Module 4

Distribution Channels & Physical Distribution

What is a Distribution Channel?

A distribution channel is a path or route decided by the company to deliver its good or service to the customers.
The route can be as short as a direct interaction between the company and the customer or can include several
interconnected intermediaries like wholesalers, distributors, retailers, etc.
Hence, a distribution channel can also be referred to as a set of interdependent intermediaries that help make a
product available to the end customer.
Functions of Distribution Channels
In order to understand the importance of distribution channels, businesses need to understand that it doesn’t just
bridge the gap between the producer of a product and its user.
Distribution channels provide time, place, and ownership utility. They make the product available when, where,
and in which quantities the customer wants. But other than these transactional functions, distribution channels
are also responsible to carry out the following functions:
 Logistics and Physical Distribution: Distribution channels are responsible for the assembly, storage,
sorting, and transportation of goods from manufacturers to customers.
 Facilitation: Channels of distribution even provide pre-sale and post-purchase services like financing,
maintenance, information dissemination and channel coordination.
 Creating Efficiencies: This is done in two ways: bulk breaking and creating assortments. Wholesalers
and retailers purchase large quantities of goods from manufacturers but break the bulk by selling a few
at a time to many other channels or customers. They also offer different types of products in a single
place which is a huge benefit to customers as they don’t have to visit different retailers for different
products.
 Sharing Risks: Since most of the channels buy the products beforehand, they also share the risk with the
manufacturers and do everything possible to sell it.
 Marketing: Distribution channels are also called marketing channels because they are among the
core touchpoints where many marketing strategies are executed. They are in direct contact with the end
customers and help the manufacturers in propagating the brand message and product benefits and other
benefits to the customers.

Types Of Distribution Channels

Channels of distribution can be divided into direct channel and indirect channels. Indirect channels can further
be divided into one-level, two-level, and three-level channels based on the number of intermediaries between
manufacturers and customers.
 Direct Channel Or Zero-level Channel (Manufacturer to Customer)
Direct selling is one of the oldest forms of selling products. It doesn’t involve the inclusion of an intermediary
and the manufacturer gets in direct contact with the customer at the point of sale. Some examples of direct
channels are peddling, brand retail stores, taking orders on the company’s website, etc. Direct channels are
usually used by manufacturers selling perishable goods, expensive goods, and whose target audience is
geographically concentrated. For example, bakers, jewellers, etc.
 Indirect Channels (Selling Through Intermediaries)
When a manufacturer involves a middleman/intermediary to sell its product to the end customer, it is said to be
using an indirect channel. Indirect channels can be classified into three types:
One-level Channel (Manufacturer to Retailer to Customer)
Retailers buy the product from the manufacturer and then sell it to the customers. One level channel of
distribution works best for manufacturers dealing in shopping goods like clothes, shoes, furniture, toys, etc.
 Two-Level Channel (Manufacturer to Wholesaler to Retailer to Customer)
Wholesalers buy the bulk from the manufacturers, break it down into small packages and sell them to retailers
who eventually sell them to the end customers. Goods that are durable, standardised and somewhat inexpensive
and whose target audience isn’t limited to a confined area use two-level channel of distribution.
 Three-Level Channel (Manufacturer to Agent to Wholesaler to Retailer to Customer)
Three-level channel of distribution involves an agent besides the wholesaler and retailer who assists in selling
goods. These agents come in handy when goods need to move quickly into the market soon after the order is
placed. They are given the duty to handle the product distribution of a specified area or district in return for a
certain percentage of commission.
The agents can be categorised into super stockists and carrying and forwarding agents. Both these agents keep
the stock on behalf of the company.
Super stockists buy the stock from manufacturers and sell them to wholesalers and retailers in their area.
Whereas, carrying and forwarding agents work on a commission basis and provide their warehouses and
shipment expertise for order processing and last-mile deliveries.
Manufacturers opt for a three-level channel when the userbase is spread all over the country and the demand for
the product is very high.
 Dual Distribution
When a manufacturer uses more than one distribution channel simultaneously to reach the end-user, he is said to
be using the dual distribution strategy. They may open their own showrooms to sell the product directly while at
the same time use internet marketplaces and other retailers to attract more customers.
A perfect example of goods sold through dual distribution is smartphones.

Objectives of Channels of Distributions

1. Receiving Fast and Accurate Feedback of Information:

In order to maintain and provide an efficient distribution system and service, a good and regular, relevant
information is necessary. It which includes inventory levels, sales trends, damage reports, service levels, cost
monitoring etc.
2. Making the Product Readily Available to the Market Consumers: To ensuring the product is represented
in the right type of outlet or retail store is an important objectives of channels of distribution. Having identified
the correct marketplace for the goods, the company must make certain that the appropriate physical distribution
channel is selected to achieve this objective.
3. Achieving a given Level of Service: Once again, from both the supplier’s and the customer’s viewpoints, a
specified level of service should be established, measured, and maintained. The customer normally sees this as
crucial and relative performance in achieving service level requirements is often used to compare suppliers and
may be the basis for subsequent buying decisions.
4. Enhancing the Prospect of Sales being Made: The most appropriate factors for each product or type of
retail store will be reflected in the choice of channel. The general aims are to get good positions and displays in
the store; and to gain the active support of the retail salesperson, if required. The product should be “visible,
accessible, and attractively displayed’.
Channel choice is affected by this objective in a number of ways:
(i) Does the deliverer arrange the merchandise in the shop?
(ii) Are special displays being utilised?
(iii) Does the product required to be installed, demonstrated or explained?
(iv) Is there a special promotion of the product is required?
5. Minimising Logistics and Total Costs: Costs are very crucially significant as they are reflected in the final
price of the product. The selected channel will reflect a certain cost and this cost
must be assessed in relation to the type of product offered and the level of service required.
6. Achieving Co-Operation with Regard to any Relevant Distribution Factors: These factors can either be from
the supplier’s or the receiver’s point of view and include minimum order sizes, unit load types, product
handling characteristics, materials handling aids, delivery access (e.g., vehicle size), and delivery time
constraints, etc.

