In any society-industrialized or non-industrialized-goods must he physically moved or transported between the place they are produced and the place they are consumed. Except in very primitivecultures, where each family met its own household needs, the exchange process has become the cornerstone of economic activity. Exchange takes place when there is a discrepancy between the amount, type,and timing of goods available and the goods needed. If a number of individuals or organizations within thesociety have a surplus of goods that someone else needs, there is a basis for exchange. Channels of distribution develop when many exchanges lake place between producers and consumers,
The extent to which a channel of distribution creates an efficient flow of products from the producer to the consumer is a major concern of management. For example, manufacturers depend on the distribution channel for such functions as selling, transportation, warehousing, and physical handling. Consequently, the manufacturer's objective is to obtain optimum performance of these functions at minimum total cost. In order to successfully market its products, a manufacturer must; (1) select the appropriate channel structure, (2) choose the intermediaries to he used and establish policies regarding channel members, and (3) devise information and control systems to ensure that performance objectives are met. Likewise wholesalers and retailers must select manufacturers' products in a way that will provide the best assortment for their customers and lead to the desired profitability for themselves.
Due to the dynamic nature of the business environment, management must monitor and evaluate the performance of the distribution channel regularly and frequently. When the performance goals are not met, management must evaluate possible channel alternatives and implement changes. Channel management is particularly important in mature and declining markets and during periods of economic slowdown when market growth cannot conceal inefficient practices. Nevertheless, the distribution channel has been recognized as "one of the least managed areas of marketing."
What Is a Channel of Distribution?
"A channel of distribution can be defined as the collection of organization units, either internal or external to the manufacturer, which performs the functions involved in product marketing." The marketing functions are pervasive: they include buying, selling, transporting, storing, grading, financing, bearing market risk, and providing marketing information. Any organizational unit, institution, or agency that performs one or more of the marketing functions is a member of the channel of distribution.
The structure of a distribution channel is determined by which marketing functions are performed by specific organizations. Some channel members perform single marketing functions-carriers transport products, and public warehouse holders store them. Others, such as wholesalers, perform multiple functions Channel structure affects: (1) control over the performance of functions, (2) the speed of delivery and communication, and (3) the cost of operations. While a direct manufacturer- to- user channel usually gives management greater control over the performance of marketing functions; distribution costs normally are higher, making it necessary for the firm to have substantial sales volume or market concentration. With indirect channels, the external institutions or agencies (warehouse holders, wholesalers, and retailers) assume much of the cost burden and risk, but the manufacturer receives less revenue per unit |
