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Friday, October 26, 2018

PRINCIPLES OF MARKETING NOTES (3RD SEMESTER): PROMOTION AND CHANNEL OF DISTRIBUTION


Unit – 4: Promotion and Channel of distribution
Promotion Mix and Factors affecting it
Promotion is an important part of marketing mix of a business enterprise. Once a product is developed, its price is determined the next problem comes to its sale i.e., creating demand for the product. It requires promotional activities. The activities are technique which bring the special characteristics of the product and of the producer to the knowledge of prospective customers. Promotion is a process of communication involving information, persuasion, and influence. The term ‘selling’ is often used synonymously with promotion. But promotion is wider that selling. Selling is concerned only with the transfer of title in goods to the purchaser, whereas promotion includes techniques stimulating demand. These techniques include advertising, salesmanship or personal selling and other methods of stimulation demand.
There are many factors which influence promotional mix and they are known as product market factors. 
1. Nature of the product: Different product requires different promotional mixes. Consumer goods and industrial goods require different strategies. Consumer goods are sold through advertising, personal selling and displays. But industrial good require more personal selling.
(a) Product complexity: If a product is technically sound and complex in nature then it requires personal selling. For example, Industrial products. On the other hand if the product is simple we can go for advertising. For example, most of the FMCG products.
(b) Brand differentiation: Promotional mix is affected by brand differentiation and the degree to which the brand is differentiated from competitor’s brand.
(c) Purchase frequency: If buyers buy frequently a product, such as soap, tooth paste etc. the marketer will invest a good amount on advertising to push competition brands.
2. Nature of the market: Different market requires different promotional mixes and strategies. In industrial market, advertising plays a more informative role then the persuasive role for industrial buyers. Personal selling emphasizes on two roles, i.e. information and persuasion in the industrial and consumer’s market.
3. Stage in the product life cycle: The promotional product mix varies within stage in the product life cycle. The nature of demand varies according to the stages in the life cycle. During the introductory stage, the customers do not realize the qualities of the product. Here, information about the product and its benefits are made known to the buyers. In this stage, more importance must be given to personal selling and trade shows. In the growth stage, customers know the qualities of the product. Hence to stimulate demand, advertising must be increased. In the maturity stage, sales and profits decline and hence all the promotional activities should be cut down.
4. Market penetration: Here the product is already known to the buyers. In that situation, a sustaining promotional strategy is suitable. A brand has insignificant market penetration means it has a small market or struggling market. Market size and location: Product’s market size and location also influences the promotional mix. In narrow market, where the numbers of potential buyers is small, direct mail is used. In a broad market advertising is used.
5. Characteristics of buyers: The characteristics of prospective buyers strongly influence the promotional mix. Experienced professional buyers such as industrial purchasing agents need personal selling. Inexperienced buyers need advertising. Some buyers give importance to time, some to purchase of products, buyers act according to the influence of friend, relatives etc.
6. Distribution strategy; Companies fighting more through distribution for establishing their brands, invest more money on personal selling and advertising. Companies which have already established their brand in the market have to invest only a small amount in personal selling and advertising.
7. Pricing strategy: Pricing strategy influence the promotional mix strategy. If the brand is priced higher than the competition, more personal selling is needed to get a middleman to stock and push the brand. If the brand is priced lower, little promotion is needed.
Elements of Promotion Mix
There are four elements of promotion mix:
a) Advertising: Advertising is a non-personal presentation of goods, services or idea. In advertising existing and prospective customers are communicated the message through impersonal media like radio, T.V., newspapers and magazine. It involves transmission of standard message simultaneously to a large number of people. The message transmitted is known as advertising.
b) Personal Selling: Personal selling is the process of assisting and persuading the existing and prospective buyer to buy the goods or services in person. It involves direct and personal contact of the seller or his representative with the buyer.
c) Publicity: Publicity is a non-personal non-paid stimulation of demand of the product or services or business unit by planning commercially significant news about the services or business unit by planning commercially significant news about in the print media or by obtaining a favorable presentation of it upon radio, television or stage.
d) Sales promotion: Sales promotion consists of all activities other than advertising, personal selling and publicity, which help in promoting sales of the product. Such activities are non-repetitive and one time offers. According to American Marketing Association, sales promotion include, “those marketing activities other than personal selling, advertising and publicity that stimulate consumer purchasing and dealer effectiveness, such as point of purchase displays, shows and exhibitions, demonstrations and various non-recurring selling efforts not in the ordinary routine.”
