising. e) Super market – it is a large retail store which sells a variety of consumer goods with self-service. They sell food items and articles of daily needs like, cold cream, bakery, vegetables, meat, groceries, fruits, dairy, etc. They done deal in credits and consumers move around the store to choose products of their choice from a wide variety. f) Super stores – These are oversize department stores and also known as hypermarkets.They carry a wide range of general merchandise and FMCG’s. A customer can get services like haircuts, salons, restaurants, banking, etc. at these stores. g) Convenience stores – These are small stores that deal in limited-line of high selling goods at a higher price. They are like mini-supermarkets. They are located at the corner and have fast food franchise or fast food items also. h) Consumer cooperative – It is an association of consumers themselves who buy products in large bulk for members as well as non-members. The consumers or locality residents themselves manage all the activities from designating a manager to setting the policies of the store. II. Agent middlemen- They facilitate the sale and purchase of product without taking title of them. They negotiate the sales between sellers and buyers, and generally receive commission for their service. They are classified as – a) Commission agent – They do not assume any risk of the products and receives a fixed rate of commission for his service. They are expert in dealing with the commodities they deal in and have knowledge about the market trends and the producers. They take orders and arrange the transport, delivery and payment transactions. He may or may not take possession of goods. b) Brokers – they are agents who do bargains and arrangements between parties and receives a compensation known as brokerage. They bring the buyers and sellers on one platform for discussion. Other agent middlemen are Factors who sells goods for compensation. They can sell the product in their name at a price of their choice. They buy goods on credit or cash and can sell on credit. They can sell the products in the sellers name by issuing receipts. Forwarding and clearing agents fulfill the responsibility of collecting and delivering of products on behalf of others. They are mostly dominant in export and import business. Forwarding agents receive goods and deliver the same to the intended destination. Clearing agents take delivery of imported goods and help clearance at entry. Similarly there are Auctioneers and Selling agents employed by sellers. TYPES OF CHANNELS (VERTICAL, CONVENTIONAL AND MULTIPLE) Types of channels- Conventional marketing channel In this members work independently with each other under agreement and no member has control over other member. It comprises on autonomous/ independent manufacturer, wholesaler and retailer. Each member is concerned about increasing the profits of its business and not the profit of the entire channel. For example, the manufacturer will perform the function of Product development, branding, pricing, promoting and selling. The wholesaler performs its function of buying, stocking, promoting, displaying, selling, delivering, finance, etc. The decision making resides in each firm and there is lack of proper planning to achieve the objectives of the entire channel. Vertical marketing channel It has the manufacturer, wholesaler and retailer working as one system. They formally agree to cooperate with each other. The responsibility of functioning of each channel member in owned by one member. This arrangement is done through contractual agreement. The member which has authority over all the member can be the manufacturer, wholesaler or the retailer. They work in cohesion, and conflicts between channel members don’t exist. This type of channel came into existence to avoid disagreements and conflicts among channel member. As independent members try to force their influence to meet their objectives, there is always a possibility of conflict and powerful channel member influencing the other. Once the channel operates as a one system and managed by one member, there is much clarity and coordination among channel members to achieve the channel objectives . Multiple marketing channel in, the manufacturer utilizes two or more marketing channels in the target market. This channel can be planned and implemented for various reasons. A manufacturer gains more market coverage through additional channel by targeting additional segments. For example, introduction of ecommerce serves a segment of consumers that are tech savvy and like home delivery and research of products on internet. It can also lower the costs. For example, a manufacturer can open a company store in the target market. Customers would prefer a company store rather than an intermediary because of reasons like brand image, etc. here the firm saves on the margins that it shares with the channel members. If the firm is a market leader, an additional channel often brings competition among the intermediaries who strive to promote and sell the products more enthusiastically. An additional channel like a sales force also helps getting directly in contact with the customer. This provides proper education, and service for complex products to the customer and a reliable feedback to the organization. CHANNEL STRATEGIES (EXCLUSIVE, SELECTIVE AND INTENSIVE). Channel Strategies – Organizations’, depending on their marketing strategy, decide on the number of channel members. There are three channel strategies that organizations chose from – Exclusive distribution, Intensive distribution, and Selective distribution • Exclusive distribution – In exclusive distribution, a firm selects only one or few intermediaries for product distribution. This leads to a strong relationship between the manufacturer and the intermediary. This system demands high level of support between the manufacturer and distributer. They both become highly dependent on each other. Manufacturer requires the knowledge and distribution expertise of the intermediary. The intermediary is asked to promote the product, and they generally do this enthusiastically as they get the benefits of higher sales. The intermediary being the sole distributor benefits from the product’s success in the market. In case the manufacturer alters the contract or gives additional selling rights to other intermediary, the relationship between intermediary and the manufacturer hits a low. Intermediaries may block the sale of products at its outlet. Many TV