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Retail Business Environment

Notes indirectly link the two through one or more middlemen. These channels of distribution are
broadly divided into four types:

Producer-Customer: This is the simplest and shortest channel in which no middlemen is
involved and producers directly sell their products to the consumers. It is fast and
economical channel of distribution. Under it, the producer or entrepreneur performs all
the marketing activities himself and has full control over distribution. A producer may
sell directly to consumers through door-to-door salesmen, direct mail or through his own
retail stores. Big firms adopt this channel to cut distribution costs and to sell industrial
products of high value. Small producers and producers of perishable commodities also
sell directly to local consumers.
Producer-Retailer-Customer: This channel of distribution involves only one middlemen
called ‘retailer’. Under it, the producer sells his product to big retailers (or retailers who
buy goods in large quantities) who in turn sell to the ultimate consumers. This channel
relieves the manufacturer from burden of selling the goods himself and at the same time
gives him control over the process of distribution. This is often suited for distribution of
consumer durables and products of high value.
Producer-Wholesaler-Retailer-Customer: This is the most common and traditional channel
of distribution. Under it, two middlemen i.e. wholesalers and retailers are involved.
Here, the producer sells his product to wholesalers, who in turn sell it to retailers. And
retailers finally sell the product to the ultimate consumers. This channel is suitable for the
producers having limited finance, narrow product line and who needed expert services
and promotional support of wholesalers. This is mostly used for the products with widely
scattered market.
Producer-Agent-Wholesaler-Retailer-Customer: This is the longest channel of distribution
in which three middlemen are involved. This is used when the producer wants to be fully
relieved of the problem of distribution and thus hands over his entire output to the selling
agents. The agents distribute the product among a few wholesalers. Each wholesaler
distribute the product among a number of retailers who finally sell it to the ultimate
consumers. This channel is suitable for wider distribution of various industrial products.
An entrepreneur has to choose a suitable channel of distribution for his product such that the
channel chosen is flexible, effective and consistent with the declared marketing policies and
programmes of the firm. While selecting a distribution channel, the entrepreneur should compare
the costs, sales volume and profits expected from alternative channels of distribution and take
into account the following factors:
Product Consideration: The type and the nature of products manufactured is one of the
important elements in choosing the distribution channel. The major product related factors
are:

Products of low unit value and of common use are generally sold through middlemen
whereas, expensive consumer goods and industrial products are sold directly by the
producer himself.

Perishable products; products subjected to frequent changes in fashion or style as
well as heavy and bulky products follow relatively shorter routes and are generally
distributed directly to minimise costs.
Industrial products requiring demonstration, installation and aftersale service are
often sold directly to the consumers; while the consumer products of technical nature
are generally sold through retailers.

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