The main aim of sales promotion is to increase sales and profits of the firm but it is quite different from personal selling and advertising. In personal selling, customer is persuaded by a sales person face to face. Advertising is a non-personal mass communication media. Sales promotion, on the other hand, is a non-recurring and non-routine method. Its main aim is to supplement and coordinate the personal selling and advertising. It is a supporting and facilitating element of promotional strategy. Sales promotion bridges the gap of advertising and personal selling.
Meaning of Advertising and its merits and demerits
Advertising: It is the most commonly used tool of promotion. It is an impersonal form of communication, which is paid by the marketers (sponsors) to promote goods or services. Common mediums are newspaper, magazine, television & radio. Advertisements play a very important role in offering innumerable benefits to the manufacturers, customers and to the society in general. Following are the benefits of Advertisements:
1.       Advertisements attracts new buyers and maintains existing customers and to the society in general.
2.       Advertisements inform the consumers about the quality and uses of the product.
3.       Advertising also acts as an information service and educates the con­sumer. It enables him to know exactly what he wants and where to get it. 
4.       Advertising stimulates production and reduces the cost per unit. This reduction in the cost is generally passed on to the consumer.
5.       Advertising also makes it possible to sell direct to the consumer by Mail Order Business. 
6.       Advertising helps in creating goodwill, brand image and brand loyalty.
7.       Advertisements help the retailers in selling the advertised products.
8.       It is also helpful in getting better employees and executives.
Objections to Advertising:
Several objections have been raised against advertising and some people criticize advertising as a social waste. The main point of criticism is as follows:
a)      Creates Monopoly in the market
b)      Higher the prices of product
c)       Misleading the consumers
d)      Wasteful consumption by the consumers
e)      Wastage of national resources
a)      Creates Monopoly in the Market: Advertisement leads to promotion and cover mass level of customers at a time. Sometimes it will create a monopoly in the market with the help of advertisement. Large firms can bear the advertisement expenditure but not the small firms, due to that it can eliminate the small firms from the market and creates its monopoly authority in the market. But the monopoly is only for a temporary basis as there is availability of competition in the market.
b)      Higher the Prices of Product: Investment of money in advertisement leads to increase in the price of goods and services for which consumer has to face high prices and pay for it. There is positive relationship between advertisement cost and its product. Hence, more the advertisement cost- more the product cost. Whereas, decrease in advertisement expenditure leads to fall in price of product cost.
c)       Misleading the consumers: Now days, advertisement misleads the consumers on false representation regarding their goods. Consumer attracts to those goods which are not necessary for them. Producers misguide the consumers by giving bogus testimonials and false representation regarding particular commodity. Thus, advertisement misleads the consumer and sale goods to them.
d)      Wasteful Consumption by the Consumers: Advertisement attracts the consumers for wasteful products which are not necessary for consumers. Due to advertisement businessmen takes undue advantage from them. They sale unhealthy and artificial goods to them and exploits consumer emotions. Now days the society has become the society of chocolate, Burger, pizza and cola’s instead of juice, fruits and vegetables just because of advertising.
e)      Wastage of National Resources: There will be wastage of national resources, valuable stationary, time and energy used by the people or is ignored by them. Here, Valuable resources that can be used to create new industries are wasted in the production of needless varieties and designs. Vance Packard, in his book “The Waste Makers”, gives several interesting examples on national resources.
Merits and demerits of various advertising media
1. TV: TV is the ultimate advertising medium to use because pretty much everyone watches TV so it has the potential to reach lots of people. Also, because it has a mix of audio and visual it tends to be recalled more easily.
Merits: a. Good for reaching large numbers of people; b. Good for most target audiences (less so for youth)
Demerits: Relatively expensive but it depends on the size of the population. A major city might be cost prohibitive but if you want to advertise in a small town or region it could be affordable
2. Newspapers: Print media are generally on the decline but newspapers still serve a purpose – especially in regional areas.
Merits: It works well for call-to-action advertising e.g. if we have got a sale on over the weekend or some kind of special promotion.
