Channels of Distribution: Meaning, Characteristics, Functions (Explained)

The Channels of distribution is the pipeline through which a product flows on its way to the consumers. The manufacturer puts his product into the pipeline or marketing channel and various marketing people move it along to the consumer at the other end of the channel.

Channels of Distribution: Meaning Characteristics Functions
Channels of Distribution: Meaning Characteristics Functions

Marketing channels are the distribution network through which producer’s products flow to the market.

Distribution channels are the systems of economic Institutions through which a producer of goods delivers them into the hands of their users.

Characteristics of Channels of Distribution

The main characteristics of channels of distribution may be summarized as under:

1. Route or Pathway

Channels of distribution is a route or pathway through which goods and services flow from the manufactures to consumers.

2. Flow

The flow of goods and services is smooth and sequential and usually unidirectional.

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3. Composition

It is composed of intermediaries, such as wholesalers, retailers, agents, distributor etc. also called middlemen who participate in the flow voluntarily.

4. Not Include Partner Services

Channels of distribution do not include firms such as shipping companies, Railway companies, Road Transporters, banks, insurance companies etc.

Though they provide their valuable role in the process of distribution of products, they are not part of channels of distribution.

5. Functions

The intermediaries perform such functions which facilitate transfer pf ownership title and possession of goods and services from manufacturers to consumers.

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6. Remuneration

The intermediaries are paid in the form of commission for the services rendered by them. The same is compensated by the manufacturer in the price of the goods sold.

7. Other Characteristics

  1. Channels of distribution is an important element of 4ps of the marketing mix.
  2. The ultimate destination of the channel of distribution is target customers or users.
  3. Therefore, the role of middlemen is a connecting link between producer and consumer, in case of indirect distribution.
  4. Channels of distribution maybe without the middleman. This will happen in the case of direct distribution policy, where the manufacturer himself is selling products to ultimate customers.
  5. Distribution cost does not increase the marketability of the firm’s products. Thus, every marketing company tries to minimise the cost of distribution in order to earn more profits.

Role and Functions of Channels of Distribution

The role and functions of channels of distribution may be described as under:

1. Helpful in Price Determination

Channels of distribution are very helpful in determining the price of products because they are in direct touch with consumers.

They can estimate the paying capacity of consumers for a product.

Therefore, the manufacturer must invite suggestions of middleman while determining the price of his products.

The role in price determination is very important, the channel members know the pulse of the market. Their suggestions become very important in the correct price determination of products.

Related: 17 Major Problems of Public Sector (Economy).

2. To Manage Finance

All manufacturers have limited financial resources. Middlemen help manufactures in making adequate financial resources available.

They purchase the goods produced by manufactures and make the payment for that.

importance of distribution channels
importance of distribution channels

This way, they help in solving the financial problems of manufacturers.

Role of financing is also important. Particularly, the wholesalers provide a huge amount to the marketing company as an advance and credit facilities to the retailers.

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3. Create Various Utilities

Channels of distribution create various utilities. It creates a place, time and title utilities. Place utility is the flow of goods from the centre of production to centres of consumptions.

Time utility is the procurement of products in sufficient quantities, so they can be made available to customers when demand occurs. The wholesalers create a place and time utilities.

Sales of goods to the ultimate customer creates title utility, means the transfer of ownership of goods, the retailers create this utility.

4. Instrument of Marketing Information System

Channels of distribution functions as a vital instrument of Marketing Information System.

Actually, the retailers face real music of the market. Wholesalers collect information regarding customers opinion regarding the company’s products, the position of competitors products, changes taking place in consumers behaviour from the number of retailers and they pass on this information to the company.

The marketing company examines the information and take necessary actions.

Related: 23 Importance or Benefits of Market Segmentation (Explained).

5. To Make the Process of Distribution Easy

It is not possible for a producer, particularly a producer of consumer goods to be in direct touch will all the consumers.

Therefore, it is not very practical for a producer to distribute his consumers directly. Channels of distribution help producers in this regard.

They distribute the goods produced by producers at the right time and the right place to the right consumers.

6. 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.

Wholesalers advertise for the goods dealt with by them and retailers help in increasing the sales by adopting the measures of sales promotion.

Retailers display the goods in their showrooms so that more and more consumers may be attracted.

7. Reduces Administrative Burden

The channel of distribution reduces the considerable administrative burden of the marketing company.

The use of channels of distribution, particularly, wholesalers and carrying and forwarding agents.

The firm may keep itself refrain to deal with the vast number of retailers.

Related: Price Discrimination: Meaning, Types, Objectives (Explained).

8. Helpful In Communication

It is the time of change. Habits, tastes, nature and attitudes of consumers keep on changing frequently.

In light of these changes, it becomes imperative for every producer to make necessary changes in his products.

Channels of distribution help producers in communicating the changes in products to the consumers and in communicating the changes in habits, tastes, likings and preferences of consumers to the manufacturers.

Thus, channels of distribution play an important role in communicating the needs of consumers to the manufacturers and policies of manufacturers to the consumers. It increases the sales of manufacturers.

9. Matching of Demand and Supply

The most important function of middlemen is to collect goods and services from any producers so that consumers may select from among a large number of alternatives.

The goal of marketing is the matching of segments of demand and supply.

Thus, the middlemen play the game of matching demand and supply of goods and services in a market.

10. Other Functions

Other functions of channels of distribution may be:

  • To stabilize the prices.
  • To help to forecast the demand for a product.
  • To help in marketing research.
  • To help in production activities.
  • The role of channels of distribution with regard to the promotion of the firm’s products is also very significant.
  • It is the firm is successful in convincing them about its products, the products may get settled in the market very quickly.
  • In the reduction of distribution cost, the channels of distribution play an important role.
  • An important role of the channel is to provide convenience in buying to the customer, so they can make trouble-free purchases.
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