Need for Selecting an Appropriate Channel of Distribution

It is a fact that the distribution channels are greatly required by the manufacturers. The need for selecting an
appropriate channel can be understood on the basis of the parameters considered, which highlight the fact for
need of selection of distribution channels.

1. Attention – Little attention of companies to their distribution channels may damage results such as
profit, brand, number of customers etc.
2. Imaginative distribution systems – Companies can use imaginative distribution systems to take
competitive advantage. For example Dell, Flipkart.com etc. Dell is the best example of revolution in
Distribution channel. Dell is selling its products directly to the consumer rather than through retailer.
3. Difficult to Replace – Companies can change their products, advertising and Pricing easily but not their
distribution channels. It is not an easy task to change distribution channel, franchisees, dealers and
retailers.
4. Value Addition – Distribution Channel Members can provide greater efficiency in making availability
of goods to the target markets through their Contacts, Specialization, experience, and scale of operation.
This can add value to the product or service at each level of distribution.
5. Reduced number of Channel Transactions – Marketing intermediaries or channel members help to
reduce the number of channel transactions.
6. Information – Gathering and distributing information is very helpful.
7. Promotion – Communication to the consumer regarding product information and offers through
advertising and promotion.
8. Financial support – Offering financial support for example Purchase on credit, exchange options,
purchase using payment plans.
9. Other – Financing, Physical Distribution and Risk Taking are other parameters that influence a channel
selection decision Reduces Distribution cost and time.

Factors Affecting Choice of Distribution Channels

Since a channel of distribution should be determined by customer buying patterns, the nature
of the market is the key factor influencing management’s choices of channels. Other major
considerations are the product, middlemen, and the company itself
a) Market considerations
• Number of potential customers: with relatively few customers, a manufacturer may use its own sales force to
sell directly to consumers
• Geographical concentration of the market: sellers may establish sales branches in densely populated markets
• Order size: a manufacturer may sell directly to buyers with large order size
b) Product considerations
• Unit value: the lower the unit value, the longer are the distribution channels e.g. sweets
• Perishability: products subject to perishability must be distributed fast through shorter channels
• Technical nature of the product: an industrial product that is highly technical is distributed directly to
industrial users
c) Middlemen considerations
• Services provided by middlemen: middlemen who provide services that the manufacturer is unable to provide
influence choice of distribution channel
• Availability of desired middlemen
• Attitude of middlemen toward manufacturers’ policies: congruency of manufacturer’s policies to those of
middlemen influence choice of distribution channel
d) Company considerations
• Financial resources: a business with sufficient finances can establish its own sales force
• Management’s ability: many firms with little marketing knowledge and abilities prefer to distribute through
middlemen
• Channel control: manufacturers who desire to control the distribution opt for shorter channels
• Services provided by seller: distribution channel decisions are influenced by the marketing services the
manufacturer is able to provide to middlemen

Intermediaries in Distribution Channels

After finding out more about operation details, it’s time to see who are the main intermediaries who take
products to consumers.

1. Retailers
Retailers are intermediaries used frequently by companies.
Examples include supermarkets, pharmacies, restaurants, and bars. Each of these types of businesses has full
sales rights. Generally, product prices are higher in retailers.
2. Wholesalers
Wholesalers are intermediaries that buy and resell products to retailers. Wholesalers sell to those who are going
to put products in their own stores.
These intermediaries generally don’t sell small quantities to final consumers, though there are exceptions, like
supermarkets that sell in the wholesale model.
Prices are lower because sales involve large quantities.
3. Distributors
Distributors sell, store, and offer technical support to retailers and wholesalers. Their operations are focused on
specific regions.
4. Agents
Agents are legal entities hired to sell a company’s goods to final consumers and are paid a commission for their
sales.
In this case, the relationships between intermediaries and companies are for the long term.
5. Brokers
Brokers are also hired to sell and receive a commission.
The difference between agents and brokers is that brokers have short term relationships with the company.
That’s the case with real estate agents and insurance brokers, for example.
6. The Internet
To those who sell tech and software, the internet itself works as the intermediary of the distribution channel.
The consumer only has to download the material to have access to it.
E-commerce companies also use the internet as a distribution intermediary.
7. Sales Teams
A company can also have its own sales team who are responsible for selling goods or services.
There is also the possibility of creating more than one team to sell to various segments and audiences if the
company has a wide range of products.
8. Resellers
Resellers are companies or people who buy from manufacturers or retailers to later sell to consumers in retail.
9. Catalog
Catalog sales, as the name indicates, is when a salesperson is connected to a company and sells its products
using a magazine. Salespeople in this model also usually earn a commission for their sales.
This type of sales is common in the beauty segment, with brands like Avon and the Brazilian Natura.

What is 'Channel Management'

Definition: The term Channel Management is widely used in sales marketing parlance. It is defined as a process
where the company develops various marketing techniques as well as sales strategies to reach the widest
possible customer base. The channels are nothing but ways or outlets to market and sell products. The ultimate
aim of any organization is to develop a better relationship between the customer and the product.

Description: Channel management helps in developing a program for selling and servicing customers within a
specific channel. The aim is to streamline communication between a business and the customer. To do this, you
need to segment your channels according to the characteristics of your customers: their needs, buying patterns,
success factors, etc. and then customize a program that includes goals, policies, products, sales, and marketing
program (1). The goal of channel management is to establish direct communication with customers in each
channel. If the company is able to effectively achieve this goal, the management will have a better idea which
marketing channel best suits that particular customer base. The techniques used in each channel could be
different, but the overall strategy must always brand the business consistently throughout the communication
(2).