Demerits: But it is Relatively expensive and can be used for a special deal or promotion. It reaches a broad demographic. One of the better ways to reach business people, not so good for housewives though
3. Magazines: Whilst broad print media are on the decline, niche magazines are holding their own and they are an affordable option for small businesses.
Merits: Magazines allow to reach a tightly defined niche – can be very well targeted advertising. Often have an intimate relationship with their readers – readers trust what they say and also seem to therefore trust the advertising in it Opportunities for editorial & promotions.
Demerits: Longer lead times – not so good for date/time specific advertising
4. Radio: Cost-wise radio advertising is one of the more affordable types of advertising media for small businesses. It works well for some small businesses but are choosy about which stations we use.
Merits: The major benefit of radio is that listeners will hear our ad lots of times. It is relatively cheap/easy to get creative work produced.
Demerits: a. It doesn’t reach as many people as TV necessarily but they will have more opportunities to hear it. b. Doesn’t usually have the same impact like other media.
5. Outdoor (Out of Home/Posters): Outdoor media are rarely viable options for small businesses – they are costly both for the media space and print costs. Only consider it if there’s a really good deal being offered or if there’s a tactical opportunity to buy a site close to your business location as signage.
6. Cinema: Unless our target audience is youth, cinema advertising should probably not be one of your first choices when determining which types of advertising media to use. It does tend to be effective when people see our ad but it’s a slow-burn.
Merits: Captive audience and the mix of visual/audio means there is often a strong recall of cinema advertising. It is useful when target is youth.
Demerits: Relatively low reach because most people watch some TV everyday but do not go for cinema regularly.
Personal Selling: Features, Importance and difference from advertising
Personal selling is the act of presenting of product or services so that the consumer appreciate the need for it and mutually satisfactory sales follows.
Features of Personal selling:
a)      Personal contact is established under personal selling.
b)      Oral conversation.
c)       Quick solution of queries.
d)      Receipt of Additional Information.
e)      Development of relationship.
Qualities of a Good salesman:
a)      Physical Qualities : Physical qualities include personality health, stamina and tolerance
b)      Mental Qualities: These include mainly skill, mental alertness, imagination and self confidence.
c)       Social Qualities: These include social-abilities tact, sound character, and sweet nature.
d)      Vocational Qualities: It includes mainly knowledge of product, knowledge of competitive product, training and aptitude.
Importance of Personal Selling:
a)      Helps in identifying needs: Personal selling helps the customers in identifying their needs and wants in borrowing and how those can best be satisfied
b)      Expert Advice: customer gets expert advice and guidance in purchasing various goods and service, which help them in making better purchase.
c)       Latest market information: customers get latest market information regarding price chases, product availability which helps them in taking the purchase decisions in a better way.
Differentiate between advertising and personal selling
Basis
Advertising
Personal Selling
Form
These are Personal.
These are impersonal.
Message
These are uniformity of message which means that the message is the same for the entire customer.
This message has no uniformity which means it can be changed keeping in view the behavior of the customer.
Flexibility
It lacks flexibility.
It is completely flexible.
Cost
It is relatively less costly method.
These are a most costly method.
Time
It takes a little time in conveying any information to the customer.
It takes more time in conveying any information to the customer.
Media
TV, radio, newspaper & magazine.
Through salesman.
Feedback
This gives no information about the reaction of the customer.
The reaction of the customer becomes immediately affect.
Sales Promotion
Sales promotion refers to short term use of incentives or other promotional activities that stimulate the customer to buy the product. Sales promotion techniques are very useful because they bring short and immediate effect on sale.
Merits of sales promotion:
a)      Attention values: The incentives offered in sales promotion attract attention of the people.
b)      Useful in new product launch: The sales promotion techniques are very helpful in introducing the new product as it induces people to try new products.
c)       Synergy in total promotion efforts: Sales promotion activities supplement advertising and personal selling efforts of the company.
d)      Aid to other promotion tools: Sales promotion technique make other promotion techniques more effective. Salesmen find it easy to sell products on which incentives are available.
Demerits of sales promotion:
a)      Reflect crisis: If a firm is offering sales promotion techniques again and again it indicates that there is no demand of product which can create crisis situation.
b)      Spoil product image: Use of sales promotion tool may affect the image of product as buyer feel that product is of low quality that is why firm is offering incentives.
