Channels Of Distribution

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DRUG STORE AND BUSINESS MANAGEMENT
Channels Of Distribution
Mr. Maroti M. Jeurkar Lecturer, YBCP, chandrapur
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• Channels Of Distribution
• Definition- Distributions 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 product move from manufactures to
  consumers.
• The distribution channels may be grouped under
  two major heads
• Direct selling
• Indirect selling

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Channels Of Distribution Direct
selling Indirect selling
manufacturer
Consumer
Consumer
manufacturer
Retailer
Consumer
Retailer
manufacturer
Wholesaler
manufacturer
Consumer
Retailer
Wholesaler
Distributor
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• Types of Middlemen
• There are two types of middlemen
• Functional middlemen (perform the marketing
  functions)
• i)Brokers- Broker are those agent who obtain
  nither the possession nor the ownership of the
  goods and their only function is to bring the
  buyer and seller together.
• ii) Commission agent- They sell goods on behalf
  of the seller.
• iii) Auctioneers- They collected the goods from
  the sellers, display it for the would be buyer
  and invites bids from them.
• iv) Del credit agent- They find buyer for the
  seller and also guarante the payment of price of
  goods on there behalf.
• 2. Merchant Middlemen
• i) Wholesaler
• ii)Retailer

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WHOLESALER Wholesaler are those merchants who
are intermediaries between the manufacturing or
distributor and the retailer. They buy the goods
and commodities in large quantities from the
producer and sell them to the retailer. Classific
ation of wholesaler 1. Manufacturer
wholesaler 2. Retailer Wholesaler 3. Wholesaler
proper
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FUNCTIONS OF WHOLESALER 1.Assembling
2.Distribution 3.Warehousing
4. Transportation 5. Financing
6.Risk-bearnig 7. Pricing
8. Grading and packaging 9.Market research
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RETAILER Retailer are those merchants who are
middlemen between the wholesaler and the
consumer. They buy the goods and commodities in
large quantities from the producer and sell them
to the consumer. They maintains an intimate
contact with the wholesaler, manufactures, and
consumers. The retailer dealing in pharmaceutical
trade is known as chemist or a pharmacist.
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• Classification of retailer
• Itinerant retailer
• Hawker and pedlars
• Street trader
• Market trader
• 2. Fixed shop retailer
• Small scale retail shop b. Large scale
  retail shop
• Street stalls
• Second hand goods shop
• General stores
• Single line stores

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FUNCTIONS OF RETAILER 1.Wide choice to
consumer 2.Dready
stock 3.Transport
4. Grading 5. Risk-bearing
6.Financing 7. Market
research 8. sale
promotion
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• MODERN TRENDS IN
  RETAILING
• Nowadays, retailing techniques have undergone
  tremendous change.
• The following changes are done in retail trade to
  attract the customer
• Self service is being stressed because it is
  quicker, beneficial to customers and saves time
  and cost on customer. Self service in not
  possible in retail pharmacy.
• Goods are generally pre-packed by manufactures in
  order to avoid the cheating of customers
  regarding their weight and quality. For example
  tablet and capsules are available in the market
  in aluminum foils (strip packing).
• Many manufacturing give name to their product
  (medicines ) or a trade mark to distinguish them
  from other similar product available in the
  market.
• The manufacturers have made the provision of
  sales service for consumer durable items, in
  order to compete with other firms.
• Hire purchase system has been followed in order
  to increase the sale of luxury consumer durable
  items. Many retail shops buy their products in
  cash deal with there customers directly.
• New shopping complexes are coming up in newly
  developed residential colonies. Each shopping
  complex has large number of independent retail
  shops.
• Vending machines have been installed by
  retailers. These are operated with nominal
  assistance of one helper. This saves times of
  retailer in handling goods.

