Types and Functions of Distribution

Performance objectives

Students should be able to:

1. State the meaning of distribution.

2. List the types of distribution.

Content

I. Distribution

ii. Types of distribution.

Distribution

A distribution channel can be described “as an organized system of marketing institutions and their interrelationships that promote the physical flow of goods and services along with a title that confers ownership from producer to consumer or business user. It also connotes the network of organizations that creates time, place and possession utilities for consumers and business users.

Examples: movement of textbooks from publishers to bookshops, movement of agricultural products from farm to the commodity market.

Types of Distribution

 The distribution could be grouped into the following;

1. Dual Channel Distribution: This refers to the movement of products through more than one distribution channel to reach the same target consumers.

Examples are:

(a) Manufacturer—> Wholesaler—> Consumers

(b) Manufacturer—> Wholesaler—> Retailers

2. Reverse Channel Distribution: This relates to the backward movement of goods from users to producers. This is the situation when consumers are expected to supply certain information before goods and services could be distributed. For instance, registration of car owner allows manufacturers to send a proper notification in the event of a recall.

3. Wholesaling Intermediaries: This is a broader term whereby firms sell products primarily to retailers or to other wholesalers or business users and only in insignificant amounts to the ultimate consumer. These include agents and brokers who perform important wholesaling activities without taking title to goods which differentiates it from merchandising.

4. Sakes Channel: This is part of the distribution which involves the buying, selling and transferring title. The participants in this marketing channel are the manufacturers, retailers, consumers and transportation company.

5. Facilitating Channel: These include public storage firms, insurance companies, finance companies, market research firms and several other types of firms also frequently participate as facilitating organisations in various marketing channels. It is essential that both the sales and facilitating channels are usually needed to create time, place and possession utilities.

Performance Objectives

Students should be able to:

1. Identify the channel of distribution.

2. State the functions of each channel of distribution.

Content

i. Channel of distribution

– Wholesaler

ii. Functions of wholesaler

Channels of Distribution

Channels of distribution connote the medium through which products pass from manufacturers to consumers.

Wholesaler

A wholesaler is an intermediary entity in the distribution channel that buys in bulk and sells to resellers rather than to consumers. In its simplest form, a distributor performs a similar role but often provides more complex services. Distributors and wholesalers often work together as channel partners.

Functions of Wholesaler

1. Assembling:

A wholesaler buys goods in bulk from different manufacturers and keeps them at one place. He collects goods from several places much in advance of demand. He may also import goods from foreign countries.

2. Warehousing or storage:

There is usually a large time gap between production and consumption of goods. Goods must, therefore, be stored for a considerable time.

A wholesaler stores goods in his warehouse and makes them available to retailers as and when demanded. He stabilizes the prices of the goods by adjusting the supply with the demand. He creates time utility.

3. Dispersion:

A wholesaler distributes the assembled goods among a large number of retailers scattered at different places. He sells goods in small quantities according to the choice of retailers. This is known as ‘breaking of bulk’.

4. Transportation:

A wholesaler arranges for the transport of goods from producers to his warehouse and from the warehouse to retailers. He carries goods in bulk thereby saving costs of transport.

Many wholesalers maintain their own trucks and tempos to carry goods far and wide quickly. Thus, a wholesaler adds place utility to the goods.

5. Financing:

A wholesaler often provides advance money with orders to manufacturers. He purchases goods in bulk on a cash basis from them. In addition, he often sells goods on credit basis to retailers. In this way, he provides finance to both producers and retailers.

6. Risk -bearing:

A wholesaler assumes the risk of damage to goods in transit and in storage. He also bears the risks arising from changes in demand and bad debts. He serves as the shock absorber in the distribution of goods.

7. Grading and Packing:

Many wholesalers classify the assembled goods into different grades, pack them into small lots and put their own trademarks or brand names. In this way, they perform the functions of grading, packing and branding.

8. Pricing: A wholesaler anticipates demand and market conditions. He helps to determine the resale price of goods.