Module 5 – Distribution
Contents
Distribution
• Meaning And Importance
• Stages of Distribution
• Distribution mix
Product Distribution Channels
• Concept and Functions of Channels
• Role of Intermediaries
Retailing of Products
• Formats
• Unorganized and Organized
• Department Stores
• Supermarkets
• Hyper Markets
• Chain Stores
• Electronic Retailing
Contents
Definition ............................................................................................................................................ 2
Importance / Objectives / Needs of distribution and physical evidence ....................................... 2
Stages / Levels of distribution / Types of distribution ..................................................................... 3
Distribution mix ................................................................................................................................. 3
Distribution channel .............................................................................................................................. 3
Role of distribution channel .............................................................................................................. 3
Role of distribution channel intermediaries..................................................................................... 4
Factors affecting choice of distribution channel ............................................................................. 4
Types of middlemen .............................................................................................................................. 5
Functions / Role of agent and merchant middlemen ...................................................................... 5
Retailing.................................................................................................................................................. 6
Functions of retailing ......................................................................................................................... 6
Forms of retailing ............................................................................................................................... 6
Unorganized and organized retailing ............................................................................................. 6
Supermarket .................................................................................................................................. 7
Departmental store ....................................................................................................................... 7
Hypermarket .................................................................................................................................. 8
Chain stores ................................................................................................................................... 8
Electronic retailing ......................................................................................................................... 8
Previous year questions ........................................................................................................................ 9
Distribution
Definition
Distribution: Distribution means to spread the product throughout the marketplace such that
a large number of people can buy it.
Distribution channel: is the network of businesses, individuals, and intermediaries
facilitating the journey of a product or service from the manufacturer to the end consumer.
Importance / Objectives / Needs of distribution and physical evidence
• Making the goods available: Ensuring that products are consistently in stock and
accessible to customers when and where they need them.
• Regular supply of goods: Maintaining a steady and reliable flow of products to meet
demand and fulfill orders in a timely manner.
• Expanding reach & accessibility: Increasing the availability and accessibility of
products to a wider audience, potentially through new distribution channels or
locations.
• Better customer convenience: Enhancing the ease and convenience of purchasing
goods or services for customers, such as offering multiple payment options or
streamlined checkout processes.
• Minimization of total cost: Implementing strategies to reduce overall costs
associated with production, distribution, and sales, ultimately leading to more
competitive pricing for customers.
• Optimize inventory management: Distribution channels help businesses manage
inventory levels effectively, reducing stockouts and minimizing carrying costs.
• Enhance customer service: Efficient distribution enables timely delivery, quick
response to customer inquiries, and convenient access to products, leading to better
customer experiences.
• Facilitate market penetration: Distribution strategies help businesses enter new
markets, penetrate existing ones, and gain competitive advantage by reaching more
customers and generating sales.
Stages / Levels of distribution / Types of distribution
Distribution mix
• Inventory: The stock of goods or materials that a business holds for production, sales,
or distribution purposes.
• Warehousing: The process of storing goods in a facility (warehouse) to ensure their
safekeeping, organization, and efficient management.
• Communications: The exchange of information, messages, or ideas between
individuals, groups, or organizations, crucial for coordinating business activities and
fostering relationships.
• Packaging: The design and production of containers or materials used to protect,
contain, and present products, serving functional and promotional purposes.
• Transportation: The movement of goods or people from one location to another,
involving various modes such as road, rail, air, or sea transport, essential for supply
chain logistics and distribution.
Distribution channel
Distribution channel: is the network of businesses, individuals, and intermediaries facilitating
the journey of a product or service from the manufacturer to the end consumer.
Role of distribution channel
• Facilitate product availability: Distribution channels ensure that products are
available at the right time and place, meeting customer demand efficiently.
• Increase market reach: Channels help expand the market reach by making products
accessible to customers in different locations or through various channels.
• Provide market information: Channels gather valuable market insights and feedback,
helping businesses understand customer preferences and market trends.
• Enhance customer service: Channels play a role in providing timely delivery, after-
sales support, and addressing customer inquiries or issues.
• Optimize inventory management: Channels help manage inventory levels by
balancing supply and demand, reducing stockouts or excess inventory costs.
• Support marketing efforts: Channels contribute to marketing strategies by promoting
products, executing promotional activities, and communicating value propositions to
customers.
Role of distribution channel intermediaries
• Manufacturer: Produces goods or products and sells them to intermediaries or directly
to consumers.
