Channels Of Distribution in commerce, Factors, Reasons

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Hello welcome to this blog on Channels Of Distribution in commerce:

Table Of Contents

  1. Channels of distribution
  2. Middlemen
  3. Factors for consideration before choosing a particular channel
  4. Advantages or survivor of middlemen
  5. Advantages or elimination of middlemen.
  6. Reasons or circumstances that may warrant by passing of middlemen.

Channels of Distribution

The channel is a pathway through which goods move from the producer to the consumers. It is the path through which the ownership of products is transferred and is moved from the producer to customers.

Middlemen: The middlemen are the wholesalers and retailers who specialize in performing activities relating to the purchase and sales of Goods in the process of their flow from producer to final buyers. They are institutions situated in the marketing channel at points between the producer and final buyers.

Factors for consideration before choosing a particular channel:

  1. Number of potential buyers: The number of potential buyers will be taken into consideration before deciding which channel to choose. When the number is small, a shorter channel is choosing, while longer channel is choosing when they are many.
  2. Competitor’s channel: The channel used by competitors of the firm must be analyzed before choosing one.
  3. Resources of the producer: A rich producer will open his own retail outlets why I’m average producer will prefer a longer channel.
  4. Nature of the goods: The nature of the goods we determine which channel to choose. Perishable goods, specialized and expensive goods required shorter channels.
  5. Size of order: If the order is large, they producer can bypass the middlemen and use shorter channel and vice versa.
  6. Location of customers: The producer will use shorter channel where potential customers are concentrating in an area while longer channel will be good for potential customers that are scattered all over the country.
  7. Financial capability of the manufacturer: When a manufacturer has sufficient finance, he is capable of distributing his goods directly to the consumers or engage an agent to do that for him.
  8. Value of the goods: It is much easier for the goods to be directly distributed to the consumers if the goods are expensive.

Advantages or Survival of Middlemen

The middlemen have continued to wax stronger in spite of all the strong arguments for their elimination. The middlemen should not be eliminated because the functions they perform to both the producers and ultimately to customers cannot be performed by any of them, i.e. The manufacturers or customers.

Having gone through the various distributions of the middlemen to distribution, there is no iota of doubt that they should be allowed to continue to flourish.

Advantages or Elimination of Middlemen

Another school of thought supports the total elimination of the middleman i.e. Wholesaler and retailer, because of the following disadvantages associated with them. Disadvantages of middlemen:

  1. Longer channel of distribution: The wholesalers and retailers make the channel of distribution of goods longer.
  2. Creation of artificial scarcity: The wholesalers and retailers normally create artificial scarcity of products through boarding.
  3. Increase in prices: The middlemen also cause unnecessary price increase to the dismay of the final consumers.
  4. Misinformation: The middleman sometimes misinform the consumers.
  5. Fluctuation of prices: The middlemen can also cause price fluctuation, especially when too many of them are involved in distribution of products.
  6. Disguised unemployment: The presence of wholesalers could encourage large scale of disguised unemployment.

Reasons or circumstances that may warrant by passing of Middlemen

Some manufacturers made by pass the wholesalers and even the retailers and sell their goods directly to the consumers. This is done for the following reasons:

  1. Increase profit: Manufacturers can increase their profit if they are able to sell their product directly to the consumers.
  2. Ownership of warehouses: Some large retailers have own warehouses and this can make the manufacturer to bypass the wholesaler.
  3. Cheap products: Consumers are able to buy products at cheaper prices when the activities of both wholesalers are retailers are cut off.
  4. Development of mail order system: There may be no need of middlemen in mail order system, since most of the transactions are done by mail. Visit my blog on mail order system here.
  5. Packaging and branding done by manufacturer: Most of the packaging and branding can be done by manufacturers, thereby making the middleMen irrelevant.
  6. Presence of technical goods: The manufacturers can sell directly to the consumers if the goods produced are highly technical and required special specification, e.g, computer and machinery.
  7. Perishable goods: Middlemen can be eliminated when perishable goods, e.g, tomatoes, are involved because the goods can easily get spoilt.
  8. Branded products: Middlemen can also be bypassed when the products are branded for easy identification by the manufacturers.
  9. Involvement of expensive goods: Manufacturers also prefer to sell expensive goods directly to the consumers because they normally have low volume of sales.
  10. Small scale production: The manufacturers will prefer to sell directly to the consumers when the scale of production of the goods is very small.

Revision Questions on this blog

  1. Definition channels of distribution
  2. State five functions performed by the wholesaler in the channel of distribution.
  3. Explain the five factors that encouraged the elimination of middlemen from channels of distribution

Kindly visit my Next blog on the topic, the problems of distribution of commodities in West Africa. [To join the class Click Here]

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