A business must determine what it wants out of each channel and also clearly define the framework for each of
those channels to produce desired results. Identifying the segment of the population linked to each channel also
helps to determine the best products to pitch to those channels.

What is channel management?

The job of a manufacturer does not end with the production of goods. Once goods are ready, the next step is to
find the most efficient channel partners to sell the products in the market. The channel partners are vital as they
establish communication between a company and its customers.

Channel management is a technique of choosing the best and most efficient channel partners and different
routes to make your products available in the market and to put various efforts to obtain maximum results from
these channels. Separate channels for distribution should be selected based on your customers. It would be best
if you considered the buying pattern of your customers and their requirements.

For example, if you are selling a product for adults, then you might consider both online as well as offline
channels that can sell your products in the market on your behalf. But if you are in the grocery of sale products,
then selling your products in a well-established store might get you more sales as compared to online channels.

Therefore, analyze and determine which channel will be suitable for the sales of your products what output do
you expect out of each distribution channel. In addition to this, it also determines the segment of the population,
which is connected with each distribution channel. Once you have all this information, then you can invest in
the right channel and can enjoy maximum sales and profits.
Definition of Channel Management

Channel management can be defined as a process used by companies to direct and manage various marketing
techniques and the parties involved in the channel of distribution. The channel management process is used to
reach a broad range of customers through different marketing and sales channels.

1. Channel Management is defined as a process where the company develops various marketing techniques
as well as sales strategies to reach the widest possible customer base.
2. It is defined as to how and where a product has to be used and how the product and the customer will
interact.
It is a process of recognising the potential customer, interacting with them and sustaining and
continuing to create value for customers.
3. Managers must consider certain key factors in order to manage channels effectively such as recruiting,
selecting, motivating and evaluating channel members.
4. The channels are nothing but ways or outlets to market and sell products.
5. The ultimate aim of any organization is to develop a better relationship between the customer and the
product.
6. Distribution channels include many of the following channel partners:  Manufacturers  Distributors 
Wholesalers  Resellers  Retailers

Channel Management Decisions

What is channel Management Decisions?

Definition: The term Channel Management is widely used in sales marketing parlance. It is defined as a process
where the company develops various marketing techniques as well as sales strategies to reach the widest
possible customer base. The channels are nothing but ways or outlets to market and sell products.

Channel Management Decisions: Top 5 Steps

Step # 1. Selecting Channel Members:

Step # 2. Training Channel Partners:
Step # 3. Motivating Channel Members:
Step # 4. Evaluating Channel Members:
Step # 5. Modifying Channel Arrangements:

Step # 1. Selecting Channel Members:

 Recruitment of Channel Members

 The recruitment of channel members is the most important aspect of expanding or developing a
successful channel member program which would result in achieving increased revenue generation and
success.
 While recruiting new channel members it is vital to establish clear and fixed parameters that define
standards for identification, qualification, and recruitment of new members.
 Such defined standards helps to confirm that the targeted members for recruitment are suitable for the
parent company.
  Selection of Channel Members
 There are large number of wholesalers and distributors available in the market from which the marketer
needs to select their channel intermediaries.
 Different manufactures have different abilities to select qualified intermediaries
 The factors that is need to be analysed are business experience, profit and growth records, cooperation
level, creditworthiness and reputation.
 In the case of sales agents as an intermediaries, the manufactures must evaluate the character, quality
and size of their sales force.
 If intermediaries are department stores then the manufacturer must intend scrutinise the location, types
of clients and further sales growth.

 Selection Process of Channel Members

o Identifying the potential channel members The channel manager has a wide range of sources
available to find the potential channel members.
o some of the sources are : Trade Sources – Sources like trade associations, directories, and trade
publication provide information regarding intermediaries. Customers – Customer give an honest
opinion about intermediaries who work for them. The formal or informal survey helps to gain
information.
o Advertising - The approach to find potential channel members to publish advertisements in trade
journals. Trade Shows – Effective way of finding potential channel members
o Selection Criteria for channel members : After identifying the needs of customers to be
fulfilled, the type of channel structure is determined. For the selection of intermediaries there are
two major criteria • The intermediaries must have a good knowledge of market. • The market
Coverage
o Finalising the Channel Members • A selection process is a mutual decision of two parties. It is
not only the manufactures who is involved in the selection process but also the intermediaries at
the wholesale and retail levels. • The management can use various inducements to secure the
services of channel members.

Step # 2. Training Channel Partners:

 Training Of Channel Members

 The selected intermediaries must be provided effective and careful training sessions because the
intermediaries are considered as the company by the customers. • It is the responsibility of
intermediaries to maintain a good and high image of the company they are representing.

 Types of Training for Channel Members : Field Training The channel sales people are
provided on the job training regarding achieving sales and collecting payments from the market.
• Class Room Training The distributors and his staff members are given classroom training on
the company’s product line, the competition level and the ways to handle the competition so as
to gain large market share.
 Orientation Programs: Orientation Programs are special meetings which are organised to
launch a new product and the way in which the product has to be launched. • Training for Paper
work Intermediaries are trained to prepare reports and maintain records. • Servicing Training
Servicing training are given especially for engineering products such as automobiles.

Step # 3. Motivating Channel Members:

 Motivation of channel Members
 In order to receive the desired results the channel members must be kept highly motivated.
 Channel members can be motivated through training programs, capacity building programs, promotional
support, and marketing research.
 The manufactures use positive motivators like special deals, high margins, premium , display
allowances, Advertising allowances, and sales contests.
 The manufacturers also use negative ways like threaten to reduce margins or terminate the relationship.