• Merchant middleman: Buys products from manufacturers or wholesalers and resells
them to retailers or end consumers, taking ownership of the goods in the process.
• Agent middleman: Acts as an intermediary on behalf of the manufacturer or seller,
representing their products to buyers and facilitating transactions.
• Wholesalers: Purchase goods in bulk from manufacturers or distributors and sell them
to retailers or other businesses at a markup.
• Retailers: Sell goods directly to consumers through physical or online stores, providing
a range of products and services to meet consumer needs.
Factors affecting choice of distribution channel
• Product Type: It is important to check whether the product is perishable or non-
perishable, whether it is an industrial or a consumer product, whether its unit value is
high or low and also, the degree of complexity of the product.
• Characteristics of the Company: The two important characteristics of a company that
affect the choice of channel are its financial strength and the degree of control that the
company wishes to hold on the intermediaries. Shorter channels require greater funds
than longer channels and also offer greater control over the members of the channel
(intermediaries).
• Competitive Factors: The degree of competition and the channels opted by other
competitors affect the choice of distribution channel. Depending on its policies a
company can adopt a similar channel as adopted by its competitors or opt for a different
channel.
• Environmental Factors: Environmental factors such as economic constraints and legal
policies play an important role in the choice of channel of distribution.
• Market Factors: Various other factors such as size of the market, geographical
concentration of buyers, quantity demanded, etc. also affect the choice between the
channels.
Types of middlemen
Merchant: Merchants, such as wholesalers and retailers, buy and re-sell their goods. They take
ownership of inventory and bear the expense of storing and distributing the product.
Agent: Agents, such as brokers or real estate agents, specialize in negotiations involved in
transactions. They do not take ownership of what they are selling.
Functions / Role of agent and merchant middlemen
• Information about consumers: They provide valuable information and feedback to
producers about consumer behavior, changing tastes and fashions, upcoming rival
businesses, etc.
• Aid to manufacturers: They enable manufacturers to concentrate on the primary
function of production by handling the ancillary functions of warehousing, distribution,
advertising, insurance, promotion etc.
• Financial services: Middlemen like banks and other financial institutions render
financial services to manufacturers.
• Availability of goods: They make the goods and services available to consumers at the
right place, at the right time, and in the right quantity.
• Risk bearers: Buyers and sellers are often unwilling to assume the market risk for fear
of a possible loss. It is the middlemen in the process chain who assume the risks of
theft, perishability, and other potential hazards.
• Facilitate market access: Intermediaries provide manufacturers with access to a wider
market by distributing products to various geographic locations and customer
segments.
• Reduce transaction complexity: Intermediaries streamline the buying and selling
process by handling tasks such as order processing, invoicing, and payment collection.
• Offer expertise and advice: Intermediaries often possess specialized knowledge about
the market, product trends, and customer preferences, providing guidance to
manufacturers.
• Provide logistical support: Intermediaries manage inventory, storage, and
transportation, ensuring efficient distribution and timely delivery of products.
• Enhance market coverage: Intermediaries help manufacturers reach different market
segments, channels, or customer groups that may be difficult or costly to target directly.
• Improve customer service: Intermediaries act as a point of contact for customers,
offering assistance, handling inquiries, and providing after-sales support
Retailing
Retailing: Retailing is the selling of goods and services to consumer end users. Retailing is seen
as a contrast to wholesaling, which typically involves selling in mass quantities at lower prices.
Functions of retailing
• Buying and assembling goods: They take goods from manufacturers or wholesalers.
• Breaking the bulk: Selling less quantities to the ultimate customers
• Credit facility: Provided to the regular end customers who will not make default
• Personal services: Like delivery, special products ordering on behalf of customers etc.
• Risk bearing: Risk related to storage, risk related to perishability etc.
• Providing market information: It is provided to the manufacturers to understand
customers
• Display of goods: Window display of products and introduction of product.
Forms of retailing
Unorganized and organized retailing
Unorganized retailing
• It refers to trading activities undertaken by licensed retailers, that is, those who are
registered for sales tax, income tax, etc.
• Features: It offers the customers more convenience, choice and control with an
experience of comfort and speed.
• E.g.: supermarkets, departmental stores, hypermarkets, shopping malls, multilevel
marketing, teleshopping, etc.
Organized retailing
• It is not registered under any legal provision and does not maintain regular accounts.
They are small and scattered units which sell products at a fixed or mobile location.
