The products we are using in our day to day life like laptops, cars, mobile phones, watches etc. were made in different parts of the world. But we are simply purchasing them from our home or from a very near place. This is possible because of the distribution channels. The new trends and technologies in supply chain managements makes it easier than before.
A distribution channel is a network of firms that are interconnected in their quest to provide sellers a means of infusing the market place with their goods and buyers a mean of purchasing those goods, doing all as efficiently and profitably as possible (Iacobucci 2013). In short, distribution describes all the logistics involved in delivering a company’s products or services to the right place, at the right time, for the lowest cost. Distribution channel is not only a method of selling but also Ii includes locations as well. Different methods include wholesalers, retailers and direct sales agents who helps in making a product or service available to consumers.
There are different types of distribution channels according to the necessity, nature of product, business size, brand image and the method of operations. There are two major types of distribution channels. One is direct channel and the other one is indirect channel.
In the direct channel method, the manufacturer directly sell the goods to the customers. There is no involvement of intermediaries in this distribution. This is also called as zero level distribution. The manufacturer distribute their products mainly by setting up retail outlets and internet selling. To adapt this method, the manufacturer has to recruit field sales team and the sales representatives are responsible for the sales. This distribution gives a company control over relationships with the customers. The companies using direct distribution channel has higher profits than the companies using indirect distribution channels. But this may suits only for the smaller companies. The major disadvantage with this distribution is, this can’t compete with the geographical range and business volume. Companies like Nike, Dell and travel agents are best examples for this.
Indirect distribution channel has divided into 3 types according to the usage of intermediaries or channel methods. They are one level, two level and three level channel. In one level channel manufacturer sells the goods directly to a retailer. Mostly this channel is used by expensive watches and FMCG products. In the two level channel, the manufacturer sells the goods to a wholesaler, the wholesaler to a retailer and then to the customer. The wholesales purchases large volumes from the manufacturer and then distribute them to retailers in small volumes. This channel is mainly used to sell soaps, sugar, cigarette etc. In the three level channel, one more level is added to two level channel in the form of agents. This agents reduce the distance between the manufacturers and wholesaler. This is suitable for very big companies like Toyota, Pepsi etc.
Importance of distribution channels:
Manufacturers may always do not always need distribution channels. As discussed, it depends on several factors. Some of the importance’s are
- They create exchange efficiency by reducing the number of contacts needed.
- The distribution channels can perform many functions like transportation, storage, selling, scale of operation and advertising better than the manufacturers.
- Large manufacturing companies can reduce their costs and time required to reach their products with the help of distribution channels.
- These can offer promotion and financial support.
The organisations or companies must carefully observe all the distribution channels and eventually adapt those channels which results in best profits. Even selecting a cheaper distribution channel may not be a right idea. This is completely depends on the nature of the business and money can be spent by the organisation.
Name: Bandaru Venkata Krishna Chaitanya
Student ID: 215235456
User name: vkbandar
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