Channels of Distribution of Goods: Zero, One and Two Level Channels (2024)

Channels of Distribution of Goods: Zero, One and Two Level Channels!

Production is for consumption. Having produced the products, these need to be made available to the final users of the products, i.e., the consumers scattered in large geographical areas. Since, many a times it becomes extremely difficult, if not impossible, to reach the customers on its own, the firm needs the help of marketing intermediaries, like wholesalers and retailers, to make their products reach to the ultimate consumers.

These intermediaries serve as channels to make the product reach to the consumers. The way products reach to the ultimate consumers is called ‘distribution channels’ or ‘marketing channels.’ Let us consider a few definitions on distribution channels.

According to the Committee on Definitions of the American Marketing Associations (1960):

“A channel of distribution or marketing channel is the structure of intra- company organisation units and extra-company agents and dealers, wholesalers and retailers, through which a commodity, product or service is marketed.”

R. S. Davar observes, “Distribution as an operation or a series of operations which physically bring goods manufactured or produced by any particular manufacturer into the hands of the final consumer or user.”

In fact, channels of distribution are like pipelines that take the right quantities of the right product to the right location where the target consumer want them at the right time. In view of this, physical distribution, i.e. to move the product from the place of production to the place of ultimate consumers assumes significance in making marketing meaningful and successful.

In this article, therefore, deals with the process how products go through this channel from the producer to the final user. These distribution channels, in a way, refer to the methods of marketing also. In view of the number of intermediaries involved in distribution channels, these can be classified into three broad categories.

These are:

1. Zero-Level Channel:

When the distribution of the product is direct from the producer to the consumer or the user. This is also called direct selling.

2. One-Level Channel:

When the product is not sent directly from the producer to the consumer but the producer sells the product to the retailer who, in turn, sells to the consumer. This channel is also known as distribution through retailers.

3. Two-Level Channel:

When there are two levels of different kinds of intermediaries between the producer and the consumer. In other words, under this channel, the manufacturer sells the product to the retailer and who finally sells to the consumer. This is also called as distribution through wholesalers and retailers. All these three channels can better be understood with the following Figure 32.2 also.

Let us discus these in some more details.

1. Direct Selling:

This method is also referred to as producer to consumer channel. Under this channel, the producer of goods attempts to make a direct contact with the ultimate user of goods by several methods of selling including door-to-door sales-persons. This method is most common in industrial marketing particularly in respect of capital goods like industrial chemicals, heavy equipment’s, etc.

Direct selling offers the following advantages to the producers:

(i) Close relationship to the consumers makes the producer constantly aware of changes and other consumer’s needs.

(ii) Profit does not go to the middle-man.

(iii) Goods get to the consumer more quickly because they do not have to travel through the intermediaries or middlemen.

Despite these apparent advantages, direct selling has not become a powerful channel. According to an estimate, even less than 3 per cent of total consumer sales are made in this channel (Diamond and Pintel 1986: 223).

This is due to the following reasons:

(a) The producer has to spend a handsome amount in the training, maintaining and supervising large number of sales staff.

(b) It involves cumbersome difficulties in providing and maintaining inventories of goods at many locations to assure prompt delivery to the customers.

2. Producer to Retailer to Customer Channel:

This is a kind of indirect selling. This channel avoids wholesalers. It is suitable when products are perishable and speed in distributions is extremely essential. The goods that are frequently sold in this channel are fashion merchandise, products requiring installation, high value goods, etc.

3. Producer to Wholesaler to Retailer to Consumer Channel:

This channel is also known as the traditional channel. This is also the most common method of distribution under which the producer sells to the wholesaler who, in turn, sells to the retailer, who finally sells to the consumer. In this system, the wholesaler is granted a certain portion of the total profit, in turn for which he or she buys stores, sells, delivers and extends credits. This channel is invariably used in respect of groceries, drugs, drug goods, etc.

This channel option is particularly suitable to the following types of producers:

1. Who lack in financial resources;

2. Whose product line is narrow; and

3. Whose products are not subject to fashion changes and physical deterioration but are durable.

Despite these features, this channel suffers from certain limitations also but not confined to the following only:

(i) An over-dependence on wholesalers causes him/her i.e., the producer to lose contact with the dealers:

(ii) The wholesalers may have different products of different producers to sell. In such case, the wholesaler might be quiet unable to push up the sales of one specific product produced by a producer.

After going through the above description, an inevitable question arises in the mind is which one channel of distribution is the most suitable channel for distributing the products of a small enterprise.