UNIT TITLE III: Place & Distribution
Meaning and Importance of Place
● Place is the process of moving products from the producer to the intended user. Place in
marketing mix refers to the channel, or the route, through which goods move from the
source or factory to the final user.
● Place is also known as channel, distribution or intermediary. Place is the mechanism
through which goods move from the manufacturer to the consumer
● Place could be the intermediaries, distributors, wholesalers and retailers.
According to William J.Stanton, “A distribution channel for a product is the route taken by the
title to the goods as they move from the producer to the ultimate customer.”
According to Philip Kotler, “Every producer seeks to link together the set of marketing
intermediaries that best fulfil the firm’s objective. This set of marketing intermediaries is called a
marketing channel.
Definition by Kotler indicates that the distribution channel is nothing but a set of intermediaries.
While Stanton indicates transfer of title of goods from producer to customers as another angle of
place
Channels of distribution are mainly concerned with the transfer of title to a product which may
be affected directly or through a chain of intermediaries. It comprises of set of four participants
of distribution system:
(1) Manufacturers,
(2) Intermediaries,
(3) Facilitating agencies,
(4) Consumers
● The starting point of distribution is the Manufacturer who produces the goods.
● The second participant being Intermediaries, they are in direct negotiation between
buyer and seller. They identify the needs of the consumers and the manufacturers who
produce various products. In the process, they perform various functions like buying,
selling, assembling, standardisation and grading, packing and packaging, risk bearing.
● The third participant being the Facilitating agencies are the independent business
organisations other than intermediaries. These agencies facilitate the smooth distribution
of goods from producers, through intermediaries, to consumers. The major facilitating
agencies are banking institutions, insurance companies, transportation agencies and
warehousing companies.
● The fourth category of participants in the distribution system i.e., consumers, are the final
destination for goods in the distribution system.
Functions performed by channels of distribution
1. Transactional Functions:
● The primary function of the distribution channel is to bridge the gap between production
and consumption for which various transactions performed for movement of the goods
from one place to another are called transactional functions.
● Buying, selling and risk bearing functions.
● There has to be willingness of buying and selling in the transactions involved, on the
other hand there will be no transaction if there is no willingness for buying and selling,
there would be no transaction.
● When goods are bought, it involves risk also.
:
1. Logistical Functions:
● The functions involved in the physical exchange of goods are called logistical function
● Assembling refers to the process of keeping the goods, purchased from different places,
at a particular place
● The goods are produced by producer /manufacturer and assembled in different
assembly lines
● storage, grading, sorting and transportation are essential for physical exchange of goods
which forms logistical functions of physical distribution.
1. Facilitating Functions:
● These functions facilitate both the transaction as well as physical exchange of goods.
These facilitating functions of the channel include post-purchase service and
maintenance, financing, market information
Negotiation takes place between manufacturers and customers before closing a deal.
Negotiation in terms of quality of product, guarantee, after sale services and finally price takes
place before the transfer of ownership is done.
Types of Distribution Channels
I. Direct Channel (Zero level)
● the manufacturer directly provides the product to the consumer.
● In zero level there are no intermediaries involved, the manufacturer is selling directly to
the customer. This is called the 'direct channel’ or direct selling. In this the manufacturer
or producer supplies the product to the customer through its own retail outlets and
salesmen present there
II. Indirect Channel:
● a manufacturer doesn’t sell directly to the consumer rather chooses various
intermediaries to sell a product to the consumer that is why it is called indirect channel.
When a manufacturer/producer employs one or more intermediary to move goods from
point of production to point of consumption also called indirect marketing channel
a. One level channel (Manufacturer-Retailer-Consumer):
❖ one intermediary is involved.
❖ the producer ascertains the requirements of retailers at periodical intervals and goods
are supplied accordingly. As and when required, the retailer may also procure goods
from the producer's godown located in that region.
b. Two level channel (Manufacturer-Wholesaler-Retailer-Consumer):
❖ the manufacturer can use the services of the wholesaler as well as the retailer.
❖ the manufacturer may supply his products in bulk to wholesalers. The retailer may buy
periodically from the 'wholesaler and sell the same to the consumers located in his
locality
❖ there are two middlemen (both wholesaler and retailer) in this channel, it is referred to as
two level channels (2 level channel) and helps in covering a larger market
❖ For Example: Consumer goods like oils, cloths, sugar, pulses and soaps etc sold through
nearby retail outlets also called mom and pop shops. Another example can be FMCG
being sold through big retailers like BIG BAZAAR
c. Three level channel (Manufacturer-Agents-Wholesaler-Retailer-Consumer):
❖ an alternative channel of distribution consists of mercantile agents, wholesalers and
retailers.
❖ the manufacturer deals with a mercantile agent. Then the wholesalers buy the goods
from the agents and sell the same to retailers. In turn the retailer sells it to the ultimate
consumers
❖ level is used particularly when the manufacturer carries a limited product line and has to
cover a wide market where an agent in the major areas is appointed who further
contacts wholesalers and retailers.
● Marketing intermediaries are also known as middlemen or distribution intermediaries
form an important part of the product distribution channel.
● The people and the organisations that assist in the flow of goods and services from
manufacturer to consumer are known as marketing intermediaries.
● The four basic types of marketing intermediaries are agents, wholesalers, distributors
and retailers.
● Middlemen: Anybody acting as an intermediary between the manufacturer and
consumer.
● Agents: The agent as a marketing intermediary is an independent individual or company
whose main function is to act as the primary selling arm of the producer and represent
the producer to users
● Agents take possession of products but do not actually own them. Agents usually make
profits from commissions or fees paid for the services they provide to the producer and
users.
● For example travel agents, insurance agents and the organisers of party-based selling
events of Tupperware.
● Wholesalers are independently owned firms that take title to the merchandise they
handle
● Wholesalers purchase products in bulk and store it until they can resell it. Wholesalers
generally sell the products they have purchased to other intermediary usually retailers,
for a profit
● Distributors are similar to wholesalers, but with one key difference. Wholesalers will carry
a variety of competing products,
● distributors only carry complementary product lines,Distributors usually maintain close
relationships with their suppliers and customers. Distributors will take title to products
and store them until they are sold.
● The retailer will sell the products it has purchased directly to the end user for a profit
● A retailer takes title to, or purchases, products from other market intermediaries.
● Retailers can either own and operate small stores or can be a part of large chain stores.