series sign exclusive contracts with networks for exclusive premier on certain TV channels. Manufacturers of electronic items and automobiles also sign exclusive distribution contracts. In India, Motorola, gave exclusive rights to Amazon India to launch and sell its Moto G4 model of its mobile phone. • Intensive distribution – In intensive distribution, a firm sells products through as many outlets as possible. The products which can be easily accessed by customers without much shopping effort are sold through intensive distribution. For example, newspapers, milk, soaps, etc. These products do not require much additional services from intermediaries apart from handling and assigning shelf space. A customer can walk into any retail store or supermarket or a shopping mall and choose or ask for the product needed. The consumers can get these products when and where they are needed. These for mostly the FMCG products. This strategy provides great brand exposure and consumer convenience is given high priority. • Selective distribution – In selective distribution, the manufacturer opts to distribute products at select outlets and in select regions. This distribution lies between Selective distribution and Intensive distribution. Selective distribution gives more market coverage than Exclusive distribution and better control on the marketing channel than Intensive distribution. The intermediary may be required to add value in some way like outlet ambience, customer education before and after the sale of the product, etc. This channel strategy is also less costly as compared to Intensive distribution. For example, Cannon cameras can be found in many outlets but not all the models at all these outlets. The manufacturer sells its select models at select outlets appealing to different customers in the target markets. For expensive products organisations usually go for exclusive distribution over selective and intensive distribution. This way the firm controls the prices as well as the brand image. THE FACTORS THAT AFFECT THE SELECTION OF A MARKETING CHANNEL A careful and systematic study needs to be done for selecting a marketing/ distribution channel. It not only affects the marketing strategy and organisational goals but also the strategies of the intermediaries in the channel. Place factor of the marketing mix that involves the distribution system requires effort and time of the management and involves costs for making changes to it. Therefore it becomes essential that a right channel if chosen to avoid any later changes. Below are the factors that influence the choice of the channel – Product – The first factor to be considered is the product category. A FMCG product will require different distribution than an automobile. Similarly the channel of distribution for making an industrial product like a “Rotary Encoder” will be shorter as compared to a consumer product like Shampoo. Some consumer goods need immediate availability for the risk of shorter life like perishable goods from a bakery, etc. Similarly a fragile product will need careful handling by the intermediaries and hence, a shorter channel is selected. A technical product will need selling from knowledgeable sellers providing demos, etc. Complexity of product and level of sales service also decide the selection of the intermediary. Customer – There is a difference in buying behaviour of consumers and a business buyers. They have to be sold through different channels. A consumer may want to personally inspect vegetables and fruits bought for home consumption. A business buyer (hotel owner) will not be that inclined to do personal inspection. He/ she my expect a dealer, company supplier, agent, or a reseller contacting him/ her. This was a business owner would sign a contract for a regular supply for a certain period. Similarly the buying style for consumer and a business buyer will vary like buying on credit, demo by sales team, etc. Type of market – A large market will require increase in channel members. If the number of buyers is large, it is better to have local presence to understand the pulse of the market. If the market is small, direct selling can be utilised. Number of buyers in the market and their frequency of buying the product affects the choice of channel member. Organisations objectives and resources – To ensure complete control on the quality, price and after sales service, the organisation may sell directly to consumers. A large organisation with huge resources can avoid intermediaries and deal directly with consumers. It can have its own exclusive outlets to sell its products. An organisation will less financial resources are dependent on the intermediaries to sell their products. They rely on the experience and expertise of the channel members. Marketing environment – Economic environment affects the choice of marketing channels. For example, a fall in the dollar or pound value will result in increase of product imported from other countries like India and China. Similarly, at the time of high inflation, cheaper intermediaries are chosen. The organisations try to shorten the channel to reduce costs. Technological advancements have given consumers options to buy products through mobile phones. The organisations also have control over the prices of products when sold over the internet. They can also track the number of potential buyers who visited their sites and which products they have shown interest in. The consumer can buy a custom made product. Availability of intermediary – The availability of the intermediary also influences the selection of the channel member. The intermediary that the organisation wishes to sell through should be available in the target market. In their absence, the organisation will have to opt for an intermediary that is available to them. Or the organisation will have to invest to open their own stores, opt for direct selling, etc. Sometimes the intermediary is unwilling to distribute the organisations products. In such cases the firm should be ready to involve channel alternatives. Channel partner capabilities – A new gadget from a manufacturer can be sold through internet. But if a consumer wants to physically inspect the gadget, the producer will need to make it available at stores to increase its sales. The store salesman will be able to educate and influence the sale of the product. Sometimes, the customer is more inclined to buy from a store to ensure easy return and after sales service. Depending on the characteristics and capabilities of