In direct marketing all intermediary related functions are performed by the

Distribution channel is a means used to transfer merchandise from the manufacturer to the end user through retailer and other necessary intermediaries. An intermediary in the channel is called an agent/middleman. Channels normally vary from two-level channels without intermediaries to five-level channels with three intermediaries.

For example, a leather handbag manufacturer who prepares handbags and sells it directly to the customer is in a two-level channel. A poultry farmer sells chicken and eggs to a restaurant supplier, who sells to individual restaurants, who then serve the customer, is in a four-level channel. Agents/intermediaries in the channel of distribution are used to facilitate the delivery of the merchandise as well as to transfer title, payments, and information about the merchandise.

According to Philip Kotler, the channel decisions are among the most important decisions that management faces and will directly affect every other marketing decision. These decisions are set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption by the consumer or business user.

Functions of a Distribution Channel:

Distribution channels are well organized arrangements that perform all the necessary tasks to assist exchange transactions. The basic function of a distribution channel is to provide a link between production and consumption and to create time, place and possession utilities which constitute the added value of distribution.

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Intermediaries (wholesalers, retailers, agents, brokers) are needed because manufacturers lack the necessary financial and human resources to carry out direct marketing. Maruti Suzuki Corporation sells its cars through more than 600 dealer outlets in India and abroad. It will not be feasible for Maruti Suzuki Corporation to buyout its dealer network and sell car throughout the country and abroad.

Distribution channels can be exemplified by the number of intermediary levels that separate the manufacturer from the end consumer. The choice of a particular distribution channel is determined by factors related to market size, buyer behaviour and organization’s characteristics. A typical distribution channel has to perform various functions as mentioned below.

All the above mentioned functions should be considered logically in any market. The idea is to know what functions are to be performed, who will perform them and how many levels it requires to make the distribution efforts cost effective, is another important decision to take.

Channel Levels:

Each layer of distribution intermediaries that performs some work in bringing the product to its final consumer is a channel level.

(i) A Zero Level Channel:

A zero level channel, commonly known as direct marketing channel has no intermediary levels. In this channel framework manufacturer sells merchandise directly to customers. An example of a zero level channel would be a factory outlet store. Many service providers like holiday companies, also market direct to consumers, bypassing a traditional retail intermediary – the travel agent.

Eureka Forbes, leaders in domestic and industrial water purification systems, vacuum cleaners, air purifiers & security solutions is pioneered in direct selling that makes it an Asia’s largest direct sales organization.

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The remaining channels are known as indirect-marketing channels.

(ii) A One Level Channel:

A one level channel contains one selling intermediary. In consumer markets, this is usually a retailer. The consumer electrical goods market in the United Kingdom is typical of this arrangement whereby producers such as Sony, Panasonic, Canon etc. sell their goods directly to large retailers such as Comet, Dixons and Currys which then sell the goods to the final consumers.

(iii) A Two Level Channel:

A two level channel encompasses two intermediary levels – a wholesaler and a retailer. A wholesaler typically buys and stores large quantities of merchandise from various manufacturers and then breaks into the bulk deliveries to supply retailers with smaller quantities. For small retailers with limited financial resources and order quantities, the use of wholesalers makes economic sense.

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This agreement tends to work paramount where the retail channel is jumbled – i.e. not dominated by a small number of large, dominant retailers who have an encouragement to cut out the wholesaler. Distribution of drugs/ pharmaceuticals in the Europe and United Kingdom is typical example of such arrangement.

(iv) A Three Level Channel:

A third level channel, as the name implies, encompasses three intermediary levels – a wholesaler, a retailer and a jobber. In the poultry industry, products like mutton, chicken, eggs etc. are first sold to wholesalers; he then sells it to jobbers, who sell to small and unorganized retailers.

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One point in this regard, is to be noted that the levels of distribution vary from industry to industry and country to country. In Japan, food distribution system usually may involve as many as five or six levels while rest of the world, rely on two to three levels distribution network.

Note: Because of the negative connotations of the word “jobber,” they are now referred to by the more politically-correct term – “Off-price specialists.”

What are the functions performed by the intermediaries?

What are direct marketing intermediaries?

How does a marketing intermediary function?

Which of the following is marketing function that can be performed by channel intermediaries?