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RETAILER WHOLESALER
Middlemen between wholesaler consumer middlemen between Manufacturer
retailer deals in small scale business deals in large scale business
Sells goods for consumption sells goods for resale
Location is very important Location of shop is not important
Window display is important Window display of goods not important
Deals in large no of products of different manufacturer Deals in specific type of product provides after sale service
Do not provide after sale service Sells at higher margin of profit Sells goods at low margin of profit since the turnover of sale is high
Has direct contact with the customers Dont have direct contact with customer
require large amount of capital for trade require small amount of capital for trade
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• RETAIL DEPARTMENTAL STORE
• A departmental store is a large retailing
  business unit which handles a wide variety of
  shopping and specialty goods and is organized
  into separate department for purposes of
  promotion, service, and control.-E.1V. Cundiff
  and K.R. Still
• Advantages
• It provides great convenience in shopping because
  customer can get all their requirement from one
  place.
• It keeps a large variety of goods, thus offering
  a good choice to customer, when they buy the
  required goods.
• The Departmental Store are located mainly in the
  central part of the city. So it is convenience
  for all types of customer to visit it.
• It buys its requirement in large quantities which
  reduces its cost and increases the profit.
• Due to huge sale in departments stores he selling
  cost per unit become very low.
• It provides telephone facility, recreation
  facility and free home-delivery facility to its
  customers.

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RETAIL DEPARTMENTAL STORE
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• RETAIL DEPARTMENTAL STORE
• Disadvantages
• The initial cost of running a departmental store
  is relatively very high.
• It is generally located in a central place.
  People living at a distant place find it
  difficult to visit the department store.
• The overhead expenses of a departmental store are
  comparatively high because extra facilities are
  provided to attractively high because extra
  facilities are provided to attract customer. As a
  result the prices of articles charged by small
  retailers.
• Since each department in a departmental store
  works independently or there may not be any
  personal contact or coordination between the
  various departments in a departmental store.
• The sales are controlled by employees, so the
  owner of the departmental store cannot establish
  personal contact with his customer.

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• MULTIPLE SHOPS OR CHAIN STORE
• Multiple shops or chain store are the group of
  shops in the same branch of retail trade.
• A single business firm opens a number of branch
  shops which are situated at different localities
  in the city or different parts of country.
• Main objective- to provide shopping facilities
  near the residence of customer.
• Each Multiple shop have a head office whose
  decisions are passed on the all branches.
• Main office fixed the price of the item and
  supplies to other branches.
• Example of multiple shop system are VAIDHANATH,
  DABUR, HAMDARD, PATANJALI, CHANDAK IN CHANDRAPUR

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MULTIPLE SHOPS OR CHAIN STORE
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MULTIPLE SHOPS OR CHAIN STORE Advantages 1.Under
the multiple shop system, all purchase for the
branches are made by the central office. This
result in bulk buying which reduces the cost of
the product. 2.There is a considerable increase
in sales because majority of branches of multiple
shops are located in imp localities of the city
for the convenience of the customer. 3. The fixed
price and stander quality of goods help in
winning the confidence of the customer. 4. The
shortage of supplies at one branch can easily be
met by transfer from another branches having a
surplus stock. 5.aThere is a uniformity of window
display and shop decoration in all the branches
of multiple shop which make an easy
identification of them. 6. There is a direct
contact between producer and customer, so
middlemen profit are eliminated. 7. Sales are
made strictly on cash payment, so there is
practically no loss due to bad debt. 8.This is
under the head office to control all branches of
multiple shop
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MULTIPLE SHOPS OR CHAIN STORE Disadvantages 1.The
multiple shop deal in a limited range of
product, so the customer do not have a wide
choice. 2. The head office of multiple shops is
generally located at a far away place ,so there
is generally no effective control on the staff
working in its branches. 3. The staff at multiple
shops has little freedom to make its own decision
sometimes it adversely effect the sales.
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DEPARTMENTAL STORE MULTIPLE SHOP
1)Wide variety of products are available 1)Particular type of product are available
2)No uniform pricing system 2) Uniform pricing in all the branches
3) Control over the activity is easier 3)Control is difficult
4)No uniformity in decoration 4) uniformity in decoration
5)They provide number of services amenities 5) No other services to the customer
6)Sell of goods in cash credit 6) Sell is only on cash basis
7) Stores mainly for rich people 7) For general public
8)Located in the center of the city 8) Located in various localities of city.
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• MAIL ORDER BUSINESS
• Mail order business It is a type of retail trade
  in which all business activities take place
  through mail or post.
• They should not involve any middlemen for there
  business.
• The manufacturer approaches the would-be
  customers by sending its catalogue, price list
  and circular by post.
• Sometime Advertisement is given in a leading
  newspaper and magazine.
• Generally, the goods are sent through V.P.P.
  (value payable post).
• TYPES OF MAIL ORDER BUSINESS
• Manufacturer mail order business- Established by
  mfg for selling the goods manufactured by them
  directly to consumer, thus eliminating the
  middlemen
• Departmental mail order business- This is only a
  department of a departmental store executing
  order received from outside.
• Middlemen mail order business- Business house is
  not engaged in production or wholesale selling
  but consult only with the sale of goods by mail.

