Showing posts with label Distribution channel. Show all posts
Showing posts with label Distribution channel. Show all posts

Distribution Practices in Nepal || Physical Distribution and Distribution Channel ||

The functions of supplying / carrying goods or service from production center to sales centers are called distribution activities or practices. The goods demanded by consumers should be supplied in right quantity, at right place and at right time. Right agents, middlemen or right distributors should be selected for effective distribution. For this, the producer should select suitable channel for distribution.

Physical distribution makes marketing complete. The channels used in transporting goods for systematic and effective distribution are mentioned as follows:

1. Physical Distribution


Physical distribution is the simple process of supplying the product to the final consumer / customers. Physical distribution creates place utility, time utility and ownership utility. The main components of physical distribution are mentioned as follows:

a) Order Processing

At first the customers send order for purchasing goods. When such orders are received, they should be collected, sorted out and goods should be delivered as ordered. Such different activities are, on the whole, called order processing. This function is very important for physical distribution. Customers should be made happy and satisfied through systematic and effective functions. If the customers become happy and satisfied, the business becomes successful and business earns more profits. But the aspect/function of order processing is very weak in Nepal. So, more attention needs to be paid towards making such activities effective.

b) Warehousing

Storing products in right place until they are demanded or supplied to market is called warehousing. It creates time utility by providing goods at the right time when demanded by customers. The warehouse management should keep products in safe. They also should be kept in proper stock and be carefully looked after. Otherwise there remains possibility of theft, damage, robbery, or so on. So, the warehousing should perform the works such as collecting, packing, shipping, providing safety etc. Such warehousing activities are found centered only in city areas. But good warehousing management is lacking in the hilly areas of Nepal.

c) Material Handling

Bringing raw materials for production and keeping produced goods in warehouse is called material handling. Besides, goods need to be taken to airport, railway station, bus station etc. Moving goods from one place to another, they may get damaged or broken. So, right equipment, technology, or methods should be used to minimize loss or damage. Porters, labors, trucks, cranes etc. are used to move goods to warehouse from factory/production place. But in our country, Nepal, new technologies are not found in practice or are not available.

d) Inventory Management

Proper inventory of goods/products should be kept in balance for effective distribution. Both unnecessarily huge and least quantity of inventory may be dangerous. So, an ideal inventory should be managed. The same function is called inventory management. If the inventory is least, goods cannot be supplied according to demand and even regular customers go away. If the inventory is more than needed, capital, warehouse cost, insurance cost may increase. So, inventory management should be analytical and balanced. In our country, inventory management is not found scientific. Its management aspect is very weak.

e) Transportation

Transportation creates place utility of goods by supplying them to consumers from factory/production place. Surface/road airways, pipe lines, trucks, ships etc. can be used for transporting goods. So, while selecting means of transportation and using them, their cost, speed/pace, consistency, safety, availability, etc. should be seriously considered. As far as possible, safe and lesser costly means should be selected. Since, our country lacks navigation development, bus, park, train, place etc. are used.

2. Distribution Channel


Different business firms and companies produce goods of different quality. They should be transported to the places of end users. They way which is used to transport goods to the target markets is called distribution channel. The structure of distribution channel may be different due to nature of goods and environmental elements/factors. Some reputed companies involve producer – wholesalers – retailers in Nepal. Some other business firms use vertical channel system. Some companies supply their products to stock holders and the stock holders send the products to sales centers by appointing sales representatives. The sales representatives receive purchase orders and distribute the products to shop or sales centers according to the orders.

Due to difficult geographical region, distribution channel has not become systematic and effective. Nepal Liver Limited, Pepsi Company and Coco-Cola Companies are trying vertical distribution channel. Conflicts have also appeared in marketing channel due to inability to akin/fix the role of middlemen. However, it is expected that big companies will be able to solve such problems in near future. Products should be compulsorily carried to target markets through one or the other distribution channel. Suitable/proper channel should be selected according to the nature and condition of the goods. Generally, distribution channel for industrial goods becomes short whereas it may be long for consumer goods. Considering this matter, the distribution manager should select proper channel.
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Strategic Considerations in Channel Selection || Distribution Channel ||

Products can be supplied to different target markets through different distribution channels. Proper channels should be selected at minimum cost considering the nature, size and condition of the products. While selecting channel, different factors may affect. So, strategy should be made paying attention to such factors. The task of selecting proper distribution channel is also very difficult.
Due to distribution channel, there may appear difficult situation and needs to be faced, cost and risk may increase and profit decrease. So, distribution channel should be selected considering mainly the following strategic factors / elements.

  • Product Considerations
    • Unit price
    • Nature of product
  • Market considerations
    • Types of market
    • Target customers
    • Concentration of market
    • Order size
    • Competition
  • Objective considerations
    • Control
    • Cost
  • Middlemen considerations
    • Availability of middleman
    • Capacity of middleman
    • Interest of middleman
  • Company considerations
    • Financial position
    • Company's ability
    • Company's goodwill
    • Company's policy
  • Environmental Considerations
    • Legal environment
    • Social environment
    • Economic environment

I. Product Considerations


The task of selection of distribution channel is very challenging. Mostly the following factors should be considered for the selection of distribution channel.
  1. Unit price: The produced goods may be of different quality and features. Their price also may be different. Generally, if the price of the goods is high, such goods are sent to target markets through direct and short channels. But, if their price is low, they may be sent through long and indirect channels.
  2. Nature of product: Channel can be taken on the basis of the nature of goods. For perishable goods, direct and short channel should be selected. But for the long lasting goods, indirect and long channel can be selected. If any goods are of technical nature, direct and short channel may be appropriate. So, proper channel should be selected according to the nature of goods.

