This document provides information on different channels of distribution and types of middlemen involved in distribution. It discusses manufacturers, distributors, wholesalers and retailers. Wholesalers purchase large quantities from manufacturers and sell to retailers. Retailers then sell to consumers. Wholesalers and retailers perform important functions like warehousing, financing, risk bearing and market research. The document also compares wholesalers and retailers, and discusses different types of retailers like department stores, multiple shops/chain stores, and mail-order businesses.

1. Prepared by:
Ms. Shivanee Vyas
Assistant Professor
SVKM’s NMIMS, School of Pharmacy and Technology Management
1
CHANNELS
OF
DISTRIBUTION
DSBM

2. CHANNELS OF DISTRIBUTION
• Distribution means the process of transferring the product from the factory into the hands of
its consumer. The distribution channels are the various outlets through which products move
from manufacturers to consumers.
• There are different channels of distribution and the selection of an appropriate one depends
on the requirements of the manufacturer, the needs of the consumer, and the nature of the
product.
Manufacturer
Distributors
Retailer
Consumers 2

3. • The distribution channels may be grouped under two major heads:
(i) Direct selling
(ii) Indirect selling
• Direct selling, When the manufacturer sells his goods directly to the consumer.
• Indirect selling, In this case, there are one or two middlemen or intermediaries are involved between
the manufacturer and the consumer. For example:
Manufacturer Consumers
Manufacturer Retailer Consumers
Consumers
Manufacturer Wholesaler Retailer
Consumers
Manufacturer Wholesaler Retailer
Distributors
3

4. TYPES OF MIDDLEMEN
There are two types of middlemen:
1. Functional middlemen
2. Merchant middlemen
• Functional middlemen: The functional middlemen are those intermediaries who perform various
marketing functions without having any title to goods i.e. they help in the transfer of goods from the
hands of the producer to those of consumers without acquiring any ownership rights.
• The following middlemen come under this category:
1. Brokers
2. Commission agents
3. Auctioneers
4. Del credere agents
1. Brokers: Brokers are those agents who do not obtain the ownership of the goods and their only
function is to bring the buyers and seller together. They negotiate the purchase and sale of goods on
behalf of other parties. The broker gets a certain percentage of commission on the business transacted
by him.
4

5. 2. Commission agents: They sell the goods on behalf of the seller. They negotiate the sale of
goods and make arrangements to transfer the title to the goods. A commission agent is responsible
for warehousing, grading, packaging, assembling, and eventually disposing of the product. Their
commission is based on the sale.
3. Auctioneers: They sell the goods on behalf of their principals by auction. In an auction, the
auctioneer who has collected the goods from the sellers displays them for the would-be buyers and
invites bids from them. The buyer who makes the highest bid gets the goods provided the highest
bid is at least equal to the minimum reserve price fixed for the purpose.
4. Del credere agents: In addition to finding buyers for the seller, they also guarantee the price of
goods on their behalf. If a buyer fails to pay, the del credere agent will pay on his behalf. A separate
commission is charged for this responsibility.
• Merchant middlemen: They acquire and transfer the title to goods in their own name. The
middlemen covered under this category are:
(i) Wholesalers
(ii) Retailers
5

6. WHOLESALERS
• Wholesalers are those merchants who act as intermediaries. They buy goods and commodities in large
quantities from the producer and sell them to the retailers.
• The wholesaler dealing in pharmaceutical products requires a drug license from the health department
of the concerned state government. A wholesaler is called a 'stockist' if he deals in items manufactured
by a single firm or company.
6
Manufacturer Wholesaler Retailer

7. • Classification of Wholesalers:
The wholesalers may be classified into three types, namely:
1. Manufacturer wholesalers
2. Retailer wholesalers
3. Wholesaler proper
1. Manufacturer wholesalers: They may not only sell their own products to the retailers
but may also make large-scale purchases from other manufacturers to meet the
demand of the retailers.
2. Retailer wholesalers: These wholesalers purchase goods in bulk from the
manufacturers and sell them in small quality to the consumers through their own
shops. In this way, they act as wholesalers as well as retailers.
3. Wholesaler proper: These wholesalers concentrate only on buying and selling goods in
large quantities. They are also known as distributors.
7