• Features: Poor and old infrastructure, insufficient funds, lack of technology, absence of
skilled manpower.
• E.g.: The local Kirana shops, owner-manned general stores, paan shops, convenience
stores, hand cart and pavement vendors, etc.
Supermarket
Supermarkets are large shops where people can buy almost everything, be it grocery, food,
drinks, and many other items.
• Busy location: They are located in the main shopping centers of an area with adequate
parking facilities.
• Cash and carry: They function on cash-and-carry lines and offer no credit.
• Mostly food products: They stock a very wide range of food and non-food products,
particularly meat products, dairy products, tinned food, bakery items, vegetables and
other household products.
• Retail: They are large retail organizations and are a useful channel of distribution.
• No salesman required: They have low sales overheads since no salesmen are
employed.
• Racked: The products stored in a super market are properly packed and placed on
separate racks in order to facilitate purchasing by the buyer.
Departmental store
A department store is a large establishment that sells a wide range of products organized into
distinct departments in order to satisfy nearly every customers’ requirements under one roof.
• Extensive Product Range: Departmental stores offer a diverse product range, catering
to various needs and preferences
• Brand Variety: Departmental stores often host multiple brands within each
department, allowing customers to compare and choose from a wide range of options.
This variety gives shoppers the opportunity to explore different brands and make
informed decisions.
• Shopping Experience: Departmental stores focus on creating a pleasant and
immersive shopping experience. They invest in visually appealing displays, attractive
layouts, and excellent customer service to engage shoppers and make their visit
enjoyable.
Hypermarket
A hypermarket or a hyperstore is a place designed to fulfill the routine shopping requirements
of a consumer in a single trip. The concept of hypermarket refers to a retail store which
combines departmental stores and grocery supermarkets.
• Combination of department and super: It is a combination of department store and
super market, where almost all things could be purchased by a consumer.
• Convenience: All the products are available under one roof. Hypermarkets provide a
great shopping experience with good quality and a wide variety of products.
• Lower prices: It focuses on high-volume, low-margin sales. Since the volume of
products on sale is high, hypermarkets can provide good discounts to their customers.
• Self-service shopping: Customers can shop independently without waiting for a
salesperson to assist them, making the process faster and more efficient.
• More promotions and offers: Hypermarkets often offer promotions and discounts
during holidays, weekends, and special occasions, making them an attractive shopping
destination for customers.
Chain stores
Chain stores or multiple stores are retail networks owned and operated by manufacturers or
intermediaries.
• Accessibility: These stores are located in reasonably populated areas where a
sufficient number of customers can be approached.
• Cost reduction: Merchandise manufacturing/procurement for all retail units is
centralized at the head office from which goods are dispatched to each of these shops
based on their needs.
• Centralized Control: Each retail store is directly managed by a Branch Manager, who is
held accountable for its day-to-day activities.
• Head office: The head office monitors all of the branches and is in charge of formulating
policies and ensuring that they are implemented.
• Prices: Prices of goods are centrally fixed at all the stores.
• Physical appearance: All the stores are decorated in the same setting and style.
Electronic retailing
E-retail, also known as e-tail, internet retail or online retail, stands for electronic retail. In e-
retail, a business or individual sells retail products and services through online stores.
• Cost is low: E-retailing typically incurs lower overhead costs compared to traditional
retailing due to reduced physical infrastructure and operational expenses.
• Not much middlemen: E-retailing often involves fewer intermediaries, allowing for
direct interaction between the seller and the customer, which can streamline processes
and reduce costs.
• Wider choice: E-retail platforms offer a vast range of products and brands from various
sellers, providing customers with a broader selection to choose from.
• Growth of technology: E-retailing leverages advancements in technology such as
mobile apps, online payment systems, and personalized recommendations to enhance
the shopping experience.
• Serviceability: E-retailers focus on providing efficient and reliable delivery services,
ensuring that products reach customers in a timely and satisfactory manner.
• Spontaneous buying not possible: Unlike physical stores where customers can
instantly purchase items, e-retailing may involve a waiting period for product delivery,
limiting spontaneous buy ability.
Previous year questions
❑ 2 Marks
❑ What is salesmanship?
❑ What is distribution mix?
❑ Who is merchant middleman?
❑ Functions of physical supply
❑ Define wholesalers
❑ Who is agent middleman?
❑ 5 Marks
❑ Functions of channels of distribution
❑ Elements of distribution mix
❑ 10 Marks
❑ Different types of retail format
❑ Factors influencing choice of distribution
