Channel of distribution – Definition
Economics SSS 1 Third Term
WEEK 7
Channel of distribution – Definition
Performance Objectives
Student should be able to:
- Describe the channels of distribution from the producer to the final consumer.
- State the function of a wholesaler and retailer in the channel of distribution.
Content
Definition of channels of distribution
This refers to the various stages of channels through which finished goods are moved from the manufacturers or producer to the final consumers.
The chain of distribution can be demonstrated by the following diagram
Manufacturer Wholesaler Retailer Consumer
Process of distribution
The process of distribution of goods involves all human and physical means which aid the smooth transfer of goods from manufacturer/ producer to the final consumers
The following are the process of distribution
1. Middlemen: The middlemen are referred to has human factor involve in the distribution of goods to the final consumers; they are known as the wholesalers and retailers. They help in the relocation of goods from the manufacturer to the consumers. Their functions are:
2. Transportation: This is the medium through which the finished goods are moved from one place to another either through air, land, water, or rail from the producer/ manufacturer to the consumer.
3. Advertisement: advertisement is the means of creating awareness in the mind of the people about the existence of a particular product. Products are advertised through the radio, television, newspaper, magazine etc.
4. Warehousing: warehousing is the process of storing goods till the time they will be needed for sale. It ensures there is a regular supply of goods at all time.
The wholesalers
The wholesaler is a person or a merchant who buys goods from the producer in large quantity and sells in small quantity to the retailers.
Functions of the wholesaler to the manufacturer
1. By selling under his brand name the wholesaler often relieves the manufacturer of the need to advertise his product.
2. The wholesaler removes goods in larger quantities as they are produced, thus clearing the production lines
3. By warehousing the goods the wholesaler bridges the time gap between production and consumption, leaving the manufacturer free to concentrate on his specialized activities.
4. He eliminates the need for a marketing system with all that involves in terms of warehousing space, distribution network, sales staff, accounting records, and debt collection
5. By paying promptly the wholesaler reduces the working capital required by the manufacture.
6. The wholesalers provide the transportation system needed in the distribution of goods.
7. He bears the risk because he takes care of the goods and thereby accepts any responsibility for any loss of goods.
8. They also help to advise the producers
9. They render credit facilities by paying upfront before the goods are ready.
Functions of the wholesalers to the retailers
1. He chooses a convenient situation and opens at convenient hours.
2. The wholesaler breaks bulk to a reasonable size, selling in quantity but not large quantities.
3. He often helps the retailer to meet cut-price competition from the multiple shops and canine stores by selling to him at cut prices, providing the retailer is prepared to accept a reduction of services. This usually means ‘cash and carry;’ no credit is given, and the retailer transports the goods to his premises in his van.
4. He gives credit to certain classes of retailer, thus reducing the amount of capital needed by the retailer.
5. In many cases the wholesaler operates a fleet of vehicles and delivers goods to the retailer as and when required.
6. By carrying stack which is readily available he reduces the capital and space required by the retailer. The retailer stocks only the goods that ‘turn over’ quickly. Slow-moving items are ordered as required from the wholesaler.
7. The wholesaler displays a variety of goods from hundreds of manufacturer and demonstrates or displays them as necessary. At the warehouse, the retailer can, therefore, see not only the lines he normally handles but the latest inventions and designs.
The Retailer
The retailer is a person who buys goods in small quantity from the wholesalers and sells in bits or unit to the final consumers. The retailer is an important middleman in the distribution of goods.
Characteristics of the retailers
1. The retailers sell directly to the final consumers
2. They sell in units and small quantities
3. They are the final link in the chain of distribution
4. Their wares consist of fast selling products i.e. consumer goods
5. Retailers stock and sell a wide variety of products.
6. They are very close to the consumer
Functions of the retailers
1. Buying: A retailer buys a wide variety of goods from different wholesalers after estimating customer demand. He selects the best merchandise from each wholesaler and brings all the goods under one roof. In this way, he performs the twin functions of buying and assembling of goods.
2. Storage: A retailer maintains a ready stock of goods and displays them in his shop
3. Selling: The retailer sells goods in small quantities according to the demand and choice of consumers. He employs efficient methods of selling to increase his sales turnover.
4. Grading: The retailer grades the goods which are not graded by manufacturers and wholesalers. He packs goods in small lots for the convenience of consumers.
5. Risk bearing: A retailer always keeps a stock of goods in anticipation of demand. He bears the risk of loss due to fire, theft, spoilage, price fluctuations, etc.
6. Transportation: Retailers often carry goods from wholesalers and manufacturers to their shops
7. Financing: Some retailers grant credit to customers and provide the facility of return or exchange of goods. In some cases, home delivery and after-sale service are provided by retailers.
8. Publicity: A retailer displays goods. He carries out publicity through shop decoration window display etc. he maintains personal and direct contact with consumers.
9. Information: Retailers provide knowledge to the consumers about new products and uses of products and uses of old products. The advice and guide consumers in a better choice of goods. They also provide market information to wholesalers and manufacturers.