8. Functions of Wholesalers:
The wholesaler performs the following important functions:
1. Assembling: The wholesaler buys large varieties of goods from different manufacturers and sells them in
small quantities to the retailers.
2. Distribution: The wholesaler serves to distribute goods to the retailers who are generally widely scattered.
3. Warehousing: The goods purchased from different manufacturers are kept in warehouses till these are
distributed to retailers.
4. Transportation: The wholesaler has to move the goods from the place of its production to his own warehouse
and then from there to the retailers.
5. Financing: The wholesaler provides credit facilities to the retailers and thus finances the retail trade.
6. Risk-bearing: Bulk buying and storage of goods for a length of time carries a number of risks, such as changes
in demand, spoilage or destruction of goods, loss due to theft in his warehouse. These risks are born by the
wholesaler.
7. Grading and packaging: Some wholesalers also perform the functions of grading products according to their
quality and also pack the goods into smaller lots for retailers.
8. Market research: The wholesaler is close to the retailers and from them, he knows the needs of the
customers. This helps in advising the producer to make goods in accordance with the demand and needs of
the consumers.
8

9. SERVICES PERFORMED BY WHOLESALERS
A. Services to Retailers:
1. The wholesaler purchases goods from various producers and stores them at one place for retailers.
2. They help the retailers by supplying the goods to them promptly as compared to their getting the
supply from the manufacturers.
3. The wholesaler buys goods in large quantities from the manufacturers and sells them in small
quantities to the retailers.
4. The wholesalers help in stabilizing the prices by regulating the supply of goods and enable the
retailers to earn a fair margin of profit.
5. The wholesaler usually obtains substantial discounts and rebates from the producers and is therefore
in a position to give special discounts to the retailers on bulk purchases.
6. They inform the retailers regarding new products introduced into the market.
7. The wholesaler deals in a limited number of products and therefore gains expert knowledge in his
field of specialty. The retailer can also be benefited from the specialization achieved by the
wholesaler.
8. They provide credit facilities to the retailers.
9. They bear most of the risks connected with marketing and thus save the retailers from such risks (e.g.
goods may be damaged, destroyed, or stolen).
9

10. B. Services to Producers or Manufacturers
1. They buy goods in bulk from producers and relieve the producers of the botheration of collecting
orders.
2. The wholesaler trader helps in the large-scale production of goods by giving supply orders for a bulk
quantity.
3. They usually make cash payments for the goods purchased from producers. Thus, the capital invested
by producers does not remain blocked for long which in turn results in a quick turnover.
4. The wholesaler trader maintains sufficient stock of goods at all times during the year and thus, in a
way, provides warehousing facilities to both producers and retailers.
5. They provide market information to the manufacturers so that they can regulate their production
accordingly.
C. Services to the Consumers
1. The wholesalers sell the goods to the retailers at uniform prices which helps in bringing uniformity in
the prices of retailers.
2. Wholesalers purchase large quantities of goods from producers which helps to cut down the cost of
production. Therefore. consumers are able to purchase the goods at a reasonable price.
3. Wholesalers informed about the taste of consumers to the producers with the result consumers are
able to purchase goods of their liking.
10

11. RETAILERS
A retailer is a middleman between a wholesaler and actual consumers. The retailer sells the
goods to the consumers and maintains an intimate contact with the wholesalers,
manufacturers and consumers. The retailer dealing in pharmaceutical trade is known as
'chemist' or a 'pharmacist'.
11
Consumers
Wholesaler Retailer

12. TYPES OF RETAILERS
1. Itinerant Retailers: These retailers do not operate from fixed business premises but move from place
to place for selling goods in small lots to the consumers. The following are different types of itinerant
retailers:
• Hawkers and peddlers: They move from door to door in residential localities to sell their goods. The goods
sold by them are generally small and cheap, such as vegetables, fruits, toys, household articles etc.
• Street traders: These traders generally arrange their goods at busy street corners or pavements of busy
roads, temples, railway stations, cinema halls etc. They offer a wide variety of articles of common use.
• Market traders: keep on moving from place to place to sell their goods at weekly, fortnightly or monthly
bazaars.
12
Itinerant retailers Fixed shop retailers