II. Market Considerations


While selecting distribution channel, market related factors should also be given special consideration. The main factors are given as follows:
  1. Types of market: Target markets may be of different types. Market of industrial goods and consumers goods are the usual markets. The structure of industrial market channel becomes limited in comparison with the structure of consumer market channel, because at least some middlemen are needed in this channel structure. Therefore short channel for industrial goods and long for the consumer goods should be selected.
  2. Target customers: Channel can be selected on the basis of the number of customers. If the number of target customers is very small, direct and short channel becomes suitable. If their number is big, indirect and long channel may be suitable. So, proper channel should be selected on the basis of the number of target customers.
  3. Concentration of market: Customers live in different geographical regions. They may be living scattered in some regions while in some other may be living concentrated or densely. In both of these two conditions, use of same channel does not become suitable. If the customers are living centered or concentrated in any geographical region, direct or short channel should be selected. But if, they are living scattered, indirect and long channel becomes suitable. So, distribution channel should be selected according to the situation/condition of the target markets.
  4. Order size: Channel can be selected on the basis of the quantity of goods ordered by the purchaser. If the order is for large quantity of goods, direct and short channel should be used. Just opposite to this, if the order is for small quantity, indirect and long channel can be used.
  5. Competition: Competitors’ channel selection and their strategy also affect channel selection. Distribution channel should never be selected weaker than those of competitors. So, distribution channel should be selected only after carefully studying and analyzing the channels and strategies being used by competitors. Only then the selection of channel becomes favorable.

III. Objective Considerations


Every producer wants/wishes to distribute his products through proper channel. The channel objective also directly affects channel selection. The main factors/elements affecting channel selection have been mentioned as follows:
  1. Control: Sale department of company may determine the objectives of channel. If the channel objective is to keep under control, short and direct channel becomes suitable, because indirect and long channel becomes difficult to control.
  2. Cost: Cost is also an effective factor to channel selection. Distribution cost may be different according to channel structure. Channel cost becomes low in short channel whereas cost for physical distribution becomes high. But, in long channel, both the channel cost and physical distribution cost become high. So, channel should be selected only after carefully analyzing cost.

IV. The Middlemen Considerations


The middlemen who distribute goods also strongly affect channel selection. The factors/elements related to middlemen affecting channel selections are mentioned as follows:
  1. Availability of middlemen: Availability of middlemen also should be considered while selecting distribution channel. Whether the middlemen become available or not, at the time whenever needed, it also affects channel selection. If there is lack of middlemen, in such situation the producers cannot appoint the middlemen even wanted. But, they are available, the producers can appoint as middlemen or representatives.
  2. Capacity of middlemen: Capacity of middlemen also should be considered while selecting any channel. The producers should study and analyze what types of middlemen are needed and what type is available. Only then proper suitable middlemen should be selected studying and considering their financial capacity, physical capacity and technical capacity.
  3. Interest of middlemen: A lots of middlemen may be available in markets. But whether the goods intended to sell in the markets are interesting for the middlemen or not, it also should be considered. If the middlemen have no interest in any goods, they should not be given pressure to work as middlemen. Instead of this, the producers should select direct or short channel.

V. Company Considerations


There are different types of companies. They have differences in quality, nature, capacity, features etc. from each other. So, the size, market and sales knowledge, financial position, etc. also should be considered and suitable ones should be selected for middlemen.
  1. Financial position: Generally company’s financial position should be better. But sometimes the position may be different. Good or bad financial position also affects distribution channel. If the company is financially strong, it can do all the distribution related functions by itself. Otherwise it should take help of middlemen due to which distribution channel becomes long.
  2. Company’s ability: A company may have various abilities. Among them the management of company should be efficient and effective in distribution, functions. If the company is efficient and skilled in distribution indirect channel is not needed. Otherwise, the company should involve middlemen.
  3. Company’s goodwill: A company can earn goodwill from long experiences, functional style, quality services etc. It needs long time and hard labor to earn such goodwill. If the company has earned goodwill, products can be distributed without any middlemen. But, if the company is new and has not earned goodwill, middlemen should be compulsorily involved.
  4. Company’s policy: A company may have its own rules and regulations. The company’s predetermined policy may or may not be to involve middle men. If its policy is to involve middlemen, long channel should be used. If the policy is not to involve middlemen, direct channel should be used.

VI. Environmental Considerations


Environmental factors also affect channel selection for distribution. They are mentioned as follows:
  1. Legal environment: Company of nay country should not disobey legal provisions of the country. Every company should exactly obey legal provisions. In other word, any activity of the company should not be against the law. So, every company should pay attention to government law, rules and regulations while selecting distribution channel.
  2. Social environment: While selecting distribution channel, social environment also should be equally considered. Distribution function should not be negative. In other word, any activity of distribution should not be against the social norms and conditions.
  3. Economic environment: Economic environment can influence the channel selection. If the financial resources or economic condition is strong, the firm can use long distribution channel. But the economic position is opposite of it, the firm can select short and cheaper channel. In this way, economic environment also affects selection of distribution channel.
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Retailers: Meaning and Roles of Retailers || Buying goods in huge quantity from producers and selling out them in small quantity ||

Meaning of Retailers


The buyers who buy goods or services for selling them to final consumers are called retailers. Retailers are the last step of distribution channel. In the lack of it, functions of producers and wholesalers cannot be effective. Retailers are the business intermediaries. They work as the bridge between wholesalers
and final consumers. Retailers deal in small quantity. However, their total business transaction becomes very much. In French language, retailer means ‘to cut into small pieces’. It also makes clear that the function of buying goods in huge quantity from producers and selling out them in small quantity is called ‘retailing’. Every retailer sells goods or services to ultimate consumers in small quantity.

