Everything you need to know about the functions of distribution channels.
The main function of distribution channel is to assemble the goods from different manufacturer and make it available to the consumer. Apart from this, the channel members also perform a number of other functions like buying, carrying inventory, selling, transporting, financing, etc.
These functions enable products and information flow from manufacturer to user in a timely and efficient manner.
The functions of distribution channels can be studied under the following heads:- 1. Transactional Functions 2. Logistical Functions 3. Facilitating Functions.
Some of the functions of distribution channels are:- 1. Financing 2. Assists in Merchandising 3. Provides Market Intelligence 4. Assortment of Products 5. Price Stability 6. Promotion 7. Provides Salesmanship 8. Title 9. Helps in Production Function 10. Matching Demand and Supply
11. Pricing 12. Standardising Transactions 13. Matching Buyers and Sellers 14. Information Provider 15. Time and Place Utility and a Few Others.
Functions of Distribution Channels: Transactional Functions, Logistical Functions, Facilitating Functions and a Few Others
Functions of Distribution Channels – 3 Categories: Transactional Functions, Logistical Functions and Facilitating Functions
The main function of distribution channel is to assemble the goods from different manufacturer and make it available to the consumer. Apart from this, the channel members also perform a number of other functions like buying, carrying inventory, selling, transporting, financing, etc. These functions enable products and information flow from manufacturer to user in a timely and efficient manner.
The main functions performed by the distribution channels can be divided into following categories:
1. Transactional Functions:
These functions relate to the various transactions performed for moving the goods from one channel end to other. It includes functions like buying, selling and risk bearing. These functions are performed by channel members. The goods are sold by the producer or manufacturer to various intermediaries who in turn sell it to the ultimate consumer. Movement of goods also include change in the title of goods from one to another.
2. Logistical Functions:
These include functions like assembling, storage, grading and transportation for physical movement of the goods from one place to another. It is very necessary that the goods are properly assorted and stored at the right place. Channel members have to ensure that stored goods are transported at right time, so that it is made available to the consumers.
3. Facilitating Functions:
These functions facilitate the performance of different functions by the channel members. With these functions, activities by the channel members can be performed smoothly. It includes financing, credit facilities, after-sale services, maintenance, etc. Purchase of most of the goods these days are accompanied by various services like loan facility, credit facilities, free servicing, etc. which facilitates the channel members.
Functions of Distribution Channels – 15 Major Functions: Financing, Assists in Merchandising, Provides Market Intelligence, Assortment of Products and a Few Others
The major distribution channel functions are as given below:
Function # 1. Financing:
Intermediaries usually make advance payments for goods and services, thereby, providing necessary working capital to the manufacturers for their day-to-day operations. Though the manufacturers may extend credit, payment is made in advance, even before the product is bought, consumed and paid by the ultimate consumer.
Function # 2. Assists in Merchandising:
Through merchandising, they help reinforce the awareness about the product among customers. While visiting a retail shop, customer’s attention can be allured by an attractive display of the product/brand increasing his awareness and interest. Merchandising, especially display, complements the selling efforts of the company and acts as a silent salesman at the retail outlet.
Function # 3. Provides Market Intelligence:
Market intelligence and feedback to the principal are rendered by channels. In the nature of things, channels are in a good position to perform this task, since they are in constant and direct contact with the customers. They feel the pulse of the market all the time.
Function # 4. Assortment of Products:
It leads to the customer convenience as channels of distribution help the consumers to buy goods in convenient unit lots, packs and assorted varieties of the products. In order to use the economics of scale and to minimise the overall production cost, goods and services are produced in bulk.
But these goods and services consumed in smaller quantity so there is essentially the need of breaking the bulk. It is carried out by channel intermediaries.
Function # 5. Price Stability:
A middleman also works to maintain price stability in the market. Many a time the middlemen absorb an increase in the price of the products and continue to charge the customer the same old price. This is because of the intra-middlemen competition. He also maintains price stability by keeping his overheads low.