Step # 4. Evaluating Channel Members:

 Evaluation of Channel Members

 The evaluation of channel members is crucial for determining the retention, training, and motivation
decisions. Through evaluation necessary information regarding the channel member is attained.
 It is essential to evaluate the performance of the channel member on periodic basis.
 A channel member may have been efficient earlier, but may not be performing well in the present
scenario.
 The reason behind can be dissatisfaction or having inadequate skills and resource to perform. Thus
the costs associated and performance levels of members should be evaluated.

Step # 5. Modifying Channel Arrangements:

 Modifying the Channel Arrangement

 Once the channel members are finalised the companies usually do not re-evaluate the intermediaries.
This cause potential harm to marketing of the firms. So it becomes necessary for a company to keep
modifying the marketing channels as per the changing needs of the market.
 Some of the major factors are changes in customer preference, competition, market share, and
environment factors

 Managing the Relationships in Channel

 One of the key aspects to maximise the revenue and profit is the management of relationships with the
channel members.
 The factors influencing the channel relationship are :  Channel Corporation and Coordination. 
Channel power  Channel conflict

o Channel Corporation and Coordination •

Corporation and Coordination are the complimentary terms which exist together. The success of a
product to a great extend depends on the marketing channel adopted by the firm. • It is impossible
for a channel to be efficient without coordinating with each other, and for improving Cooperation
among the channel members is very important.
o Channel Power :
Channel power can be defined as the capability of a channel member that allow him to control the
decisions of other channel members in the same marketing channel.
o Channel Conflict :
Channel conflict refers to a situation when one channel member compete with the other. This
arises when a channel member feels obstructed by another channel member.
Physical Distribution

Physical distribution is the group of activities associated with the supply of finished product from the
production line to the consumers. The physical distribution considers many sales distribution channels, such as
wholesale and retail, and includes critical decision areas like customer service, inventory, materials, packaging,
order processing, and transportation and logistics. You often will hear these processes be referred to
as distribution, which is used to describe the marketing and movement of products.
Accounting for nearly half of the entire marketing budget of products, the physical distribution process typically
garnishes a lot of attention from business managers and owners. As a result, these activities are often the focus
of process improvement and cost-saving initiatives in many companies.

According to Wendell M. Smith – “Physical distribution is the science of Business Logistics where by the
proper amount of the right kind of product is made available at the place where demand for its exists. Viewed in
this light, physical distribution is key link between manufacturing and demand creation.”

According to W.J. Stanton – “Physical distribution involves the management of the physical flow of products
and the establishment and operation of flow system.”

According to Cundiff and Still – “Physical distribution involves the actual movement and storage of goods after
they are produced and before they are consumed”.

According to Mc Carthy – “Physical distribution is the actual handling and moving of goods within individual
firms and along channel system.”

Physical Distribution Objectives

 To make available the right goods in right quantity at right time and
right place at least cost.
 To achieve minimum inventory level and speedier transportation.
 To establish price of products by effective management of physical
distribution activities.
 To gain competitive advantage over rivals by performing customer
service more effectively.

Functions of Physical Distribution Decision:

(1) Order Processing:
Order processing is the starting point of any distribution activity. Order processing includes activities like
receiving the order, handling the order, granting credit, invoicing, dispatching, collecting bills, etc. Each
customer expects that the order placed by him is implemented without delay, and as per the specifications of
the order.
Thus, order processing becomes very important. Marketer should make effort to maintain the order cycle time
i.e. the time period between the time of placement of an order by the customer to the time of arrival of goods at
his destination. Standard procedure should be laid down for processing of order.

(2) Storage and Warehousing:

Storage means making proper arrangements for retaining the goods in proper condition till they are demanded
by customers. There are many products which are seasonally produced but are used throughout the year, they
can be stored and later released.

Similarly, there are products which are produced throughout the year but are seasonally used like umbrella,
fans, heaters, etc. Here also storing plays an important role. Storage reduces the need for instant transportation
which is difficult and costly.

Warehousing provides the storage function. Places where the goods are stored are known as warehouse. Goods
are stored in warehouses to be released in time of demand. Apart from storing function, warehouses also
perform other functions like, marketing and assembling the goods.

Two types of warehouses are there- Storage Warehouses and Distribution Warehouses. Storage warehouse
helps in storing the good for long and medium period of time to ensure matching of supply and demand.
Distribution warehouses facilitate assembling the product and redistributing it within a short period of time.
They can also be centralised (when located near factory) or decentralised (when located near market).

(3) Inventory Control:

Inventory control refers to efficient control of goods stored in warehouses. Maintaining adequate level of
inventory is very essential for smooth flow of business. Inventory acts as a bridge between the orders of
customers and production. They are the reservoir of the goods held in anticipation of sales. Therefore, it needs
to be properly managed and controlled. Neither to small nor too large inventory should be maintained.

Former would result in stock out, resulting in lost sales and latter involves heavy investments. Thus, a balance
has to be maintained. As Prof. W. J. Stanton states, “the goal of inventory control is to minimise both the
investment and the fluctuation in inventories, while at the same time filling customer order properly and
accurately.”

Correct anticipation of the product demand is necessary for maintaining the correct level of inventory. Properly
estimated demand helps the business firms in terms of cost of inventory, supplying to customer in time and
maintaining the production schedule.

(4) Material Handling:

Material handling includes all those activities which are associated in moving products when it leaves the
manufacturing plant but before it is loaded on the transport. This activity has been in existence since very long
period of time, and now it has developed as a system.

It involves moving the goods from plant to warehouses and from warehouses to place of loading in transport
modes. Proper management of material handling helps in avoiding unnecessary movement of goods, avoiding
damage to the goods, facilitate order processing and efficient movement of goods.

