Type of Channel Structure

Type 1. Direct Channels:

The producer can sell directly to his customers without the help of middlemen, such as wholesalers of
retailers: 
(i) By opening retails shop; 
(ii) Through travelling salesmen; 
(iii) Through mail order business. 
These channels take the shortest route to the consumer. Some manufacturers open their own retail
shops in many localities and sell goods directly to consumers. The best example is that of the Bata
Shoe Company Shops. The manufacturers also try to sell through their own mail order departments. 
All these indicate that producers are now taking steps to approach the consumers directly. Though this
is possible for some types of goods, the fact remains that the services of intermediaries, such as
wholesalers and retailers, are often essential in the distribution of goods to consumers. 

Type # 2. Indirect Channels:

The indirect channels of distribution are: 
(i) Producer-Consumer (industrial goods with high technical content) 
(ii) Producer-Retailer-Consumer (via large department ‘ stores) 
(iii) Producer—Wholesaler—Consumer (most industrial products) 
(iv) Producer-Wholesaler-Retailer-Consumer (most consumer goods) 
(v) Producer-Sole Agent -Wholesaler-Retailer-Consumer (usually for a prescribed geographical
area). 

The first channel, from the producer to the consumer, is preferable when buyers are few and the goods
are costly and mostly purchased by industrial users. In this category fail such goods as complex
machinery involving high technology, computers and luxury cars. In this case, buyers can be directly
contacted and goods can be sold by direct personal approach. 
The second channel, from the producer-retailer to the consumers, is preferable where the purchasers
of goods are big retailers like department stores, chain stores, super markets or consumer co-operative
stores. In these cases, the wholesalers may be by passed because the bulk of the goods are purchased
by these large retail distributors to be sold to the consumers. 
Goods like electrical appliances, fans, radios, and a host of other articles fall in this category. This
channel is also suitable when the goods are of a perishable nature, and quick distribution is essential.
However, the manufacturer will have to undertake such functions as transportation, warehousing and
financing. 
The third channel, from the producer-wholesaler to the consumer, can be successfully used in
distributing industrial goods. Under industrial goods are included goods which are used for further
production and not for resale. This is a shorter channel, and the producer eliminates the retailer in this
channel link. In this case, the buyers are business houses, government agencies, consumer co-
operative stores, etc. 

The fourth channel, from the producer-wholesaler-retailer to the consumer, is the longest route in the
distribution link but is very popular. It is used for the marketing of a variety of consumer goods of
daily use, particularly where the demand is elastic and a large number of similar products are
available. This channel is preferable when the market for the goods is highly competitive. 

This channel is also suitable when the producer operates under the following conditions: 
(a) The producer has a limited line of products. 
(b) The finance available to the producer is limited. 
(c) The wholesalers handle specialised goods. 
(d) Products are not subject to change due to changes in fashion.
(e) Wholesalers and retailers can provide good promotional support. 

The last channel, from the producer-sole agent-wholesaler- retailer to the consumer, the used by some
producers. The entire production of goods is delivered to the sole agent for further distribution. The
sole agent, in turn, may distribute to wholesalers who, in their turn, distribute to retailers. The
manufacturer may appoint a single sole selling agent or he may appoint sole agents area-wise. 
He wants to pass on the risk of marketing the goods to the selling agents. He avoids the risk involved
in selling and, wants to concentrate on production. He cuts down on his marketing expenditure and
the expenditure incurred on maintaining a sales organisation and a sales force. 
But, in doing so, he takes a big risk of relying only on the sole selling agents, he places himself at the
mercy of his selling agent. If the relations between the producer and the selling agent become
strained, or if the selling agent fails to distribute the goods, the producer will be put to a great loss.

Function of the intermediaries

A) The manufacturer – This is the parent company which wants to distribute its products to the end
customer and wants to set up a distribution channel.

B) The retailer – This is the last point of contact between the manufacturer and the customer. To sell
the product and to show its features to a customer, a company needs to have a retail outlet. There are
many company owned outlets which directly sell the product to the end customer.

C) The Wholesaler – The wholesalers are people who purchase inventory in huge bulk from the
manufacturer and then sell it forward to a retailer. Wholesalers are responsible for breaking the bulk
in case of FMCG products and in case of consumer durables, will be responsible for a complete
territory.

D) The Agent or Broker – The agent or the broker is the one who does the deal between the end
retailer and the company or the wholesaler and the company. He receives a small commission for
setting up the deal. A broker can also be a C&F – A carrying and forwarding agent which might be
the third level of the channel structure.
E) Consumer – The one who buys the end product from the retailer.