Function # 6. Promotion:
Sales incentive programmes are designed by middlemen aiming to building customers traffic at the other outlets. Channels of distribution perform promotional activities like advertising, personal selling and sales promotion etc., so as to be useful to the producer in achieving greater market share in sales and market coverage of the products.
Function # 7. Provides Salesmanship:
Salesmanship is provided by marketing channels. As they help in introducing and establishing new products in the market. Under some cases, buyers go by the recommendations of the dealers. The dealers establish the products in the market through their persuasive selling and person-to-person communication. They also provide pre-sale and after-sale service to the buyers.
Function # 8. Title:
The title to the goods, services and trade are taken by middlemen under their own names. It helps in eliminates the risks between the manufacturer and middlemen, also enabling middlemen to be in physical possession of the goods, which in turn helps. Then to meet customer demand at very moment it arises.
Function # 9. Helps in Production Function:
Leaving the marketing problem to middlemen who specialise in the profession the producer can concentrate on the production function. Their services can best utilised for selling the product. The finance, required for organising marketing can profitably be used in production where the rate of return would be greater.
Function # 10. Matching Demand and Supply:
The major function of intermediaries is to assemble the goods from many producers in such a manner that a customer can affect purchases with ease. The goal of marketing is the matching of segments of supply and demand.
Function # 11. Pricing:
While pricing a product, the producer should invite the suggestions from the middlemen as they are very close to the ultimate users and know what they can pay for the product. Pricing may be different for different markets or products depending upon the channel of distribution.
Function # 12. Standardising Transactions:
Standardising transactions is another function of marketing channels. Like the milk delivery system, the distribution is standardised throughout the marketing channel so that consumers do not need to negotiate with the sellers on any aspect, whether it is price, quantity, method of payment or location of the product. By standardising transactions, marketing channels automate most of the stages in the flow of products from the manufacturer to the customers.
Function # 13. Matching Buyers and Sellers:
The most critical activity of the marketing channel members is to match the needs of buyers and sellers. Usually, most sellers do not know where they can reach potential buyers and similarly, buyers do not know where they can reach potential sellers. From this perspective, the role of the marketing channel to match the buyer’s and seller’s needs becomes very vital. For instance, a painter of modern art may not know where he can reach his potential customers, but an art dealer would surely know.
Function # 14. Information Provider:
Middlemen plays an important role in providing information about the market to the manufacturer. Changes in customer demography, psychographic, media habits and the entry of a new competitor or a new brand and changes in customer preferences are the developments that are the information manufacturers needed. As, these middlemen are present in the market place and close to the customer they can provide this information at no additional cost.
Function # 15. Time and Place Utility:
They assist consumers to buy goods at the time and place they require them. They create time and place utilities to the buyer. Thereby reducing the spatial discrepancy (distance between the producer and the consumer) in the buying space.
Functions of Channel Distribution: Information Provision, Match Discrepancy, Bulk Breaking and Sorting, Storing and Transportation, Take Risk and Place and Time Utility
There are several reasons why companies use channels of distribution. Opposite of the distribution strategy that employs intermediaries is direct distribution or direct selling. Imagine the difficulty firms like HUL would encounter in selling their products like Lux toilet bar and Dove shampoo to all customers who want to use them.
These consumers are large in number and are geographically dispersed. The company would face a herculean task of managing customer contact, which would run into crores of transactions. Managing these would burden the company and divert its focus towards distribution.
One of the efficient ways to reach out to a large number of customers is to use intermediaries. By the use of intermediaries the customer also benefits because contacts required to obtain products of their needs also stands reduced. This results in economy of efforts and saving of precious resources such as time, energy, and money for both the producer and consumer. This is one of the reasons why channels of distribution are commonly used to servicing consumer needs.
The use of intermediaries becomes imperative because the supply side (i.e., marketing firms) is governed by considerations that are different from consumer priorities. It is nearly impossible for companies to undertake all the tasks or activities that would match the service level desired by consumers.
