SS1 Commerce Lesson Note on Channels of Distribution

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CHANNELS OF DISTRIBUTION:

Channel of distribution is the path through which the ownership of goods is transferred as it moves from the producer to customers

DIFFERENT CHANNELS OF DISTRIBUTION

1. PRODUCER AGENT  →   WHOLESALER    → RETAILER  →   CONSUMER 
2. PRODUCER  →   WHOLESALER    →    RETAILER                
3. PRODUCER     →    RETAILER          
4. PRODUCER AGENT  →    RETAILER        →    CONSUMER
5. PRODUCER →     AGENT    →     CONSUMER
6. PRODUCER     →   WHOLESALER        →  CONSUMER
7. PRODUCER   →  CONSUMER

FACTORS TO CONSIDER BEFORE CHOOSING A PARTICULAR CHANNEL OF DISTRIBUTION

1. Number of potential buyers
2. Competitors’ channel
3. Financial capability of the producer
4. Nature of goods
5. Location of customers
6. Size of order
7. Value of goods.

THE MIDDLEMEN

The middleman is the person that bridges the gulf/gap between the manufacturer and the consumer. The middleman finds out what goods and services are wanted and where they are wanted and he collects them with a view to satisfying their wants. Middlemen are independent business enterprises which constitute a link between producer on one hand, and consumers. Middlemen are also intermediaries.

TYPES OF MIDDLEMEN

Middlemen can be distinguished according to the following different services they perform:

1. Merchant middlemen: have title to the goods which they are marketing. This means that merchant middlemen own the goods somewhere along the distribution channel before passing the title to their customers. He bears risk of ownership of goods. Merchant wholesalers include;
2. Specialist wholesalers
3. Rack jobbers
4. Cash and carry wholesalers
5. Truck wholesalers
6. Drop shipment etc.

 

2. Agent middlemen: are institutions which do not take title to goods they handle as is the case of factors. They do not take title to the good they sell but only receive commission. They assist in negotiating sales and purchases or both on behalf of their principals. All agent middlemen are wholesaling middlemen but they are not wholesalers. They are in possession of physical goods. Agent middlemen include;
3. Brokers
4. Manufacturer’s agent
5. Auctioneer
6. Commission agent
7. Factor
8. Del – credere agent.

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