Material handling is the sub part of the total physical distribution system and helps in reduction in cost and
better service to consumers. Effective management of material handling system leads to effectiveness of total
physical distribution system and thereby makes it economical.

(5) Transportation:
Transportation as a component of physical distribution is concerned with the movement of goods from the
warehouse to customer destination. It includes loading and unloading of goods and their movement from one
place to another. In doing so it provides time and place utility. Transport accounts for a major portion of the
distribution cost and of the total price of the product.

Being a major cost element, marketers must take keen interest in transportation decision as it will help in
reducing cost and increasing customer satisfaction. Correct form of transportation mode is very essential as it
directly affect the price of the product. Proper choice facilitates smooth movement of goods on time and in
good condition. The transportation mode therefore needs to be adequate, regular and dependable.

Different modes of transportation are there like Road transport, railways, Airways, Water transport and
pipeline from which a choice has to be made. Each has its own share of merits and demerits. Normally a
combination of different mode is chosen and integrated in a sequential order to move the product economically
and faster.

Choice of a particular mode of transportation depends upon various factors like cost of the transport,
availability of the mode of transport, speed, reliability, frequency, safety and suitability of the mode to move
the product.

1. Road Transport:
This is an ancient form of transport and plays an important role in marketing. Road transport may be through
different means like transport by animals (like bullock, camel), transport by human beings (like coolies or
porters), transport by automobiles (like scooters, auto rickshaws, cars, truck buses etc.). Road transport is
flexible and economical. However, it is unsuitable for long distances.
2. Railways:
It is suitable for transporting bulk goods over long distances. It is an economical mode because large volume of
traffic is handled over large network of railways. However, it is inflexible as it is unfit to transport goods to
rural areas. Further, it involves huge maintenance expenditure.
3. Water Transport:
Water way is an important mode of transport for heavy and bulky goods in large quantities. It consists of
inland water transport and ocean transport. Inland water transport is used for transporting goods within county
and ocean transport is used to transport goods to other countries. Water transport is a cheapest form of
transport, having great carrying capacity and is highly suitable for heavy and bulky goods, but it has low speed
and higher degree of risk due to seasonal difficulties.
4. Air Transport:
Of late air transport has assumed significant importance as a mode of transport. Although it accounts for a
small percentage of transportation, it is useful for perishable items, overnight packages, emergency supplies
etc. The main disadvantage of air transport is that it has high freight charges, low carrying capacity and too
much dependence on climatic conditions.
5. Pipelines:
These are specialized carriers design to transport the crude and refined petroleum and natural gas from wells to
refineries and further to distribution centre. It is an economical mode as it involves less handling and labour
cost, but it is the slowest mode of transportation and very limited in number

Retailers:
Retailers are traders engaged in retailing. Retailing is the process of cutting goods into smaller quantities and
selling them to the final consumers. They are the last link in the chain of distribution and are the connecting
link between the wholesalers and consumers.

The word retail‘ is derived from a French word with the re‘ and tailer meaning to cut again.

Ostow and Smith (1985) Retail store is a business which regularly offers goods for sale to ultimate customer.
A retail store buys, stores, promotes and sells the merchandise.

Wal Mart (USA) is the largest retail store in the world and has an annual turnover of 400 billion dollars.

India has about 12 million retail stores, ie., one store for every hundred customer. The retail sector is the
second largest employer in India after agriculture.

Characteristics of Retailers:
The main characteristics of Retailers are:
1. Buys goods from wholesalers/producers and sells them to final consumers.
2. Last link in the chain of distribution
3. Sells goods to the final consumer
4. Sells goods in small quantities
5. Sells wide varieties of goods
6. Goods and products are made accessible to the consumers

Functions of Retailers:
Some of the functions of Retailers are:
(1) Buying and Assembling
(2) Warehousing or Storing
(3) Selling
(4) Credit Facilities
(5) Risk Bearing
(6) Grading and Packing
(7) Collection and Supply of Market Information
(8) Helps in Introducing New Products
(9) Window Display and Advertising

Services Performed By Retailers:

Retailers provide important services to both the wholesalers/Manufactures and the consumers.

(i) Services to Wholesalers/Manufacturers:

1. They supply invaluable information with regard to tastes, preferences and demands of the customers.
2. Retailers relive the wholesalers from selling goods in small quantities to the consumers.
3. Many retailers usually place orders in advance with the wholesalers which are very helpful in planning.
4. Sometimes retailers make advance payments for the goods to be received from the wholesalers.
5. Retailers introduce new products in the market supplied by the wholesalers.

(II) Services to Consumers:

1. The retailers get variety of goods from different producers and wholesalers.
2. They provide credit facilities to the consumers thereby helping them in times of difficulty.
3. They extend personalized service to the consumers and try to give them maximum satisfaction.
4. They introduce new products to the consumers and also guide them as to their uses.
5. They extend free home delivery and after sales service to the consumers.
6. They allow cash discount to the consumers on the products sold.
7. They buy and stock products best suited to the consumers.
8. They give valuable advice regarding the use and maintenance of the products delivered by them.
9. They cater to the needs of every type of consumer by keeping in view their paying capacity.
10. They usually take back the goods which do not suit the consumers and replace them.

Types of Retailers:

Retailers are broadly divided into two groups. They are Itinerant traders and fixed shops.

Itinerant Traders:
They are traders who do not have a fixed place of business. They move from place to place to sell their
products. T hey are also known as mobile traders and they include:
1. Hawkers – Who carry goods in wheeled vehicles and sell them at the doors of consumers.
2. Pedlars – Who carry goods on their heads and sell.
3. Cheap Jacks – Who sell their goods in small shops at residential areas, but their shops are not
permanent. They shift from one place to another according to the demand for the product.
4. Street traders – Those who sell their goods in busy street corners or footpaths of busy streets.
5. Market Traders- Those who sell the goods in market places on certain days.