13. 2. Fixed Shop Retailers: The fixed shop retailers set up permanent establishments to sell their goods. They do
not go from place to place in search of their customers. The fixed shop retailers may be divided into two
subgroups:
 Small-Scale Retail Shops:
• Street stalls: Usually these stalls are located at a street crossing or in the main street. It may take the form of
a stand with a table or platform which may be used for keeping the goods.
• Second-hand goods shops: They deal only in second hand or used goods, such as clothes, books, furniture
and other household wares.
• General stores: They are generally set up in residential areas. They are stocked with all kinds of products
needed by the local residents in the course of their day-to-day life. They are usually owned and managed by
a single individual.
• Single line stores: These stores specialize in selling only a particular kind of item. For example, a medical
store deals only in medicines. Generally these stores are situated in residential localities as well as central
market places.
• Specialty stores: They specialize not in the products of a particular line but only one product of a certain line.
For example, selling only children's garments or men's garments or women's garments instead of selling
readymade garments for all categories of customers.
 Large-Scale Retail Shops: They deal in all kinds of goods essential as well as luxury goods, cheap as well as
expensive. The capital investment of such retailers are relatively large as compared to small scale shops. For
example, departmental stores, multiple shops or chain stores, etc. 13

14. Functions of Retailers:
The following are the main functions of a retailer:
1. A wide choice to consumers: He keeps a stock of various items according to the needs of the
consumers. The retailer is supposed to know the different kinds of goods likely to be demanded by his
customers.
2. Ready stock: A retailer keeps a ready stock of all the goods so that he is able to meet the demand of his
customers at all times.
3. Transport: Wholesalers are the main source of supply of goods to the retailers. Retailers usually make
their own arrangements for transportation of products of different kinds from the wholesales
godowns.
4. Risk-bearing: Retailers have to maintain a reasonable stock of goods. They bear the risk of loss of goods
by fire, theft or deterioration as long as they are not sold.
5. Financing: They provide financial help to consumers by selling them the goods on credit.
6. Market research: Retailers are in close contact with their customers. They know the tastes, likes, and
dislikes of the customers. They pass on such information to the wholesalers for onward transmission to
the manufacturers concerned.
7. Sales promotion: They display the goods in show windows and on the counter for the information of
customers. Thus a retailer helps to promote the sale of goods manufactured by a particular
manufacturer who has launched the sales promotion campaigns.
14

15. Services Performed by Retailers
The retailer provide the services to the producers/wholesalers and customers because the retailer is a middleman
between a wholesaler and an actual consumer.
A. Services to the producer/wholesalers
1. Retailer studies the tastes, likes and dislikes of the customers and through the wholesaler communicate it to the
manufacturer.
2. They help the wholesaler and manufacturer by doing the job of advertisement by displaying goods in show windows
or on the counter or by any other means.
B. Services to the Consumers
1. They maintain ready stock of goods to meet the demand of consumers.
2. They provide free home delivery services to consumers.
3. A retailer displays the new products in the show window and counters for the information of the would-be
consumers.
4. They provide credit facilities to consumers.
5. The retailers keep themselves well-stocked with different varieties of goods manufactured by different producers. In
this way. they provide an opportunity to the customer to choose the best out of available products.
6. They maintain regular contact with the customers so as to provide an opportunity to them to make a complaint
regarding a substandard product, replacement of the defective product, etc.
7. The retailer offers free expert advice to his customers about the merits and uses of each product and also about the
availability of a better substitute. 15

16. Comparison between “Wholesalers” and “Retailer”
16
S.no. Wholesaler Retailers
1 They act as a middle man between the
manufacturer and the retailer.
They act as a middle man between the wholesaler
and consumers.
2 They deal in large scale business. They deal in small scale business.
3 They purchases goods from manufacturer and
sell them to the retailers. Hence they sell
goods for resale.
They purchases goods from wholesaler and sell
them to the customers. Hence they sell goods for
consumption.
4. The location of the wholesaler’s shop is not
very important.
The location of the retailer’s shop is very
important.
5. They deal only in specific type of products
which are produced by a specific
manufacturer.
They deal in large number of products of different
manufacturer.
6. Window display of goods is not important. Window display of goods is essential in order to
attract the customers.
7. They do not provide after sale service. They provide after sale service in order to win the
confidence of the customers.
8. They do not have the direct contact with the
customers.
They have the direct contact with the customers.
9. They require large amount of capital for trade. They require small amount of capital for trade.