Different marketing experts and writers have defined retail trade and retailing. The important definitions are given as follows:

Prof. Philip Kotler has defined retailing and retail trade as, “Retailing includes all the activities involved in selling goods or services directly to the final consumers for their personal or non business use.”

 

Prof. William J. Stanton has defined it as, “A retail or retail store in a business enterprise that sells primarily (over one half of store sales volume) to household consumers for their non-business use.”

 

E. Jerome McCarthy has defined it as, “Retailing is selling to final consumer products to householders.”

 

Condiff and Still have defined retailing and retail trading as, “A retailer is a merchant or occasionally an agent whose main business is selling directly to the ultimate consumers.”

 

Such retailers are the different types. On the basis of business operation, they can be divided mainly into two classes as full service retailers and out-store retailers. Similarly, on the basis of the sales volume, retailers can be divided into two classes as large quantity selling retailers and small quantity selling retailers. In the same way, on the basis of dealing in goods, retailers can be divided into three classes as simple/general business product retailers, product line retailers and special retailers. Similarly, on the basis of ownership, retailers can be divided into four classes as independent store, consumer store, chain store and contract store.

Retailers provide various services. They supply goods or services by purchasing them from wholesalers to final consumers at right place and at right time when demanded. They also provide information about quality, utility and operation methods of the goods or services to the consumers. Besides, the retailers provide important information to wholesalers about market demand, consumers’ wants and purchasing power. From this, the wholesalers can take right decisions easily about what products should be sent to retailers or distributed, what products should be postponed from supplying.


Role of Retailer


The task of sending / distributing goods or services to different parts and places of any country is done by retailers. This task also takes responsibilities to improve people’s life standard and provide necessary services and facilities to the society. In addition to this, retailers’ have an important role in the development of national economy. Retailers have important role in distribution channel for the following reasons:

1. Efficiency in distribution


Retailers become efficient in their business. Retailing performs distribution more skillfully and efficiently than producers and wholesalers. Distribution of goods through retailers takes lower cost and the number of transactions becomes small. Retailers fully know about how to provide goods or services to all their customers, by which wholesalers get great help in distribution.

2. Market information


Retailers live in direct contact with consumers. They establish long and deep relationship with the consumers. So, retailers give all information to producers and wholesalers about the need, priority, wants and interests etc. of the consumers. Besides, they also give information to the producers and wholesalers about the activities of competitors, their products, price, promotional strategy etc. On the basis of the market information, the producers produce new goods. The retailers also collect information from producers and wholesalers and send them to consumers. This task benefits both two sides.

3. Financing


Retailers keep on selling goods even in small quantity every time. Hence, some amount of money is collected from continuous sale. Such cash amount can be paid to the wholesalers according to the right time, due to which both the wholesalers and producers become successful in financial management. The retailers also get ownership of the goods by purchasing them. As they get ownership of the goods, they also bear the risk.

4. Contact with consumers


As the retailers sell goods or services to consumers, they remain in close contact with them. They establish long and deep relationship with the consumers. The customers trust retailers more than the producers and wholesalers. So, the producers and wholesalers do not need to keep direct contact with consumers. This also makes clear about the importance of the role of retailers in the distribution system.

5. Selection facility


Retailers sell various goods produced by many producers. They purchase goods from producers and wholesalers and keep them in their own shop. The consumers get chances to buy such goods from the retailers’ shop whichever they like. The retailers in super markets, departmental stores, shopping centers etc. give ample chance to the customers to select goods.

6. After sale service


Retailers should also give all information about services what they can provide to the customers after sale of the goods. Retailers should make the customers believe that they can also get after sale service, for example, free repairing, instruction about the method of use, simple repair, how to keep the goods safe etc. After such services to be provided are ensured, the customers trust the retailers, due to which the sale quantity increases.

7. Sales of new products


Producers may produce different types of new goods. Retailers make flow of description and information about quality, features, utility and weaknesses of the new goods. On the basis of the same, the customers buy new products. In the lack of retailers, it becomes very difficult to get entrance to markets for the new goods. In this way, the retailers play a great role in selling new goods in markets.

8. Consumer satisfaction


Retailers know about the interests, wants, needs and purchasing power of their customers. They also know what goods they need what they demand at what time and season etc. and satisfy them by providing wanted goods. In the lack of retailers, it becomes very difficult to get such facilities for the consumers. In this way, the retailers keep the customers always happy and satisfied.

9. Home delivery service


Retailers promptly implement their customers’ order. Nowadays, the customers demand goods or services even through telephones. The retailers provide home delivery services to the customers who have no time or remain busy. Such facilities are also provided to the physically unable customers. Such simple and special activities have made the retailers more important in distribution system.

10. Seasonal goods


Retailers can well identify the wants and needs of the local customers. So, they also know about what kinds of goods in what season their customers want and provide them seasonal goods. For example, they provide warm clothes, jackets etc. in cold season and thin in hot seasons, coffee in cold seasons and cold drinks in hot season, umbrella, raincoat etc. in rainy season. So, retailers play very important role in distribution system.
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Wholesaler: Meaning, Role and Functions of Wholesaler || Person who performs the wholesale trade ||

Wholesaler: Meaning

The business men who sell huge amount of goods are called wholesalers. Wholesalers sell goods to retailers by purchasing huge amount from producers. In other word, the person who performs the wholesale trade is a wholesaler. Wholesalers work as a bridge between producers and retailers. Such intermediaries do not produce goods nor sell to ultimate consumers. The work of wholesaler, sometimes, 
may be done by producers or retailers. The producers work as wholesalers when they sell goods to industrial users, to government offices, to users, or other organizations. 