Fixed Shops:
This refers to retail traders who have a fixed place of business and a permanent store. Fixed shops can be
divided into two groups: Small scale retailers and large scale retailers.
 Small Scale or Small shop retailers:
Small shops or small scale retailers are those who carry on business at a fixed place on a small scale
basis. They carry on business with a small amount of capital and their turnover is also small. Some of the small
scale retailers are:
1. General Stores – These are shops which sell wide variety of goods needed by the people for their day
to day use.
2. Second hand goods shops – These shops sell only second hand goods at a low rate with the aim of
attracting low income groups. Eg. Books, furniture, cars etc.
3. Discount houses/Stores – These are shops where goods are sold at a price less than the list price.
4. Independent Retailers - Independent retailers are businesses that are privately owned.
5. Street stall holders - A street stall is a typically temporary structure erected by merchants to display
and shelter their products in a street market or other setting.

Large Scale or Large shop Retailers

Large scale retailers are those retailers who carry out the business in a large scale. They are generally
located in towns and cities to cater to the needs of the urban population. Usually they directly do the business
with producers avoiding wholesalers. Some of the large scale retail shops are:

1. Departmental Stores - Large retail establishment with an extensive assortment in variety and range of
goods, organized into separate departments. All departments are housed under the same
roof to facilitate buying, customer service, merchandising, and control.
Features of Departmental Stores:
i.Large Scale Retail establishment.
ii. Different departments are functioning under the same roof.
iii. Attracts large number of customers as it provide different requirements under the same roof.
iv. Purchases are decentralized and sales are centralized.
v. Goods are sold on cash and no credit.
vi. Provides also other facilities (Recreation, rest room, canteen)
vii. Operating cost is high and so it is expensive
viii. It is a theatre of retailing.

Advantages of Departmental Stores:

i. Customers can make all the purchases from the same shop with wide choices.
ii. Bulk purchasing and large scale operations are possible.
iii. One department advertises for other departments.
iv. Due to its central location in the city, it attracts large number of customers.
v. Customers gets other facilities ( recreation, restaurants …)

Disadvantages of Departmental Stores:

i.Operational cost is very high which increases the price of the product.
ii. No personal contact with customers.
iii. Normally it is catering to the rich.
iv. Management of all the department is not easy and not very flexible in operation.

2. Multiple shops –
A multiple shop system consists of a number of branch shops owned by a single business firm. This is an
attempt on the part of the manufacturers or the wholesalers to establish a direct link with the consumers by
avoiding middlemen.
―A multiple shop consists of a number of similar shops owned by a single business firm.‖ —James
Stephenson
Features of Multiple Stores:
i. Large retail organization and deals with one or limited varieties of articles.
ii. Same or identical articles are sold in all the branches.
iii. Purchase is centralized and sales are decentralized.
iv. Flexible with regard to starting a store and closing unprofitable stores.
v. Normally no credit facilities are given.
vi. External appearances of all branch ships are similar.

Advantages of Multiple Stores:

i.Bulk purchasing, centralized control.
ii. No debts as everything is sold on cash.
iii. Less Advertisement cost and bulk purchase can reduce the cost of the products.
iv. Flexibility in operation.
v. It combines the functions of wholesaling and retailing.

Disadvantages of Multiple Stores:

i. No personal contact with customers.
ii. No credit given and only less variety of goods are available.
iii. As all the staff members are paid employees and so may not be committed.
iv. Sudden change of fashion, taste etc can affect all the branches.
v. Heavy investment is needed to establish many branches.

3. Mail Order Business –

Mail Order Business is the business done through post or mail. They do not visit the seller‘s shop or inspect
the goods before buying. Orders are received from the customers through post and goods are sold through post.
4. Consumer’s Co-Operative Stores –
These are retail stores owned and operated by consumers themselves on co-operative principles. These stores
aim at supplying quality consumer goods at

reasonable prices. The main motto of these stores is service than profit making. The capital is subscribed
by the members in the form of shares.
5. Super Markets or Super Bazars-
They sell variety of goods under a single roof. Mainly consumer goods sold here at whole sale rates. These
stores are operated either by self-service or with separate counters served by salesmen. The difference between
a super Bazar and Super-market is that the former is organized by co-operative society and the latter is
generally owned by a private individual.
6. Franchising – It is a form of retail selling. Here the producer gives the right to market his products to a
franchisee.
Arrangement where one party (the franchiser) grants another party (the franchisee) the right to use its
trademark or trade-name as well as certain business systems and processes, to produce and market a good or
service according to certain specifications.
The franchisee usually pays a one-time franchise fee plus a percentage of sales revenue as royalty, and
gains
(1) immediate name recognition,
(2) tried and tested products,
(3) standard building design and décor,
(4) detailed techniques in running and promoting the business,
(5) training of employees, and
(6)ongoing help in promoting and upgrading of the products.

7. Public Distribution System – This is the intervention of the Government in the marketing of essential
commodities to the public at reasonable price. It is regulated and controlled by the Government.
8. Margin Free Markets – It is a recent type of retail stores. They charge only a small margin of profit and
sell at a price less than the prevailing market prices. They function like a mini super market selling different
items and are generally located near residential areas. They sell quality branded products at less than the MRP.
9. Hypermarkets – It is a large scale retail store bigger than a supermarket. It was developed in France in
1970 and is now popular in other parts of the world. It combines the feature o supermarkets, speciality
shops and general stores. Hypermarkets being very large in size are normally situated at the boundaries
of towns and cities. They operate on the principle of self service and it is a giant supermarket.
10. Convenience Stores – These are small retail stores located near residential area. They deal in limited
range of products which consumers need daily and are open for long hours on all days of a week. These
shops become very convenient for the needy customers to get their daily requirements.