Consumers expect product availability at the right time, in the right quantity, at the right place, and in the right assortment. If a company seeks to achieve all this on its own the operations would be highly inefficient and ineffective. Intermediaries are used as they perform a number of functions that help marketers service customer needs efficiently.
Function # 1. Information Provision:
There are middlemen like retailers who exist in close proximity with customers. This closeness of position allows them to get first-hand information on customer feedback and emergent changes in tastes and preferences. Middlemen can also provide valuable information about competitor activity.
In an international marketing scenario, a firm can get customer and competitor insights from middlemen who operate in that market. Middlemen can influence consumer decision in favour of certain brands simply by providing relevant product and company information.
Consider how retailers influence brand purchase by informing consumers of merits and demerits of brands under consideration. Less informed customers trust middlemen at the end of distribution channel to help them take the correct buying decision.
Function # 2. Match Discrepancy:
Consumers do not buy directly from product manufacturers because customer demand does not match with what is supplied by manufacturer. Consumers typically buy products in very small quantities but their producers produce them in large quantities. Therefore, there exists a discrepancy between demand and supply.
For instance, a producer of cement like ACC or shoes like Nike manufactures products in large numbers but individual buyers need them in smaller quantities. This mismatch in quantity is synchronized by middlemen who make products available in numbers that are desired by customers.
Second, middlemen match the discrepancy of assortment. Manufactures usually follow a specialization model and produce one type of product. For instance, a customer who is engaged in construction of a house needs cement, bricks, steel, and sand simultaneously.
However, ACC only produces cement. Therefore, there is a discrepancy of assortment demanded by customer and what is supplied by ACC. In this connection, middlemen like hardware dealers sell assortment of products that match with customer needs to solve their problem.
Function # 3. Bulk Breaking and Sorting:
Commodities such as candles and almonds are sold in large quantities to middlemen by their producers. For instance, almonds are sold in big gunny bags to middlemen by the producers from states such as Himachal Pradesh and Kashmir. The produce so obtained in bulk is broken down into smaller quantities as it moves down the channel of distribution.
The producers send gunny bags filled with almonds in truck loads to their agents who divide this quantity into bags of quintals and sell them to wholesalers. The wholesalers then further break the big bags into smaller bags of 20 kg. These bags are further divided into packs of one and two kilograms by the retailer.
Middlemen also sort produce into different quality categories. For instance, fruits like apples received by a commission agent from the source are divided into different grades. These graded fruits are further divided into different quality categories by the retailers.
Function # 4. Storing and Transportation:
Once goods are produced they need storage till the time they are sold to customers. This requires storage and warehousing facilities. One of the most important functions of middlemen is to store products in their facilities in order to cater to changes in customer demand.
There are specialist channel partners whose primary job is to store products. This does away with the need to invest in creating one’s own storage system for the producers. Goods ultimately have to move to markets where they are bought by customers. Transportation and logistics partners come to the rescue of producers in this movement. Big e-tailers such as Flipkart and Amazon partner with logistics companies like FedEx to make shipment of sold products to end consumers.
Function # 5. Take Risk:
Owning products and taking their custody is a risky job. Holding stocks of goods in warehouses or while in transit involves risks linked with damage and destruction. Some of the middlemen take the title of products in the course of their journey to consumers. Transfer of title transfers risk.
The practice of financing consumer purchases by extending credit is not uncommon. The retailers offer credit to end consumers and wholesalers provide credit facilities to retailers. This credit ties up working capital of the financer and exposes him to the risk of non-recovery of money.
Function # 6. Place and Time Utility:
Place utility implies contribution made by middlemen in enhancing attractiveness of a product by altering its point of availability. A product available at an inconvenient location has lesser value. For instance, a bottle of Coca-Cola available at a distant store has lesser value compared to when it is available at a kiosk at a small distance.
Imagine the place utility created by small kiosks and roadside vendor partners in distribution of cigarettes and cold drinks. Intermediaries are prime instruments of increasing attractiveness of a product by making them available at convenient locations.
