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In today’s Business Studies class, We will be discussing Distribution. We hope you enjoy the class!
Distribution means the process by which we make the goods or the service available to the end consumer. Generally, the place of production is not the same as the place of consumption. So, the goods have to be distributed to overcome the barrier of place.
Now the distribution of the products can be done by the organisation itself which is direct distribution. Or it can hire intermediaries and form distributions channel i.e. Indirect distributions. The plan will depend on several factors, some of which are
- Product: whether the product is perishable or durable will be a factor in deciding its distributions model.
- Market: the size of the market will be a factor. In a large market, direct distribution may not be a perfect choice. Also, if the markets are scattered indirect channel will be more suitable
- Company: the size of the company and its product-mix are also deciding factors in the decision about distributions.
- Marketing environment: in a slow economy or depression a shorter distribution chain is preferable. In a healthy economy, there is a wider choice for alternatives.
- Cost: the cost of the channel like transportation, warehousing and storage, tolls etc are obviously a factor in this decision.
Types of intermediaries
These are the middlemen that ensure smooth and effective distribution of goods over your chosen geographical market. Middlemen are a very important factor in the distribution process. Let us take a look at the types of middlemen we usually find.
agents are middlemen who represent the produces to the customer. They are merely an extension of the company but the company is generally bound by the actions of its agents. One thing to keep in mind, the ownership of the goods do not pass to the agent. They only work on fees and commissions.
Wholesalers buy the goods from the producers directly. One important characteristic of wholesalers is that they buy in bulk at a lower rate than the retail price. They store and warehouse huge quantities of the products and sell them to other intermediaries in smaller quantities for a profit.
Wholesalers generally do not sell to the end consumer directly. They sell to other middlemen like retailers or distributors.
Distributors are similar to wholesalers in their function. Except they have a contract to carry goods from only one producer or company. They do not stock a variety of products from various brands. They are under contract to deal in particular products of only one parent company
Retailers are basically shop owners. Whether it is your local grocery store or the mall in your area they are all retailers. The only difference is in their sizes. Retailers will procure the goods from wholesaler or distributors and sell it to the final consumers. They will sell these products at a profit margin to their customers.
In the reality of the market, all producers rely on the distribution to channel to some extent. Even those who sell directly may rely on at least one of the above intermediaries for any purpose. Hence the distribution channel is of paramount importance in our economy.
We have come to the end of this class. We do hope you enjoyed the class?
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