Other Retail Stores:

Modern marketing scenario is in the process of ongoing development. New types of retail shops are emerging
due to liberalization, changes in regulations, globalization etc. The modern types of retail stores developed to
different target markets are known as retail formats. The different types of these stores are:
1. General Merchandise Retail Stores: They carry wide variety of products and these include Super markets,
Hyper markets which are nothing but giant-sized super markets and discount stores.
2. Speciality shops – These shops sell only particular type of goods and get specialized in it and normally
charge a slightly higher price. Eg. Toys, books, furniture etc.
3. Shopping Malls - A shopping mall is a modern, chiefly North American, term for a form of shopping
place, in which one or more buildings form a complex of shops representing merchandisers with
interconnecting walk ways that enable customers to walk from unit to unit. These malls deal with several bases
and product categories. They provide a large variety of goods and services. In short shopping malls are modern
day shopping centers.
4. Destination Stores - Destination stores are retail stores that combine several attributes to make it very
attractive to the consumers.
It is basically a giant store that provides their customers elements like, large categories of department stores,
large size of shopping malls, discount deals of discount stores, unique and innovative ways of displays and
interactions, fun of recreation centers etc. It appeals to the consumer to such an extent that it diminishes the
line between a store and fun destinations in consumer‘s mind.
5. Retail Chain – A retail chain operates multiple retail outlets under common ownership in different cities
and towns. Some of the retail chains in India are Spenser, McDonald, Nilgiris, Reliance fresh etc.
6. Mom and Pop Stores - A small, independent, usually family-owned, controlled, and operated business
that has a minimum amount of employees, has only a small amount of business volume, and is typically
not franchised, therefore open for business only in a single location.
7. E-Tailors – These are Electronic retailers who sell products through internet. There are number of online
retailers of which amazone.com is the most famous. Indian aviation ticket is the biggest e-tailing market.
8. Discount Stores – It is a self service retail format that offers variety of products at lower prices. It deals
with national branded products and private branded products like appliances, house wares, clothing, sports etc.
Some of the advantages of Discount Stores are quick turn over, variety of products, self service and Low
price, but it offers only limited services.

Different types of Discount Stores are:

i.Full-Line Discount Stores: - It carries wide variety of goods and deals with branded products. Here they use
the strategy of moderate to low prices on large quantities of purchase and lower service to
stimulate high turnover.
ii. Discount Speciality Retailer – These stores deals with particular product line and they specializes in a
single line. They sell the product at discount rates to have high turnover. These stores are also known as
category killers as they take the business away from small, high cost retailers.
iii. Off-Price Retailers – They deal with surplus products from the manufactures, balance stock at the end of a
fashion season, goods with minor mistakes etc and offer the product to the customers at high reduction. Their
customer service is limited and also do not have credit facilities.
iv. Warehouse Clubs – It is a new form of mass merchandise, large scale, high volume, low overhead retail
format. They have limited range of products and sells in large quantities at a low price. They also give only
few services to the customers.
v. Value Retailers – These are general merchandise discount stores. Those who demand well known national
brands but cannot afford to buy larger packages are the customers of value retailers. Some of the main features
are low prices, limited services, high and quick turn over etc.

Non Store Retailing

Non-store retailing is the selling of goods and services outside the confines of a retail facility. It is a generic
term describing retailing taking place outside of shops and stores. The different types of non-store retailing are
direct selling, direct marketing and automatic vending.
1. Direct Selling – This refers to sale of product to ultimate consumers through face-to-face sales
presentations at home or in the work place. This is traditionally known as door-to-door selling.
2. Direct Marketing – It is a system in which the producers and consumers come into direct contact and
business is done directly without any intermediaries.
It is any activity which creates and exploits a direct relationship between the seller and the customer.

Wholesale vs Retail:
Wholesale is selling of goods in bulk to the retailers and businesses at cheaper rates. The wholesaler buys the
products in bulk, breaks it into small parts, repacked, and sells it to the retailers. The wholesaler sells only
specific items and is least interested in the location of the shop, packaging, and display of the goods. They are
more interested in the quantity not the quality of a product.

For wholesale business, considerable investment is required, and not the promotion and advertisement. The
customers of the wholesale are spread in various cities, town, and different states. Most of the purchases are
sold through credit to the customers.
A wholesale shop should have a license to sell the goods only to the retailer and usually not available to the
customer. However, if the customer wants to buy a product from the wholesaler directly them they will be
charged higher as compared to the retailer. Usually, a wholesaler sells only one product or a category of
products, so that they can focus on one kind of business for their goods.

What is Wholesale?
Wholesale is selling of goods in bulk to the retailers and businesses at cheaper rates. The wholesaler buys the
products in bulk, breaks it into small parts, repacked, and sells it to the retailers. The wholesaler sells only
specific items and is least interested in the location of the shop, packaging and display of the goods. They are
more interested in the quantity not the quality of a product.

For wholesale business, considerable investment is required, and not the promotion and advertisement. The
customers of the wholesale are spread in various cities, town, and different states. Most of the purchases are
sold through credit to the customers.

What is Retail?
When buyers buy a product and sell it to the final customers for their consumption, and not for any resale, this
is known as Retail. The retailers are the mediator between wholesaler and customers. They purchase goods
from the wholesaler and sell them to the ultimate customers in small quantity.