Another way an intermediary adds value is through creation of time utility. Production time and consumption time may not always coincide. That is, a product may be manufactured at a point in time that is different from its consumption time. By making products available at the time when they are needed for consumption, intermediaries create time utility. For instance, stores that offer medicines throughout the night create time utility.
Functions of Channel Distribution – With 5 Alternative Routes which a Producer can Take
The function of distribution is to move goods from the producer to the final consumer or user. It applies both to industrial and consumer goods or service, to titanium oxide as a raw material in paint manufacture as well as the actual tin of paint bough by the do-it-yourself home decorator. There are a number of ways open to any producer to get his product into the hands of the final user, some of which are competitive or substitutable for one another, some of which are complementary to one another. The following chart shows the principal alternative channels of distribution open to a producer –
The distribution function is no different from the ‘Market System’. However, as re-capitulation a brief description of the distributor its process, channels, industrial distributor etc., are given on the following page.
The five alternative routes which a producer can take are:
(1) Producer direct to consumer or final user;
(2) Producer direct to retailer to consumer;
(3) Producer direct to wholesaler to retailer to consumer;
(4) Producer to broker, factor or agent to wholesaler to retailer to consumer; and
(5) Producer to broker, factor or agent to retailer to consumer.
Most industrial goods, excluding basic raw materials, are sold direct to the industrial user or to a factor or agent standing between the producer and the industrial user. A consumer goods producer can distribute direct to the consumer either through the post (mail-order) or through door-to-door salesmen (e.g., certain domestic appliances, cosmetics, plastic kitchen utensils, brushes and household cleaning materials).
A producer can distribute exclusively or selectively through independent retailers, variety chain stores, departmental stores, or mail-order houses. Some producers sell direct to consumers through their own retail outlets, e.g., petrol companies owning their own sites, men’s clothing manufacturers, shoe manufacturers, some domestic appliance manufacturers, and home decorating material suppliers, sewing machines and electronic goods.
A few companies own their own wholesale merchant organisation handling competing brands and classes of merchandise, e.g., certain food, confectionery and tobacco manufacturers. Combinations of channels are sometimes used.
A notable point is the variation in the length of the different channels of distributions. It clearly takes longer for a product to pass through the hands of a broker or wholesaler, retailer and hence to the final user than it does to go direct from the manufacturer’s warehouse direct to the user.
Except for certain kinds of industrial goods, however, the real comparison is between the manufacturer-direct-to-user channel and the retailer-direct-to-user channel. Provided adequate stock is always on hand at the retail outlet it is probably quicker and easier, in most cases, for the consumer or user to buy from the retailer. Where a product is purchased to order, on the other hand, direct delivery from the manufacturer to user is the quicker route.
Functions of Distribution Channel – 9 Key Functions: Suggested by Philip Kotler
Philip Kotler briefly highlights various functions of channel in marketing.
A marketing channel performs the work of moving goods from producers to consumers. It overcomes the time, place and possession gaps that separate goods and services from those who would use them.
Members in the marketing channel perform a number of key functions and participate in the following flows:
i. Information – The collection and dissemination of marketing research information about potential and current customer, competitors and other actors and forces in the marketing environment.
ii. Promotion – The development and dissemination of persuasive communication about the offer designed to attract customers.
iii. Negotiation – The attempt to reach final agreement on price and other terms so that transfer of ownership or possession can be effected.
iv. Ordering – The backward communication of intentions to buy by the marketing- channel members to the manufacturers.
v. Financing – The acquisition and allocation of funds required to finance inventories at different levels of the marketing channel.
vi. Risk taking – Te assum of risks connected with carrying out the channel work.
vii. Physical possession – The successive storage and physical movement of physical products from raw materials to the final customers.
viii. Payment – Buyers paying their bills through banks and other financial institutions to the sellers.
ix. Title – The actual transfer of ownership from one organisation or person to another.