Wholesalers invest much capital and make arrangement for necessary warehouse/storing. So, such wholesalers are known as big businessmen. Such businessmen have their own warehouse for storage, means of transport and modern communication system. So, wholesaler or businessmen purchase goods in mass quantities transport them, bear risk etc. Wholesalers may also provide credit facility to their customers.

Different experts and scholars have defined wholesalers; the important are given as follows:
Prof. William J. Stanton has defined wholesaler as, “Wholesaling or wholesale trade includes the sale and all activities directly incidental to the sale of product or service to those who are buying for purpose of resale or for business use.”

 

Prof. Philip Kotler has defined it as, “Wholesaling includes all activities involved in selling goods or services to those who are buying for purpose of resale or business use.”

 

Peter D. Bennet has defined it as, “Wholesalers are the merchants who buy products from producers or other wholesalers and release them to retailers, organizational buyers or to other wholesalers.”

 

Wholesalers are of two types – agent wholesaler and trading wholesaler. Agent wholesalers work as the wholesalers but do not take the ownership of products. They only facilitate wholesaling on the basis of commission. Under agent wholesaler commission house, there are limited numbers of brokers wholesalers, workers, agents, sales agent, producers’ agents, auction company etc. Trading wholesalers take ownership by purchasing goods from producers. They conduct independent wholesale trading concern. Wholesalers include simple product wholesalers, simple line product wholesalers, and special product wholesalers.

Trading wholesaling includes five types of wholesalers such as full time workers, simple wholesalers, simple product line wholesalers, limited worker wholesalers, and postage order wholesalers, drop-shipment wholesalers and rack jobbers. Similarly, there are four types of wholesalers according to the extension of trade or on the basis of geographical region, such as local, regional, national and international. In this way, it becomes clear that the businessmen who sell goods/products to retailers, government and other organizations, and business users by purchasing in huge quantity from producers are called wholesalers. Sometimes producers and retailers also work as wholesalers. Wholesalers can be divided into different types on the basis of functional area and ownership. However, the main task feature of all types of wholesalers is to conduct wholesale trading.

Situation of Wholesalers


Role of Wholesaler in Distribution Channel


Wholesalers conduct businesses investing huge capital in it. Besides, they also provide special types of facilities and services. Producers do not have to worry about sale of their products. Wholesalers have great role in distribution channel. The functions and roles of wholesalers are mentioned in short as follows:

1. Bulk buying


Wholesalers buy products in huge quantity from producers. Then the products are sold to retailers, government offices and organizations in small quantity. As the wholesalers become physically, financially and intellectually capable and knowledgeable about markets, distribution channels have proved very important. So, the wholesalers purchase products in mass/ huge quantity. As the scattered innumerable retailers buy goods from wholesalers but not directly from producers, wholesalers make bulk buying/ purchase in huge quantity of products.

2. Warehousing


Wholesalers also make effective arrangement for storing the products. Until the purchased goods are sold to retailers, they should be properly stored in warehouse. Such storage arrangement keeps the goods safe. Besides, it also stabilizes market price keeping balance in demand and supply.

3. Quick delivery


Wholesalers quickly deliver goods after they receive order from government offices, organizations, retailers etc. But, if all the buyers demand for goods/products from producers, they cannot deliver goods to all at the same time. As wholesalers become efficient in distribution, sufficient stock of goods remains with them. On the one side, there remains sufficient stock of goods and on the other means of transport remain ready at any time when needed. So, they can fulfill the demands or order of buyers immediately.

4. Financing


Wholesalers are capable intermediaries in terms of capital. They help producers by purchasing goods in huge quantity and paying bills immediately. Similarly, they provide goods to their regular retailers on credit. Because of credit facility, financially weak retailers can increase their business. As a result, sale quantity also considerably increases.

5. Order collection


At first the wholesalers store goods buying them in huge quantity and deliver the goods to the customers when demand or orders are received. Demands or orders should be collected for delivering the goods of different qualities and features. The task of collecting and scanning different orders and demands made by different retailers of different places, areas or regions is done by wholesalers. Hence, records of demands and deliveries also become ready.

6. Risk bearing


Wholesalers purchase huge quantity of goods from producers at a time. They also take ownership of the goods so purchased. If prices, fashion, demands and wants of customers for such goods change, all the goods may not be sold out. In such situation, the wholesalers have to bear the risks. Similarly, there also remain possibilities of damage, fire caught, robbery, stealing etc. of the stored goods. The wholesalers have to bear such risks. So, the wholesalers should also try to minimize such risks.

7. Promotion


Wholesalers remain in contact with government bodies, organizations and many other retailers. So, they believe the wholesalers. They purchase different goods from them believing in the wholesalers. Besides this, the wholesalers are also involved in advertisement with the producers and retailers. They give suggestions to retailers about exhibitions and decorations. If needed, they also know wants, interests, needs and desires of the consumers.

8. Expert advisor


Wholesalers become experienced, qualified and effective in wholesale job. Such sellers sell products through direct contact with government organizations, institution and retailers. So, they provide information about the consumer’s wants and interests to the producer. Thus, the wholesalers give valuable information as expert advisor.

9. Market information


As wholesalers are the important parts of producers, they keep various information and records. Besides, the wholesalers remain in close contact with retailers and markets. So, they provide information about the need of production/ product customers, competitors’ activities, price of products, new products and environmental changes etc. They also provide retailers the important information and notices received from producers.

10. Efficiency in distribution


Wholesalers become experienced in distribution. So, such sellers can perform wholesale and distribution more efficiently than the producers. They quickly deliver goods to the customers of target markets. This also cuts down the distribution cost. The wholesalers bring effectiveness in distribution; make available the right goods, at right place, at right time at lower cost.