Sales promotion techniques: (a) Rebate (b) Product combination (c) Lucky Draw (d) Contest (e) Discounts
(a) Rebate: Sometimes, the product is made available at special prices less than the original prices for a limited period of time, e.g., recently Coke and Pepsi announced special price of their 500 ml bottles.
(b) Product Combination: Product combination is the bonus items given free with the purchase of a product. For e.g. A milk shakers along with Nescafe, or mugs with Bourn vita or a diary along with a packet of chips. They are effective in getting consumers to try a new product.
(c ) Lucky Draw: A firm of purchased of a fixed amount gives a coupon to a customer which entitles them for a lucky draw, e.g., Bikanerwala restaurant in particular season gives lucky draw coupon on purchase of Rs. 200 or more to its customers which entitles them to win exciting prizes like car etc.
(d) Contests: In these, consumer’ are required to participate in some competitive event involving application of skills or luck and winners are given some rewards. For instance, Golden Harvest, maker of premium bread usually has children drawing competition.
(e) Discounts: These are like price promotion in which certain percentage of price is reduced as discount from the list price, e.g., most of the retailers of garment like Snow White and Shopper’s Stop offer their product at generous discount during a limited period at the end of the season.
Distinguish between advertising and publicity.               
Basis
Advertising
Publicity
Meaning
The activity of generating advertisements of products and services to commercialize them is known as Advertising.
The activity of providing information about an entity, i.e. a product, an individual or a company to make it popular is known as Publicity.
Given by
It is done by company and its representative.
It is done by third party.
Cost
It is a paid form of communication.
It is unpaid form of communication.
Credibility and reliability
Credibility and reliability is more as compared to publicity.
 Credibility and reliability is less.
Control
There is complete control over advertisement.
There is no control over publicity.
Distinguish between advertising and Sales Promotion.
Basis
Advertising
Sales promotion
Meaning
The activity of generating advertisements of products and services to commercialize them is known as Advertising.
Sales promotion refers to short term use of incentives or other promotional activities that stimulate the customer to buy the product.
Strategy
It is permanent strategy.
It is a limited time promotion strategy.
Cost
It is highly expensive.
It is cost effective.
Best suited for
It is best suited for medium and big enterprises.
It is suitable for all enterprises.
Objective
Its main objective is to build brand image and boosting sales.
Its main objective is short term sales push.

Physical distribution and Its essential elements
Physical distribution is the process of making the movement of the product to the consumers. It encompasses all the activities involved in the physical flow of products from producers to consumers. Physical distribution makes the product available at the right place and at the right time, thereby maximizing the company’s chance to sell the product and strengthen its competitive position. The products have to be carried to places of consumption; they have to be stored; and they have to be distributed. The product has to be marketed over an extensive marketing territory. It has to be transported through long distances, stored for a considerable length of time before being consumed. Physical distribution largely determines the customer service level. Inefficient physical distribution leads to loss of customers and markets. There are some products which are subject to the seasonality factor - either production is continuous but demand is seasonal, or demand is continuous but production is seasonal. In all such cases, physical distribution acquires additional importance.
Significance or Importance of Physical Distribution Management:
The physical distribution of goods has assumed great importance particularly in recent years, because of the ever increasing competition for markets. The importance of physical distribution lies in the following directions:
1. It Creates Utilities Of Time And Place: By making available a product at the place where and when it is needed.
2. It Accounts For A Major Portion Of Marketing Costs: According to one estimate, physical distribution costs constitute as much 60% of the total marketing cost. Physical distribution is a very important area for cost savings. Over the years, in most businesses, physical distribution costs have grown into a sizeable portion of the total costs. Surprisingly, physical distribution despite being an important cost area, has remained one of the neglected areas for cost reduction. 
3. Bigger Share in the National Wealth: It represents large share in the national wealth in the form of facilities—rail, road, trucks, highways, aircrafts, ship, docking facilities, pipelines, storage facilities and equipment.
4. Specialisation It Facilitates Geographic Specialization: Each area produces goods that its natural resources, climate or pool of manpower resources enable it to produce more efficiently.
5. Determines Standard Of Living: This is so because proper distribution of products makes them available to a large number of people, at a relatively lower cost. Thus it can be said that physical distribution directly affects sales, customer service and satisfaction, and costs.
Physical distribution is a very important area for cost savings. Over the years, in most businesses, physical distribution costs have grown into a sizeable portion of the total costs.