The various models are:
i. Direct selling from manufacturer to consumers.
ii. From manufacturers to retailers involving eight different types of retailers.
iii. From manufacturers to wholesalers and retailers to consumers.
iv. From manufacturers to wholesalers to medium size wholesalers to retailers and then to consumers.
v. From manufacturers to sole selling agent to wholesalers to retailers and consumers.
vi. From manufacturers to commission agents to retailers and y then to consumers.
Functions of Distribution Channels – 10 Important Functions
Distribution channel moves the goods and services from producers to consumers. It will create time and place utility for the products and services. The channel members perform many important functions.
They are listed below.
1. Information – The channel members provide information about customers, competitors, and other parties in the marketing environment. They collect and disseminate market information, which is of great importance.
2. Promotion – The intermediaries almost work like company sales people and promote the products and services offered by the company to the customers. They spread favourable communication about the product and service.
3. Contact – Finding and communicating with prospective buyers.
4. Matching – Shaping and fitting the offer to the buyer’s needs including activities such as – assembling, grading, and packaging.
5. Negotiation – They negotiate with both company and buyers to reach final agreement on price and other conditions so that transfer of ownership or possession can takes place.
6. Ordering – They provide backward communication regarding the intentions of the buyers and their orders to the manufacturer.
7. Financing – The channel members acquire and use funds to cover the costs of distribution.
8. Risk Taking – The channel members take the risks of carrying the distribution work.
9. Physical Flow – The successive storage and movement of physical products from raw materials to the final customers.
10. Tide – The actual transfer of ownership from one organization or person to another.
These are the main functions involved in distribution. In allocating these functions to channel members one has to see the costs involved and the level of service which will be performed by these members to the consumers. By and large each channel member should add value to the process of distribution; otherwise there is no use of employing that channel member.
Some of the functions like physical, title, promotion constitute a forward flow of activity from the company to the customer; functions like ordering and payment constitute a backward flow from customers to the company. Still other functions like information, negotiation, finance and risk taking occurs in both directions. Generally there are five types of flows that take place through a distribution channel. They are – physical flow, title flow, payment flow, information flow, and promotion flow.
Functions of Distribution Channels – Top 15 Functions: Market Information, Sales Promotion, Negotiation, Ordering, Financing, Pricing, Storage, Payment and a Few Others
1. Market Information – Channels provide useful information about current and potential consumers, competitors, and environment.
2. Sales Promotion – through window displays, counter displays and persuasive communication to attract and stimulate buying of company’s products.
3. Negotiation – Finalizing price and other terms.
4. Ordering – Booking orders from buyers and communicating to producers.
5. Financing – Funds to finance inventories at different marketing channels.
6. Pricing – Middlemen influence and often determine price.
7. Storage – provide for successive storage and movement of physical products.
8. Payment – Collections of payments from buyers in cash or by cheque.
9. Title – Transferring ownership from sellers to buyers.
10. Risk-Taking – Assume risks connected …………. carrying out distribution work at channel levels.
11. Repeat Purchases – Keeps/helps repeat purchases.
12. Arranging Transport – To desired destination.
13. Servicing – e.g., credit, delivery and returns.
14. Buying – Purchasing broad assortment of goods from producer or other channel members.
15. Selling – Performing activities needed to sell goods to consumers or other channel members.
Functions of Distribution Channel – 7 Main Functions
1. Channels of distribution are the link between manufacturers and ultimate consumers. Now, goods and services produced anywhere in the world are available to us only with the help of channels of distribution. For example- the US-based Kentucky Fried Chicken counters are functional in all Indian metros.
2. Secondly, goods are stored by the middlemen while being transferred from manufacturers to consumers and released in the market depending on the demand. For example- in the case of jams and juices manufacturers have to store the fruits in the season, but the end products are available throughout the year.
3. Channels of distribution are helpful in promoting goods and services. Through their widespread network, they talk about the new products and help manufacturers create demand. This is very helpful in promoting new products and services.