The profit margin in the retail business is high as the retailer buy goods at cheaper rates and sell them to the
customers at a higher price. The final price in which the retailers sell the product includes expenses such as
rent, electricity, salaries of workers, etc.,

3 Types of Wholesaler
 Merchant Wholesaler-This type of whole selling involves the purchase of a product in larger quantity,
stock it, and sell it smaller batches or quantities. This smaller portion of selling is also known as
wholesale, however, they are broken up for retailers to purchase in smaller batches.
 Agent/Brokers- They don’t own the goods they’re selling but bargains on behalf of the wholesaler so
that they get the best price possible and they get the commission for each sale.
 Sales and Distribution for Manufacturing – They are a sales team and distributors representing the
manufacturers in getting goods out in the wholesale market.

3 Types of Retailers
There are different types of retailers that can be determined by the business size and by the nature in which they
sell their goods. However, the top three types of retailers are.
 Department Store – They offer an extensive range of goods and act as a combination of small retail
stores operated by one group.
 Supermarkets – They focuses only on providing a range of food and beverage goods. They supply
goods related to fashion, home, and electrical products, etc.
 Convenience Retailer – These are located in a residential area and provides a limited variety of goods
at premium prices because of the added value of convenience.
Promotion Decisions
Meaning of Promotion
“What is Promotion?” Promotion is a marketing tool, used as a strategy to communicate between the sellers and
buyers. Through this, the seller tries to influence and convince the buyers to buy their products or services. It
assists in spreading the word about the product or services or company to the people. The company uses this
process to improve its public image. This technique of marketing creates an interest in the mindset of the
customers and can also retain them as a loyal customer.

What is Promotion?

Promotion is a fundamental component of the marketing mix, which has 4 Ps: product, price, place, and
promotion. It is also an essential element promotional plan or mix, which includes advertising, self and sales
promotion, direct marketing publicity, trade shows, events, etc.,

Some methods of this procedure contain an offer, coupon discounts, free sample distribution, trial offer, buy
two items in the price of one, contest, festival discounts, etc. The promotion of a product is important to help
companies improve their sales because customers reaction towards discounts and offers are impulsive. In other
words, promotion is a marketing tool that involves enlightening the customers about the goods and services
offered by an organization.

Types of Promotion:
Advertising-
It helps to outspread a word or awareness, promote any newly launched service, goods or an organization. The
company uses advertising as a promotional tool as it reaches a mass of people in a few seconds. An
advertisement is communicated through many traditional media such as radio, television, outdoor advertising,
newspaper or social media. Other contemporary media that supports advertisement are social media, blogs, text
messages, and websites.

Direct Promotion/Marketing-
It is that kind of advertising where the company directly communicates with its customers. This communication
is usually done through various new approaches like email marketing, text messaging, websites, fliers, online
adverts, promotional letters, catalog distributors, etc.

Sales Promotion-
This utilizes all sorts of a marketing tool to communicate with the customers and increase sales. However, it is
for a limited time, used to expand customers demand, refresh market demand and enhance product availability

Self-promotion-
It is a process where the enterprises send their agents directly to the customers to pitch for their product or
service. Here, the response for the feedback of the customer is prompt and therefore, easy to build trust.

Public Relation-
Popularly know as PR is exercised to broadcast the information or message between a company (NGO,
Government agency, business), an individual or a public. A powerful PR campaign can be valuable to the
company.

Online Promotion-
This includes almost all the elements of the promotion mix. Starting from the online promotion with pay per
click advertising. Direct marketing by sending newsletters or emails.
Key Points of Promotion

 It is a communication tool that incorporates all the elements used to spread awareness and convince
customers to buy good and services
 It is applicable only for short term sales
 It is one of the variables of the marketing mix
 The effect of promotion is short term
 The result or outcome of the promotion is immediate
 It is an economic marketing tool as compared to advertising
 It can be used for all sorts of businesses irrespective of the size, brand of a company

Promotional Decision Process

Seven-Step Process
Step 1: Defining problems
This step determines the need for a promotional strategy by taking into account the type of product or service to
be promoted, the target audience, marketing budget, as well as branding messages.

Step 2: Establishing objectives

After the problems are defined, the next step is to determine the end goal or objectives of your promotional.
This step answers the question: What do you promote a product or service for?

Some common promotional goals include:

 Increasing the brand awareness
 Bringing more customers onboard
 Building relationships with existing customers
 Breaking into a new market segment.

Step 3: Designing promotion mix

During this step, a promotion mix is created. A promotional mix is a combination of promotional strategies to
be used in a promotional campaign. Examples include personal selling, email marketing, sales promotion, print
ads, and social media advertising.

Step 4: Planning promotion program

In this step, you plan how long the promotional campaign will be carried out and what tools to be used. The
budget, rules, and size of the promotion will be taken into account.

Step 5: Pre-testing
After the plan is complete, it's time to test it before implementing it full-scale. During the testing, marketers
should pay close attention to the additional promotional costs, customer responses as well as unexpected issues
that arise.

Step 6: Implementation
If the result of the testing proves positive, the plan is ready to launch full-scale. If not, more planning is needed
to avoid extra costs during the implementation.

Step 7: Monitoring and evaluation

The performance of the promotional campaign should be monitored regularly for improvement. Marketers
should consider external factors such as economic recession, seasonal variations, and natural disasters, which
can affect the customer's decisions.

Types of promotion strategies

Decisions on how a promotion campaign should be carried out also depend on the type of promotional
strategies used. Overall, there are three ways to promote your products:

 A push strategy sells directly to customers, excluding other distribution channels. Some examples
include trade shows and direct selling.

 A pull strategy builds up customer demand in less “pushy” ways such as advertising, sales promotion,
and referrals.

 The last promotion strategy combines both the push and pull factors.

Communication Process and Promotion

https://www.tutorialspoint.com/marketing_management/
marketing_management_promotion_decisions.htm
Promotion is a method of communication by using various elements such as advertising,
personal selling, sales promotion, etc., that provides information about a product or brand
in the market.