Decisions/ Components/ Elements of Physical Distribution
1. Materials Handling: It involves moving products in and out of a stock. It consists of routine tasks that can be performed through mechanisation and standardisation. Efficiency is increased through use of electronic data processing to control conveyor systems, order picking and other traffic flaws. The modern mechanised handling services and protective packaging have improved the level of customer service and at the same time lowered physical distribution costs. Material handling and packaging services have also speeded up the order processing and movement of consignments.
2. Inventory Planning And Control: Inventory refers to the stock of products a firm has on hand and ready for sale to customers. Inventories are kept to meet market demands promptly. Inventory is the link interconnecting the customer’s orders and the company’s production activity. Infact the entire physical distribution management rotates around the inventory management. Inventory management is the heart of the game of physical distribution. Marketing managers undertake an inventory planning to develop adequate assortments of products for the target market and also try to control the costs involved in obtaining and maintaining inventory.
3. Order Processing: Order-processing and inventory control are related to each other. Order processing is considered as the key to customer service and satisfaction. It includes receiving, recording, filling, and assembling of products for dispatch. The amount of time required from the dates of receipt of an order up to the date of dispatch of goods must be reasonable and as short as possible.
It comprises in undertaking the processes that are needed to make certain orders processed quickly, accurately, and efficiently. The marketing manager has to decide about these along with such issues as what is the most efficient way to bill customers; how cans the paper work may be minimized? And how can the physical function of assembling orders more efficiently?
4. Transportation: It is an essential element of physical distribution. It involves integrating the advantages of each transportation method by adopting containers and physical handling producers to permit transfers among different types of carriers. For example, to place containers in railway flat cars and then load the containers on motor vehicles is called “piggy back” and if the containers are off loaded to water carriers, it is called “flash back.” Exchange of containers between air and truck carriers are referred to as “Air truck” or “birdy back”.
The marketing manager has to decide to (i) what mode or combination of modes of transportation (rail, truck, pipeline, water ways or air) should be used to transport products to warehouses and from there to customers? (ii) Should the transportation cost be reduced and the desired levels of customer service still maintained.
5. Communications: It is a process of passing information and understanding from one person to another. This includes the information system which should link producers, intermediaries, and customers. Computers, memory systems, display equipment and other communication technology facilitate the flow of information among other members in the channel. A manager to be successful must develop an effective system of communication. So that he may issue instructions, receive the reactions of the subordinates, and guide and motivate them.
6. Organisational Structure: The person in charge of the physical distribution should co-ordinate all Activities into an effective system to provide the desired customer service in the most efficient manner. Examples of organizational consideration are: (i) How can the five elements of physical distribution best be co­ordinated so that a team effort results? How can compartmentalization thinking be avoided? (ii) If a central head is established to direct all physical distribution activities, to whom should he report—The Head of the Marketing or The Chief Executive Officer?
Retailer and Wholesaler: Meaning, difference and their functions
Wholesale trader is one who sales to other middlemen, institutions and individuals a fairly large quantity. According to American Management Association, wholesalers sells to retailers or other merchants and/or individual, institutional and casual users but they do not sell in significant amounts to ultimate consumers. Wholesale trade is to do with marketing and selling merchandise to retailers, wholesalers or to individuals commercial and professional or other institutional contrast to household consumers, to individuals for personal use.
Retailer is one whose business is to sell to consumers a wide variety of goods that are assembled at his premises as per the needs of final users. The term retail signifies sale for final consumption rather than for resale or for further processing. A retailer is the last link between the final user and the wholesaler or the manufacturers.
In the words of Professor William Staton, ”Retailing includes all activities directly related to the sale of goods and services to the ultimate consumers for personal or non-business use”
Thus, retailer is that merchant intermediary who buys goods from preceding channel members in small assorted lots and sells them in the lot requirements of final users.
Difference between Wholesaler and Retailer:
1. Link: Wholesaler servers as a link between producers and retailers on the other hand, a retailer provides a link between wholesalers and consumers. Wholesaler is the first link, whereas retailer is the last link in the chain of distribution of goods.
2. Scale of operations: A wholesaler carries on business on a large scale and requires huge capital. A retailer, on the other hand, deals generally on a small scale and capital invested in retail trade in relatively small.