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Channel System and Channel Structure in Marketing || Producer, Wholesaler, Retailer, Agent, Ultimate Consumer, Consumer Channel ||

Channel System


Goods are produced to use/ consume. Goods should be distributed from production place to sale center. Right channel is needed to carry goods to right place at right time. The way used to distribute goods/ products is called channel. All the elements present in this channel are called channel system. Intermediaries, industrial buyers, ultimate consumers and channel member manage conflicts and play important roles. This type of channel system does production, whole selling and retailing functions. This channel system is categorized in different classes as follows:

1. Vertical Channel System


Vertical channel system integrates different types of intermediaries. This type of channel system performs producing wholesale and retailing functions. Such channel system can be classified as follows:
  1. Corporate system: Company’s own excessive channel works in corporate vertical system. It does all the works from production of goods or services to selling to final consumers. All the channels involved in distribution are integrated under single/sole ownership. The business firms which want to keep control over distribution channels use this system.
  2. Administered system: In this system, one company controls channel co-ordination activities. So, the company does not have formal organizational structure. In other word, this system is conducted under the leadership of any one channel member.
  3. Contract system: Members of vertical channel are independently involved in this system on contract. The members involved in this system conduct programs of distribution channels. The works of channel members are formally divided which are also controlled through co-ordination.

2. Horizontal Channel System


In this system, different channels jointly and mutually integrate the available man power and programs. In this way, if different organizations and intermediaries work together, this is called horizontal channel system. Among the members of such system, some may produce goods and others may distribute. This type of mutual work may be practiced at production level. This system can also be used at the wholesaler and retailer level.

3. Multi channel system


A company may use several channels to provide goods or service to the customers. In this way, if many channels are involved in distribution, it is called multi channel system. Producers may directly supply their products to final consumers. They can also sell their products through wholesalers and also through retailers. In this way, the producers may use multi channel to distribute their products according to suitability.


Meaning of Channel Structure


In simple meaning, the way to supply products from production place to consumers is called distribution channel. Structure of distribution channel may be different according to the nature of product and environmental elements. Whatever may be the channel structure, it works as a good bridge between producers and consumers. This type of distribution channel may be direct or indirect. In direct channel, the producers supply their products to the consumers by themselves. In indirect channel, the products are supplied to the consumers through intermediaries or distributors. Such indirect channel can be classified into three types as follows:

Single level channel: In this channel one retailer works.

Two level channel: In this channel two intermediaries, the wholesaler and retailer, work.

Three level channel: In this channel three intermediaries work. They are wholesalers, jobber and retailer.

Levels of Distribution Channel


Channel Structure for Consumer Goods


Personal or daily uses product is called consumer goods. According to product nature, size and price, the firm can be used as direct or indirect channel. In indirect channel, the products are supplied to the consumers through agents, wholesalers and retailers. Producer, agents, wholesalers and retailers directly participate in the channel structure for consumer goods. The following four levels are involved in the channel structure of consumer goods.

Channel Structure for Consumer Goods


1. Producer → Consumer Channel


The channel in which no any intermediaries are involved between producer and consumer is called producer – consumers channel. As no any intermediary is needed between the two sides, it is called zero level channel. In this type of distribution channel, the producers themselves supply goods to the consumers. In other word, producer does all the works to distribute produced goods directly to the customers. In such channel, it is necessary to have direct contact and talks between producer and customers. This channel is very cost effective / economical. But the producer should be physically, financially and intellectually able to distribute produced goods.

Technological goods such as television, deck, computer, automobile, machines and machinery goods are distributed through direct channel. Similarly, this channel is used to distribute perishable goods, such as milk, fruits, fish and meat, etc. Door to door service facilities such as mail, order, TV selling, exhibition arcade, telemarketing etc. are forms of direct distribution channels.

Wants and interests of consumers can be easily identified through such direct channel. To perform this task, no any added or extra expense is needed. But, as management for all the tasks should be looked after by producers themselves, it needs capital. Besides, it becomes very difficult for the producers to have direct contact with all the customers.

2. Producer → Retailer → Consumer


In this channel, one intermediary business holder is involved. This is the shortest indirect channel for consumer goods. This is also called single / one level channel. In this channel, retailers remain in between producers and consumers. Consumer goods reach retailer from producers and consumers from retailers. There may be a large number of retailers. Perishable goods such as fruits, vegetables, eggs, milk etc. are distributed through this channel. In this channel, the producers do not need to keep direct personal contact with consumers. Goods are sold out in high quantity with low distribution cost. Channel store, departmental store, super market, discount houses, big mail order houses and cooperative organizations are involved in the single / one level channel.

3. Manufacturer → Wholesaler → Retailer → Consumer Channel

Two intermediaries, wholesaler and retailer work in this channel. So, this channel is also called two – level – channel. This distribution channel becomes longer than one / single level channel. In practice, most of goods reach market through this channel. Goods can easily reach even any market segment where there are many wholesalers and innumerable retailers. The producer / manufacturer does not have direct contact with retailers and consumers but only with wholesalers. As distribution function widens very much through this channel, there remains possibility of large amount sale. But it takes more distribution cost. This channel is used to distribute groceries, medicines, food stuff, hardware, goods, etc.

4. Producer → Agent → Wholesaler → Retailer → Consumer Channel

The longest channel to distribute goods to the final consumers is this three – level channel. In this channel, there are three intermediaries such as agents, wholesalers and retailers between producer / manufacturer and consumers. The goods reach the hands of consumers through agents, wholesalers and retailers respectively. Mostly the international and global companies use this channel. Such companies produce goods in huge quantity. Sale quantity of goods increases through three – level channel. But it takes high sales cost.