17. Retail Departmental Store
It deals in a wide range of products. The main object of a departmental store is to satisfy
consumer needs at one place to save botheration to consumers.
17

18. • Advantages
1. It provides great convenience in shopping because customers can get all their requirements from one
place.
2. It keeps a large variety of goods, thus offering a good choice to customers, when they buy the required
goods.
3. The departmental stores are located mainly in the central part of the city. So it is convenient for all types
of consumers to visit it.
4. It buys its requirements in large quantities which reduces its cost and increases the profit.
5. It provides telephone facilities, and free home-delivery facility to its customers.
• Disadvantages
1. The initial cost of running a departmental store is relatively very high.
2. It is generally located in a central place. People living in a distant place find it difficult to visit the
departmental store.
3. The overhead expenses of a departmental store are comparatively high because extra facilities are
provided to attract customers. As a result, the prices of articles charged by a departmental store are
usually higher than those charged by small retailers.
4. The sales are controlled by employees, so the owner of the departmental store cannot establish personal
contact with his customers.
18

19. Multiple Shops or Chain Stores
A single business firm opens a number of branch shops which are situated at different localities
in the city or different parts of the country. All the branches are centrally controlled and have
uniformity of operation.
Examples of multiple shop systems are VAIDHANTH, DABUR, HAMDARD, etc.
19

20. 20
• Advantages
1. All purchases for the branches are made by the central office. This results in bulk buying which
reduces the cost of the product.
2. The fixed price and standard quality of goods help in winning the confidence of the customers.
3. The shortage of supplies at one branch can easily be met by transfer from another branch having a
surplus stock.
4. There is uniformity of window display and shop decoration in all the branches of multiple shops which
makes easy identification of them.
5. In multiple shop systems, there is direct contact between producer and customer, so the middlemen's
profits are eliminated.
• Disadvantages
1. Multiple shops deal in a limited range of products. So the customers do not have a wide choice.
2. The head office of multiple shops is generally located in a faraway place, so there is generally no
effective control over the staff working in its branches.
3. The staff at multiple shops has little freedom to make its own decisions sometimes it adversely affect
the sales.
4. The owner of multiple shops cannot make personal contacts with his customers. The success of the
organization depends upon the branch managers.

21. Mail-order Business
Mail-order business is a type of retail trade in which all business activities take place through the mail.
Some manufacturers sell their products direct to consumers without involving middlemen (wholesalers
and retailers). The manufacturer approaches the would-be customers by sending its catalogue, price list
and circular by post.
Under it the goods are delivered to the addressee on the payment of the price to the post office which
remits it to the sender of goods.
• Types of Mail Order Business
There are three main types of mail-order business:
(i) Manufacturer mail-order house: These are established by the manufacturers for selling the goods manufactured by
them directly to consumers, thus eliminating middlemen.
(ii) Departmental mail-order business: This is only a department of a departmental store executing orders received
from outside.
(iii) Middlemen mail-order business: In this case they purchases the required goods, partly on the receipt of orders and
partly in anticipation of orders, from the wholesalers and dispatches the same to the consumers.
21

22. • Advantages
1. The system does not need a shop or showroom to start the business.
2. The running expenses are low because the system does require a large number of employees.
3. The system is very useful for those customers who live in remote areas of the country.
4. There is a direct link between manufacturer and customers, Hence no middleman is required.
5. The seller gets a very wide market to sell his products.
• Disadvantages
1. A buyer cannot examine the goods before their purchase.
2. A large amount of money is spent on advertisement, packing of goods which increases the overhead expenses and
hence increase the price of goods.
3. The credit facilities are not available to the customers.
4. There is a risk of damage to goods during transportation.
5. The customers who like to make enquiries, have to waste time in correspondence.
6. The illiterate customers cannot get the benefit of this system.
7. There are chances of cheating by a dishonest trader.
8. There is a lack of personal contact between manufacturer and customers so it is difficult to make permanent
customers.
22

23. 23