3. Range of goods: A wholesaler generally deals in one commodity. But a retailer deals in a large variety of goods and caters to the diverse needs of his customers.
4. Dealings: A wholesaler generally sells goods to retailers on credit. But a retailer usually sells goods to consumers on cash basis.
5. Location: A wholesaler can have a go down in a corner of the city and can supply goods there from. But the shop of a retailer needs to be located in the heart of the city to attract a large numbers of customers.
6. Profit margin: A wholesaler has not to spend money on shop decoration etc., and has a large volume of sales. Therefore, he charges a smaller margin of profit than that charged by the retailer.
7. Display of goods: A wholesaler need not display the goods. But a retailer has to display goods and decorate his shop in order to attract customers.
8. Purpose of selling: A wholesaler sells goods for resale. On the other hand, a retailer sells goods for ultimate consumption or use.
Functions or services of wholesaler
The wholesaler renders a number of services to trade, industries and commerce. The services rendered by the wholesaler may be classified as:
a)      Service to Manufacturer.
b)      Service to Retailer.
c)       Service to Consumer.
d)      General Services.
To Producers
1)      The wholesaler provides valuable information to the producers regarding the needs and the requirement of the consumer.
2)      As the wholesaler takes the responsibility of collecting order from retailers, he relieves the producers from this task and thereby encourage producers to concentrate on production.
3)      The wholesaler provides finance to the producers at the time of need.
4)      The wholesaler helps the producers in determining the quality and quantity of goods to be produced as he is in direct contact with the retailers.
5)      The producers are helped to maintain steady prices for the product because wholesaler buys when prices are low and sell when prices are high.
To Retailers
1)      The retailers are relieved of maintaining huge stock of goods because the wholesaler fills up the stock regularly. The wholesaler buys in large quantities and sell them at convenient lots to the retailers.
2)      The wholesaler provides finance and credit facilities to the retailer and thereby relieves the financial difficulties of the retailer.
3)      The wholesaler saves retailers from many types of risks. The retailer is not required to carry huge stock as he can get them from the wholesaler at regular interval. By extending credit has saved the retailers a lot.
4)      The wholesaler provides valuable advices to the retailer on all matters relating to new product and market condition and thereby relieves him from collection of market data.
5)      The wholesaler gives trade discounts on bulk purchase and as such it enables the retailers to earn handful amount of profit.
To Consumer
1)      He enables the consumer to purchase required quantities of goods at the desired time because he supplies goods regularly to the retailers.
2)      He provides goods at a cheaper rate because he facilitates in large scale production.
3)      The wholesaler is in a better position to stabilize prices of the products by adjusting demand and supply. The consumers are benefited a lot on account of stabilization of prices.
4)      There is no shortage of goods as the wholesaler goes on large purchasing.
5)      The wholesalers are wealth of information and as such these information are shared by the consumers.
Services or functions of Retailer
Services to Wholesalers and Manufacturers
1)      Retailers give manufacturers or producers access to markets by offering them the opportunity to present their products to consumers.
2)      The manufacturer and the wholesaler are relieved of making individual sales to consumers in small quantities.
3)      Retailers supply valuable and reliable information to wholesalers and manufacturers about the consumers' demands and the changes occurring in their likes and dislikes.
4)      Information about the consumers' likes and dislikes received from the retailers through the wholesalers enable the manufactures to make suitable adjustments in the design, size and contents of their products. Thus they can manufacture right types of goods at right time.
Services to Consumers
1)      As retailer holds stocks of goods ready for immediate use and he is prepared to sell in small quantities, the individual or household consumer is relieved of the burden of storing large quantities of every article of daily use.
2)      Retailer provides consumers with a wide variety of choice. Retailers, by assembling products of different variety from different manufactures, enable consumers to make choice from a large variety of goods displayed in their stores.
3)      Retailers buy and stock goods suitable to the consumers.
4)      Retail shops are situated in convenient localities, usually very near to the consumers' residence.
5)      Retailers stock fresh goods to meet daily demands of their customers.
6)      They sell to consumers in quantities, which suit the pockets of different individuals.
7)      Retailers make available to their customers goods of the sizes, styles, types, qualities and prices they prefer.
Channels of Distribution
One of the important problems of marketing is the distribution of goods & services to the right place, person & the right time. Manufacturers often find it difficult to decide about the effective distribution system. The channel of distributions refers to the group of intermediaries, which perform the distribution functions. A channel of distribution is an organised net-work or a system of agencies and institutions which, in combination, perform all the activities required to link producers with users and users with producers to accomplish the marketing task.