Different experts and scholars of marketing have prepared different types of structures of distribution channels. Marketing scholar William J. Stanton has suggested that five / fifth type distribution channel also can be used. This structure is as follows:

Channel Structure of Final Consumer Goods


Channel Structure for Industrial Goods


The goods used in order to produce any new goods are called industrial goods. Direct or indirect distribution channel can be used according to the nature, size, design, price etc. If it is to use indirect distribution channel, goods reach the users through agents and industrial distributors. Producers, agents, industrial distributors and industrial users are directly involved in the channel structure of industrial goods. Specially, there are three levels in channel structure of industrial goods. It is presented in the figure as follows:

Channel Structure of Industrial Goods


1. Producer → Industrial User Channel


This channel is also called direct channel or 0 level channel. In this channel no intermediaries are found between producer and industrial user. This channel has become very popular for industrial goods. Heavy machines and raw materials are distributed through this channel. In this channel the producers themselves identify industrial users, sign contract and supply goods. As this is also direct channel used for industrial goods, its distribution cost becomes cheap, but skilled seller is needed as he/she has also to play intermediary’s role. The seller should be experienced, efficient and have technical knowledge.

2. Producer → Distributor → Industrial User Channel


As only one intermediary works in this channel, it is called one/single level channel. In this channel, industrial goods come to distributors from producers and reach the industrial users. This channel is very popular and is suitable for the goods such as photocopy machine, auxiliary equipment, operation supply, air conditioner, computer etc. This distribution channel becomes more expensive then direct channel. The distributors of industrial goods acquire specialization in dealing industrial goods. Otherwise, dealing in industrial goods becomes impossible.

3. Producer → Agent → Distributor → Industrial User Channel


This is the longest and popular channel. In this channel, agents and distributors work between producers and industrial users. So, this level is also called two level channel. Here agents mean representatives of producer. Agents take the responsibilities to supply goods to distributors. This channel is used for cheap industrial goods for mass distribution. As the way of distribution is long, distribution cost also gets high in proportion. The producer distributing industrial goods can select other distribution channels. The alternative channel is represented as follows:

Alternative Channel for Industrial Goods
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Distribution: Meaning, Objectives and Importance of Distribution || Act of Supplying the Products to the Target Market ||

Meaning of Distribution


Production and sale center do not remain at same place. Distributors are needed to supply production to the consumers/customers. Production of goods or services becomes meaningful only if they are supplied to the consumers/customers. So, the activities performed for supplying the products to the target markets on the whole is called
distribution. Distribution creates time utility, place utility, ownership utility of products. Management of product storing creates time utility whereas exchange creates ownership utility. Management of good transport system creates place utility. Distribution management satisfies customers’ wants by supplying necessary goods to them and heightens their lifestyle.

Products have no utility at production place. Their utility increases immediately after they have been taken to consumption places. For example, publishers have no use of books, but when they reach among readers and students their utility increases. Similarly, suppliers provide means of productions and work as bride between producers and target markets by supplying products. Distribution includes the tasks of distribution channels and physical distribution. Distribution channels of marketing provide products to customers whereas physical distribution transports products to warehouses and target markets. Both these functions are the important channels of distribution.

The task of carrying finished goods to target markets is called physical distribution. This includes the important functions such as transport management, warehouse management, stock control, product management, order scanning etc. In the lack of distribution, marketing becomes lame/ crippled. To make physical distribution clearer, different definitions given by different experts and writers can be presented as follows:
According to Prof. William J. Stanton, “Physical distribution consists of all activities concerned with moving the right amount at the right product to the right place at the right time.”

 

According to S.A. Sherlekar, “Physical distribution is an important marketing function describing the marketing activities relating to the flow of raw materials from the suppliers to the factory and the movement of finished goods from the end of production line to final consumers or users.”

From the above mentioned definitions, it becomes clear that physical distribution provides distribution channels and supplies products to the target consumers. Physical distribution is task or the function of supplying products from production place to the final consumers or industrial users at the right time they demand for. Mostly, transport and storage/warehouse related functions are emphasized in physical distribution.

Marketing channel is also called distribution channel. They way which is used to supply products to the consumers is called marketing channel. As the channel carries water to the farm from its origination, the distribution channels carry products to markets or consumers from place of production. So, distribution channel can be taken as the pillar of marketing.

To make the marketing channel much clearer, the following definitions have been presented:
According to Prof. William J. Stanton, “ A channel of distribution (sometime called a trade channel) for a product is the route taken by the title to the product as it moves from the producers to the ultimate consumers or industrial users.”

 

Accordint to Prof. Philip Kotler, “ Distribution channel as the set of firms and individuals that take title or assists transferring title to the particular goods or services at it moves from the producers to the consumers.”

From the above definitions, it becomes clear that marketing channel is a simple as well as an easy way through which products reach the target markets. Proper channel should be used for distribution according to the nature of products or service. Generally, distribution channel of industrial goods become short. But channel of consumer goods becomes long.


Objectives of Distribution


Distribution, in marketing, has narrowed the world market and makes it very easy. Any product can be easily delivered/ supplied to every geographical place or region at any time if demanded by customers. No any producer has to fret over how to distribute the products. Distribution management takes all the responsibilities to distribute any goods produced by any producer to any place at proper time. The distribution management also decides which goods of what nature should be distributed through what channel to which place and at what time. So, the main objectives of distribution management which discharges such important responsibility are as follows:

1. Minimization of total cost


Producers produce various goods. A lot of expense needs to distribute them. The producers may give responsibility to any channel to distribute. Channel management may deliver products to a certain place at minimum cost for distribution. While distributing products in such way, many channels may involve in it. The function of distribution can be completed at minimum cost calculating the average labor of persons or groups spend on it. So, distribution channel sets the objective to minimize the total cost.