the intermediary, the manufacturer chooses an intermediary to meet its objectives. Cost –There is cost involved in distributing products in the market. The intermediaries are given a share of the profit for their services. Organisations strive to make the channel network as efficient and effective as possible to reduce the costs. The organisations select a channel network that generates high sales with minimum costs. Competitors control and choice of intermediaries – Sometimes the market leaders control the intermediaries, and threaten to withdraw their products for selling competitor products. An organization has to closely study the intermediaries of the competitors. To avoid conflicts, a firm can sell products through direct selling if the competitor has its products sold through retailers. If both the rival firms sell through the same retailer, intermediaries often influence sale of a product that gives them higher profit margin. Selecting the best channel is critical for the success of the product in the target market. Not every organisation can have the same channel. The above factors play a big role in selection of intermediaries. Organisations need to balance the above factors carefully to design an effective and efficient marketing channel. steps involved in designing a marketing channel A marketing channel not designed effectively fails to make an excellent product successful. The firms usually follow the below steps for designing a marketing channel- Analysis – A channel design starts with analysing the market requirements. Basis the customer, product category, and marketing environment, the organisation has to follow the matching channel strategy – Exclusive distribution, Intensive distribution and Selective distribution. The availability of the intermediary also influences the selection of the channel member. The intermediary that the organisation wishes to sell through should be available in the target market. In their absence, the organisation will have to opt for an intermediary that is available to them. Or the organisation will have to invest to open their own stores, opt for direct selling, etc. Sometimes the intermediary is unwilling to distribute the organisations products. In such cases the firm should be ready to involve channel alternatives. The firm should take into account the functions necessary to ensure the availability of product to end users. These functions should be clearly defined as to which functions that the firm can itself perform like storage, transportation, after sales service, etc. The organisation can choose intermediaries from wholesaler, retailer, sales personal, agents and brokers, etc. The availability and capabilities of different intermediaries, number of intermediaries, and their services to competitors should be carefully analyzed. Evaluation – The evaluation process involves study of costs involved, time constraints relevant to channel development, availability of channel members, political and legal constraints, functions and control of the channel members. This process is very critical and requires expert planning. For example, in intensive distribution at retail outlets, the costs may go up but there is also a great possibility of high sales turnover. In contrast, in the presence of a broker, the organization will need to invest in promotion activities to create awareness of the product. Personal selling gives the organization control on its selling efforts. Advertisements The channel implementation usually takes a long time to generate the desired results. The firm has to decide on a channel that can be developed in the shortest period and is effective. A good product of customer’s choice lying in the stores just adds to costs and losses to the organisation. The organization also needs to consider the control factor over the channel members. In VMS (vertical marketing system) the member which has authority over all the member can be the manufacturer, wholesaler or the retailer. As independent members try to force their influence to meet their objectives, there is always a possibility of conflict and powerful channel member influencing the other. The manufacturer controlled channel gives the manufacturer control over the prices, customer service, market coverage, etc. Sometimes the market leaders (competitor) control the intermediaries, and threaten to withdraw their products for selling competitor products. An organization has to closely study the intermediaries of the competitors. If both the rival firms sell through the same retailer, intermediaries often influence sale of a product that gives them higher profit margin. Legal and political constrains need careful consideration for channel development. Every state and region has local laws that can interfere with the channel functions. Similarly the firm has to outline the terms and conditions on various aspects of rights that can be given to the intermediaries. Channel selection- An organization can select one or more channel alternatives. The firm can do market testing and experiment with the channel alternatives. Two factors that affect the final selection are – the reach of the intermediaries to the customers in the target market and economic viability in the channel. Advertisements Intermediaries consider the some or all of the below factors before getting into a relationship with a producer- • Profit margin • Effect on or reaction from other channel members • The new product category relative to the other products the intermediary helps distribute • Manufacturers brand image and relationship with other members in the market • Costs involved in functions like storage, promotion, etc. A firm can choose one or more channels basis its objectives and geographic location of the target markets. Lesser the conflicts between channel members helps in efficient and effective distribution network. There could be situations that a conflict arises when a manufacturer opens a factory outlets in addition to other channel network. Here the customers benefit from a reduced price and manufacturer can increase the profit margin to the intermediaries because of increase in sales. It requires careful consideration of various factors before final channel selection. After all the intermediaries represent the manufacturer. Customers create an image about the manufacturer through the service they receive from the intermediaries. An organization has to constantly revise its channel strategies and make changes with the change in needs and wants of customERS