According to Philip Kotler, “The distribution is the set of all firms & individuals that assist in the transferring the little of goods & services as they move from producers to customers.”
According to Richard Buskirk, “Channel of distribution is that system of financial organization by which a producer sends his products to the hands of consumers.”
According to Cundiff and Still, “Channels of distribution are those marketing nets through which the producer flow the products toward the market.”
Types of Channels
A. Zero-level channel (producer to consumer): It is also called as direct marketing or direct selling. This channel consists of the producer who directly sells his products to the ultimate consumers. This is the shortest, simplest, & cheapest form of distribution. Producers are benefited by increased profit, whereas consumers are benefited by reduced price. This is possible because it eliminates the middleman completely. With the development of sophisticated & efficient retailing like supermarkets, chain-stores, automatic selling machine is financially sound follow this channel of distribution. For products like jewelry & industrial goods like machinery, this is the best channel.
B. One-Level Channel (Producers            Retailers              Consumers or producers              Wholesalers                      Consumers): This is a short channel where the manufacturer may himself perform some of the wholesaler. This is considered to be the best channel as it eliminates some of the marketing intermediaries & at the same time gets advantages of inclusion of retailers. In case of perishable goods, this is the best channel. When there is large scale promotion, inelastic demand & when manufactures are financially sound this channel is preferred.
C. Two-Level Channel (Manufactures          Wholesalers                           Retailers          Consumers): This is the traditional channel. It is more useful in the case of buyers, sellers, & manufactures who operate in small scale. The manufacturer sells his products in large quantities to a wholesaler who in turn sells in small quantities to retailers & finally retailers sell to ultimate consumers. Products which have low unit value & which are purchased frequently may be distributed through this channel.
D. Three Level Channel (Manufactures            Wholesalers           Agents         Retailers          Consumers): In this method manufactures appoint agent such as consignees to sell their products. It is preferable for exporters or MNCs.
Factors Affecting the Selection of the Channel of Distribution
Every producer, in order to pass on the product to the consumer, is required to select a channel for distribution. The selection of the suitable channel of distribution is one of the important factors of the distribution decisions. The following factors affect the selection of the channel of distribution:
A. Factors Pertaining to the Product: Keeping in view the nature, qualities and peculiarities of the product, could only the channel for distribution be properly made. The following factors concerning the product, affect the selection of the channel of distribution:
(1)   Price of the Product: The products of a lower price have a long chain of distributors. As against it, the products having higher price have a smaller chain. Very often, the producer himself has to sell the products to the consumers directly.
(2)   Perishability: The products which are of a perishable nature need lesser number of the intermediaries or agents for their sale. Under this very rule, most of the eatables (food items), and the bakery items are distributed only by the retail sellers.
(3)   Size and Weight: The size and weight of the products too affect the selection of the middlemen. Generally, heavy industrial goods are distributed by the producers themselves to the industrial consumers.
(4)   Technical Nature: Some products are of the nature that prior to their selling, the consumer is required to be given proper instructions with regard to its consumption. In such a case less of the middlemen arc) required to be used.
(5)   Goods Made to Order: The products that are manufactured as per the orders of the customers could be sold directly and the standardized items could be sold off only by the middlemen.
(6)   After-Sales Service: The products regarding which the after-sales service is to be provided could be sold off either personally or through the authorized agents.
B. Factors pertaining to the Consumer or Market: The following are the main elements concerned with the consumer or the market:
(1)   Number of Customers: If the number of customers is large, definitely the services of the middlemen will have to be sought for. As against it, the products whose customers are less in number are distributed by the manufacturer himself.
(2)   Expansion of the Consumers: The span over which are the customers of any commodity spread over, also affects the selection of the channel of distribution. When the consumers are spread through a small or limited sphere, the product is distributed by the producer himself or his agent. As against it, the goods whose distributors are spread throughout the whole country, for such distributors, services of wholeseller and the retailer are sought.
(3)   Size of the Order: When bulk supply orders are received from the consumers, the producer himself takes up the responsibility for the supply of these goods. If the orders are received piece-meal or in smaller quantities, for it the services of the wholeseller could be sought. In this way, the size of the order also influences the selection of the channel of the distribution.