2. Making the goods available


Effective distribution channel makes arrangements for easy availability of any goods. Any goods or services demanded by customers become available at any place and any time. If goods are available when demanded, sale quantity of such goods increases on the one hand and healthy competition with competitors can be easily faced on the other. In this way, distribution channels always have the objective to maintain the availability of the products regularly.

3. Regular supply of goods


Any business firm or producer can give the responsibility of distribution for channels. Then the distribution channel manages regular supply of goods. In other word, distribution channel delivers right product at the right time and right place to buyers. So, all the customers of target market do not feel the lack of goods. Thus, distribution channel sets objective to render crucial services of regular supply of goods.

4. Transfer of product ownership


The distribution function also fulfills the process of ownership transfer. For any product documents/papers should also be given together with product by signing a contract. Ownership of some other goods should be handed over, in presence of government authority, with documents by completing every legal process and requirement. Only after formally transferring ownership, the goods can belong to the buyer or customer. So, distribution channels also take responsibilities to transfer ownership of goods.

5. Promotion of goods and services


Effective distribution channel also promotes goods or services. Distributor reaches target market taking goods from production center. After reaching target market, the distributor gets chances to show the goods to customers. Customers become very happy to see and know about the goods. They also can ask about the product if anything unclear. They become acquainted with the product after the distributor gives true information and answers to them about the products. In this way, distributor has the target to promote the product or service of the producer.


Importance of Distribution


In the lack of distribution, products become meaningless. Distribution has very important role in marketing. The importance has been mentioned in short as follows:

1. Utility of the product


In marketing, distribution creates utility of goods/ products. If the products are not carried to the consumption place, no any benefit or utility can be obtained from them. Mainly transportation, storage and exchange are involved in distribution. Transportation creates place utility of the product by carrying wanted goods to the right places. Storage creates product utility of time by storing and providing goods at the time when wanted. Similarly, exchange creates ownership utility of goods by transferring ownership. By different activities, it becomes clear that distribution motivates customers by creating place utility, time utility and ownership utility.

2. Need satisfaction


In this competitive business age, at first the needs of customers should be studied and understood. Then goods should be produced accordingly. The distribution meets/satisfies the needs of the customers by supplying the right goods to right place at right time. If there is no proper arrangement of distribution, needs/ wants of the customers cannot be satisfied at right time. Distribution plays an important role to heighten the life style of customers. This function should compulsorily be conducted by carrying goods from production place to the selling centers.

3. Employment and occupation


Distribution is one of the important tasks of marketing. This provides job or employment to many persons. Distribution plays an important role in providing employment opportunities to the people. Many persons get employment by involving in wholesale business, retail business, agents, intermediary, etc. A large number of people have adopted it as their occupation. Similarly, transport, banking and insurance have provided job to large number of people. Distribution has been found successful to provide job to a large number of people in the industrial and developed countries. In the developing country like Nepal, distribution has provided job opportunities to a lot of people.

4. Means of production


The producers need means to produce different goods. Raw materials, machines and machinery parts, big machines and equipment, production function, supply etc. help in production. Besides this, it also provides necessary financial resource to conduct production function effectively. Without means of production, production function becomes meaningless, and in the absence of it, marketing itself becomes worthless.

5. Financing


Several intermediaries are involved in distribution function. They manage financial resources themselves for distribution. Besides this, they also manage financial resources for extra warehouse and stock. So, the producers need not make financial arrangement for distribution and creating distribution channel. Hence, the producers do not need to invest stock financial resources. Produced goods change in cash immediately. So, no any difficulty arises in managing financial resources for market research, production of new goods, development of goods and other functions.

6. Communication


Distribution function establishes contact between producer and customers. So, distribution works as link between the two sides. Producer makes flow of message about products, price, promotion, etc. to the customers through the persons or groups of person involved in distribution. Through the persons involved in distribution, they also get feedback about competitors, environment change etc. Hence, it becomes clear that distribution function also works as a means of communication.
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Factors Affecting Price Determination || Internal Factors and External Factors ||

Determining price is very challenging task. Analysis of various factors should be done to determine price. In other word, various factors affect price determination. So, they should be specially considered. Two types of factors should be studied before determining price. They are internal and external factors.

I. Internal Factors


The factors which can be kept under control of business organization are called internal factors. Such factors affect price determination of the products. Internal factors include,

1. Business efficiency

Internal factors are of different types. Among them business efficiency is one of them. It directly affects price of products. If the business firm is capable, cost becomes less and purchases of raw materials and other activities are effectively conducted. As a result, price of product can be determined low. Just opposite to it, if organization is incapable, production cost becomes high. As a result, the price needs to be determined high. As business competency can be increased, firm can keep it under its control.

2. Organizational factors

Different organizations have their own organizational factors. Under such factors, production policy, pricing policy and prestige of the company are included. These important factors affect pricing directly. Such policies are formed by the top level management of the company. So, these types of organizational factors can be kept under the control of organization. Price can be determined by improving such organizational factors in opportune time.

3. Cost

Without production cost, no goods can be produced. As price of product needs to be determined including production cost, then price also increases due to increase in production cost. Just the same, if production cost decreases price decreases. Mostly, the following costs are included in producing any goods.
    • Factory expense: This type of expense is also called factory related indirect expense. This includes transport expenses, labor wages, fuel, water, factory rent, electricity, consumer goods, and factory repair and maintenance etc. expenses.
    • Direct expense: This expense includes salary, office, direct wages, and other direct expenses.
    • Administrative expense: This includes salary, office rent, telephone tariff, electricity, postage, telegram, director’s remuneration, office repair and maintenance, office equipment and other expenses.
    • Selling and distribution expenses: This includes sellers’ salary, commission to distributors, external transport and transport expenses, advertisement, warehouse rent, packing fees, and other expenses. Such expenses are called direct expenses on selling and distribution. Production cost can be lowered by increasing administrative ability and efficiency. So, this factor is also a controllable factor.

