Answer to Question #266586 in Marketing for JAMES

Question

Describe the two classifications of distribution channel and show how

Intermediaries add efficiency to the system.

Answer 1

Discussion

A distribution channel is a chain of businesses or intermediaries through which a good or service passes until it reaches the final buyer or the end consumer. Distribution channels can include wholesalers, retailers, distributors, and even the internet. Produced goods and services have to find a way to reach consumers. The role of the distribution channel is to transfer goods and services efficiently. They can either be sent to a retail store or directly to a customer's residence. Distribution channels are broken into direct and indirect forms.

Direct Channel- When the manufacturer or the producer supplies goods directly to the consumers, this is called a direct channel. The manufacturer in this stage of distribution channels performs all the marketing functions by him/herself. No middleman is involved. In the direct channels of distribution, the manufacturer attempts to reach the consumers through; own retail stores, house to house selling, by mail, by sales from the factory door etc. By controlling all aspects of the distribution channel, a manufacturer has more control over how goods are delivered. They have more control over cutting out inefficiencies, adding new services, and setting prices. The manufacturer to consumer link no doubt appears to be a simple and low-cost method of distribution channels, but it is not practicable for the marketing of a large amount of consumer goods. 

Indirect channel- An indirect distribution channel relies on intermediaries to perform most or all distribution functions, otherwise known as wholesale distribution. The most challenging part of indirect distribution channels is that another party has to be entrusted with the manufacturer's products and customer interaction. However, the most successful logistics companies are experts at delivering receivables in a way that most manufacturers cannot be. Indirect channels also free the manufacturer from any start-up costs. With the right relationship, they are much simpler to manage than direct distribution channels. Indirect distribution channels add layers of cost, vendors, and bureaucracy. This can increase the cost to the consumer, slow down delivery, and take control out of the manufacturer's hands. On the other hand, indirect distribution could bring in new levels of expertise. For instance, while a company may be an expert in manufacturing a certain good, shipping it efficiently is a different area of expertise. The company may choose to focus on its core competency while farming out its shipping service to a company that focuses exclusively on that.

In product distribution, intermediaries are entities who help minimize the cost of interaction by specializing in handling a large number of activities on behalf of buyers and sellers. In order for a finished product to get to an end consumer, a business generally uses several channels of distribution. In the production process, raw materials are transformed into forms that are useful to consumers, adding value along the way. Intermediaries including wholesalers, retailers and distributors, take care of all the little things that go into the product sales process, such as pricing, marketing, sales and distribution adding value as well. Product distribution intermediaries may be companies or individuals acting as wholesalers, retailers, brokers or distribution services who ultimately bring the product closer to the customer for a price. As a result of their efforts, consumers are more likely to have access to, and purchase, the product. This is the added value that these organizations and individuals provide. Manufacturers utilize these middlemen to move products from the factory to a particular location and set pricing that is within reach of customers. 

Reference

Weitz, B. A., & Jap, S. D. (1995). Relationship marketing and distribution channels. Journal of the academy of Marketing Science, 23(4), 305-320.