(4)   Objective of Purchase: If the product is being purchased for the industrial use; its direct sale is proper or justified. As against it, if the products are being purchased for the general consumption, the products reach the consumers after passing innumerable hands.
(5)   Need of the Credit Facilities: If, for the sale of any product, it becomes necessary to grant credit to any customer, it shall be helpful for the producer that for its distribution, the services of the wholeseller and retailer businessmen be sought. In this way, the need of the credit facilities too influences the selection of the channel of distribution.
C. Factors Pertaining to the Middlemen: The following are the main factors concerned with the middlemen:
(1)   Services Provided by Middlemen: The selection of the middlemen is made keeping in view their services. If some product is quite new and there is the need of its publicity and promotion of sales, then instead of adopting the agency system, the work must be entrusted to the representatives.
(2)   Scope or Possibilities of Quantity of Sales: The same channel should be selected by means of which there is the possibility of more sales.
(3)   Attitude of Agents towards the Producers' Policies: The producers generally prefer to select such middlemen who go by their policies. Very often when the distribution and supply policies of the producers being disliked by the middlemen, the selection of middlemen becomes quite limited.
(4)   Cost of Channel of Distribution: While selecting the channel of distribution, the cost of distribution and the services provided by the middlemen or agents too must be kept into consideration. The producers generally select the most economical channel.
D. Factors Pertaining to the Producer Or Company: The following factors, concerning the producer, affect the selection of the channel of distribution:
(1)   Level of Production: The manufacturers who are financially sound and are of a larger category, are able to appoint the sales representatives in a larger number and thug could distribute the commodities (products) in larger quantities. As against it, for the smaller manufacturers, it becomes necessary to procure the services of the wholesellers and the retail traders.
(2)   Financial Resources of the Company: From the financial point of view, the stronger company needs less middlemen.
(3)   Managerial Competence and Experience: If some producer lacks in the necessary managerial experience or proficiency, he will depend more upon the middlemen. The new manufacturers in the beginning remain more dependent upon the middlemen.
E. Other Factors
(1)   Distribution Channel of Competitors:  While determining the channel of distribution, the channels of distribution of the competitors too must be borne in mind.
(2)   Social Viewpoint: What is the attitude of society towards the distribution, this fact too must be kept into consideration while selecting the middlemen. 
(3) Freedom of Altering: While selecting the agents, this fact too must be kept into mind that in case of need, there must be the liberty of changing or replacing the agents (middlemen).
Functions (Role) of the Channels of Distribution
The following are the main function of the channel of distribution:
(1)   Extending Suggestions Regarding Price-Determination: The middlemen are in the direct contact of the consumers. Therefore, they possess the knowledge that on what price may the consumer accepts the product. Thus, the channel of distribution extends necessary advice to the producers in the price-determination.
(2)   Regularizing the Decisions: The channel of distribution regularizes the decisions and the transactions, resulting in the lowering of the costs. If the products are sold off to some such store which has many branches in the city, the producer then doesn't need going to various branches frequently or repeatedly. The main cause of the same is that if the product seems suitable for the store, it will itself send the purchase order to the manufacturer and in this way, with only the limited efforts, it will become possible to sell the products in bulk quantities.
(3)   Managing the Finance: We find that the agents generally send some advance money along with the order. Very often the product is supplied to the agents through the bank so that the company gets the documents discounted from the bank. Thus the finance is arranged. Thus it-is also the function of the agents to arrange the finance.
(4)   Performing the Promotion Activities: By the middlemen, particularly by the retailers, the advertisements, individual sales, and the sales promotion activities are performed. Very often the middlemen themselves plan and implement the promotion activities and sometimes the manufacturers to extend their help in such work. Really, the result or the outcome of the sales, by the producer, very much depends upon the promotion activities undertaken by the middlemen.
(5)   Serving the Consumers: Due to the middlemen only, the consumers get their required products. Only in accordance with the needs of the consumers, the retailers arrange to purchase the products from the wholesellers and the manufacturers.
(6)   Minimizing the Total Transactions: If there were no middlemen, the producer would have been required to sell the product directly to the consumers which would have result into more of expenditure and trouble. Really speaking, due to the existence of the middlemen only, the number of total transactions is reduced which also reduces the costs of distribution.

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