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MAIL ORDER BUSINESS Advantages 1) It does not
require a shop to start a business. 2) Requires a
low capital 3) It is very useful for those
customers who live in remote areas of the
country. 4) There is no danger of bad debts,
since the price of goods is received either in
advance or collected from post office when goods
are sent by V.P.P. 5) There is a direct link
between manufacturer and customers. 6) The seller
gets a very wide market to sell his products.
Disadvantages 1) A buyer can not examine the
goods before its purchase. 2) A large amount of
money is spent on advertisement, correspondence,
packing of goods which increases the overhead
expenses and hence the price of goods. 3) The
credit facility is not available to the
customers. 4) There is a risk of damage of goods
during transportation. 5) There is a lack of
personal contact between manufacturer and
customers so it is difficult to make permanent
customers. 6) There are the chances of cheating
by dishonest trader. 7) The illiterate customers
cannot use this facility. 8) Lot of time is
wasted by the customer for correspondence.
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• CONSUMER COOPERATIVE STORE
• In this system, the customer themselves form a
  society and run the retail business.
• The basic purpose is to eliminate middlemen. The
  capital required for running a cooperative store
  is subscribed by the members through the purchase
  of shares of small denominations.
• Thus even poor consumers can become members of
  such societies.
• The consumer cooperative stores purchase their
  requirements in bulk from the wholesaler at
  wholesale rates and sell them to their members at
  the market rate.
• A part of profit earned in the business is passed
  on to the members in the form of bonus on
  purchases.
• Besides the bonus, the members holding shares in
  the capital of the society get a dividend on
  their shares.
• These stores are usually managed by honorary
  members but sometimes sales managers may also be
  appointed.

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CONSUMER COOPERATIVE STORE Advantages 1)The
consumer get better quality goods at lower prices
as middleman's profits are eliminated.2) It
promotes thrift among members and increases their
economic security. 3) The consumer have complete
control over the society running the store. Thus
the genuine needs of the majority of the
consumers will be promptly met by such store.4)
The overhead expenses are reduced because
unnecessary expenditure on advertisement and
decoration of store is not required.
Disadvantages 1 There is a lack of ability,
experience and business training on the part of
honorary members, who are running the store. 2)
These store generally have meager resources, thus
these stores cannot run on a large scale. 3)
Generally speaking, there is much to be desired
as regards the loyalty of the members.
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• HIRE-PURCHASE TRADING HOUSES
• In this system buyer initially pays a part of the
  purchase price of goods and the rest of the price
  is paid in equal periodical installments.
• The ownership of the goods continues to be with
  the seller and transferred to the buyer only,
  when he has paid the final installment of the
  price of goods.
• In case of default, the seller is free to take
  back the goods from the buyer.
• Furthermore the installments already paid by the
  buyer are forfeited as hire- charges for the
  goods. In this system the sale does not take
  place until the last installment for the goods
  has been paid.

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HIRE-PURCHASE TRADING HOUSES Advantages 1.
The system provides the facility to purchase
costly goods, such as houses, T.V. sets, cars,
etc. to the middle class people on easy
installments. 2. The small scale and medium
scale manufacturer can install the required
machinery and tools without paying the total
amount for it. 3. The system helps to increase
the sale of costly and non-essential luxury
articles. Even people who have the enough money
to pay at once as price of the desired article,
may prefer to purchase their requirements under
hire-purchase system, so as to invest their money
elsewhere to earn more profit. Disadvantages
1) People may be tempted by installment plans to
buy things which they cannot afford. 2) The
traders dealing in hire purchase have to arrange
a large capital to finance their business. 3)
The goods purchase on hire purchase basis is
costlier than its actual price because the hire-
purchase price includes the interest on the
unpaid installments
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