4. Channels also help in financing functions. They give credit to wholesalers and retailers.
5. They also help in fixing prices as they know about market conditions. The possible price accepted by the consumers is known through them and is helpful to manufacturers.
6. Channels of distribution serve as an effective tool for building up clientele. On the other hand inefficient physical distribution leads to the loss of customers and markets.
7. These channels also provide information concerning the availability, characteristics and prices of the goods in transit, inventory and on purchase.
Functions of a Distribution Channel: 10 Most Important Functions
The main function of a distribution channel is to provide a link between production and consumption.
Organisations that form any particular distribution channel perform many key functions:
1. Information – Gathering and distributing market research and intelligence – important for marketing planning
2. Promotion – Developing and spreading communications about offers
3. Contact – Finding and communicating with prospective buyers
4. Matching – Adjusting the offer to fir a buyer’s needs, including grading, assembling and packaging
5. Negotiation – Reaching agreement on price and other terns of the offer
6. Physical distribution – Transporting and storing goods
7. Financing – Acquiring arid using funds to cover the costs of the distribution
8. Risk taking – Assuming some commercial risks by operating the channel (e.g., holding stock)
All of the above functions need to be undertaken in any market. The question is – who performs them and how many levels there need to be in the distribution channel in order to make it cost effective.
According to Alderson the main objective of distribution channel is to match the supply and demand of each segment. This matching process is undertaken by the distribution channel by performing various functions such as contracting, sorting, stimulating demand, maintaining inventory and transmitting information.
Some important functions performed by distribution channels keeping in mind the key functions are as follows:
Function # 1. Helpful in Price Determination:
The institutions functioning as distribution channel assist the manufacturer and buyers in determination of price as they can estimate paying capacity of consumers for a product. Distribution channels can also provide time to time information related to markets, competition etc., to the manufacturers.
Function # 2. Contact between Producer and Consumers:
Through distribution channels producer comes into the contact with the consumer, which is useful to collect some important information regarding product and behavior of the consumer.
Function # 3. Transferring the Title:
Distribution channel materializes the transfer of product’s title. Title is transferred through sales and purchases. It delivers right product, at right place, at right time and at right price to consumers.
Function # 4. Performing Promotional Activities:
Channels of distribution help the producers not only in the distribution of goods and services but also in promoting the sales of these producers by performing various promotional activities like advertising, personal selling and sales promotion. Wholesalers advertise for the goods dealt with by them and retailers help in increasing the sales by performing such activities by displaying the product in his window which attracts the customers.
Function # 5. To Manage Finance:
All the manufacturers have limited financial resources. Middlemen help manufacturers in making adequate financial resources available. Distribution channels manages the finance in two ways – (a) by remittance of advance amount to the producers at the time of giving orders, (b) by providing credit facilities to the consumers.
Function # 6. Satisfaction to the Consumers:
Distribution channels provide satisfaction to the consumer by providing services and by supplying products in different varieties, colors, sizes and according to fashion.
Function # 7. To Make the Process of Distribution Easy:
Channels of distribution routinise the sale of the producer. Once the route for reaching the goods is fixed, the problem for selling the product is automatically solved as they distribute the goods produced by producers at right time and right place to the right consumers.
Function # 8. Matching of Demand and Supply:
Most important function of middlemen is to collect goods and services from many producers so that consumers may select from among a large number of alternatives. Thus, the middlemen play the game of matching demand and supply of goods and services in a market.
Function # 9. Helpful in Communication:
In the competitive environment where it is the time of changes, habits, tastes, nature and attitudes of consumers keep on changing frequently. In the light of these changes, it becomes, imperative for every producer to make necessary changes in his products. The distribution channel is a connecting link between the producers and the consumers. They assist in providing information about the product, services, quality, etc., from producer to consumers.
Function # 10. Creating Time and Place Utilities:
Distribution channels create time and place utilities by providing products to the consumer at proper place and at proper time, taking into consideration the reason and requirements of consumers.