4. Pricing objective

Before determining price of any product, its objective should be taken. So, this is other important factor to affect pricing. These pricing objectives include achievement of targeted result, maximization of price, increase in sale, increase in market share, maintenance of price stability etc. Besides, objectives for facing competition and survival of the organization should be also clearly made. The objective of firm affects the price of products. If the objective is to maximize profit, price should be fixed high. But, if the objective is to expand / increase market share, price should be fixed low. The objective of price fixation is also controllable factor of firm, which can be changed or improved according to need.

5. Other elements of marketing mix

Different elements / factors of marketing mix affect the pricing objectives. The other elements such as product, place, promotion also give pressure to decrease or increase price. They can be mentioned as follows:
  • Product: If the product is original, pricing becomes easy. But, if it is imitated, comparative price should be fixed. In this way, price of different products can be fixed differently. Little difference in price happens at every stage of life cycle of any product.
  • Place: Distribution channel also affects price. If the distribution channel is long, more cost needs for it. As a result, price increase. Similarly, means of transport also affect the price by increasing cost of any product. In comparison to air transport, cost for road transport becomes less expensive and dependable.
  • Promotion: Promotional style and activities also affect price of products. newspapers, radio, television, etc. become expensive for advertisement and increase the cost of the products. But, if distributors, agents, wholesalers and retailers take the responsibility for advertisement, it becomes less costly. So, different promotional activities also affect price of products.

II. External Factors


Any factors which are beyond the control of a firm are called external factors. Such factors may be very strong and influencing. There are different kinds of external factors. They are as follows:
  1. Competition: Competition is one of the effective factors to affect pricing. Competition plays an important role in price determination. If there is no competition price, it can be fixed freely. But, if there is market competition, competitors’ products should be analyzed and suitable price should be fixed. If the products are similar in quality, price also should be fixed same. So, competitive price should be fixed for the products. Before fixing price of any product, deep study should be done on competition. Competition also may be of various types. They directly affect the price of products. Since competition is the factor not to remain under firm’s control, study and analysis should be done on it. Only then the price of products should be fixed.
  2. Suppliers: The group, or firm or organization which provides necessary equipment, raw materials, machines, operating means, etc. is called supplier. If they provide such industrial goods at easy price, price of products also becomes low. But just the opposite of it, if such industrial goods are costly, the price of products also becomes high. So, suppliers also have an important role in pricing any products. This is the second external factor. It cannot be controlled by any business firm.
  3. Pressure group: In every country, pressure groups may be formed in different ways. Save environment group and consumer group are the examples of pressure group. Such groups try to affect price of products. They give pressure to companies/business firms for their own group interest and welfare. Save the environment group can give pressure to business companies for stopping pollution. Consumer group can give pressure demanding for providing high quality products at lower rate, for more security of products, and for providing more information about products. Such pressure directly affects price. These types of pressure remain beyond the control of the company.
  4. Economic factors: Economic factor/element is one of the strong factors to affect price determination. This also affects price. This element does not remain under company’s control. Situation of inflation, deflation, overvaluation or devaluation may appear in markets. They are called, on the whole, economic elements/factors. In the situation of devaluation demand decreases, whereas in the situation of overvaluation demand increase. So, price should be determined only after studying and analyzing the economic factors/elements. If production cost increases, price should be fixed accordingly, and if production cost is low, price should be fixed low increasing rate of profit. In this way, when cost is decreased or increased, price also should be fixed accordingly. Policy to increase price in the situation of deflation and decrease in the situation of overvaluation should adopted.
  5. Market demand: Demand of target market also should be considered and studied by every business company. The total demand of the market also affects pricing. Demand for products may decrease or increase due to the reasons of total number of customers, their income, purchasing power, priority, competition among substitute products etc. A situation may appear to determine price on the basis of demand. In the situation when the total demand for products has declined, price should be decreased and when demand is increased it should be increased. If such policy cannot be adopted, price of products does not become reasonable.
  6. Government: Government makes arrangement of different policies, rules and regulations giving priority to the interest of the nation and people’s welfare. Such policies, rules and regulations also affect price determination. Government may try to keep business companies under control by interfering in price fixing and making policies and provision to provide facilities to the people. Government may make policy to provided facilities by rebating sales tax, excise duty, costume duty, etc. and just the opposite it may charge all of them to increase revenue. In this way, government policies and rules also directly affect pricing determination. If government makes policies to charge new add taxes or increases in taxes, then the business companies also increase price. If taxes are rebated, price is decreased, and if they are increased or added, price increases. So, government policy also directly affects pricing. So, government policies, rules, regulations, legal provisions etc. also are the uncontrollable external factors to affect price determination strongly.
  7. Political situation: Different political modes or situation may prevail in every country. Political situation also affects price determination. Political situation may be stable or instable according to the time. In both political situations, price of products or services may not remain same. If the political situation is stable, one rate or price is fixed, and if it is unstable, another rate is fixed. Government may or may not interfere in pricing. Method of determining prices differs between the interference and free situation. In some countries, there may be legal provision to fix prices of products by government. So, business competitors should compulsorily face such situation.
  8. Market intermediaries: In every market, different intermediaries remain active. They can be identified/ known as agents, distributors, intermediaries, transporters, finance companies, wholesalers, suppliers etc. If such intermediaries change their prices, prices of products or services also should be changed. In other word, if prices of such intermediaries increase or decrease, price of products or services should also be increased or decreased. No company can control their activities but are compelled to fix prices according to the main-stream of the intermediaries.
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