Question

What functions do ‘channels of distribution’ play in the distribution of goods and services? Explain.

Answer 1

The following are the functions of channels of distribution.

1. Arrangement: An intermediary receives the supply of goods from various sources. However, the goods received differ in terms of size, quality, and features. The intermediary arranges or sorts these goods into homogeneous groups based on their characteristics.
2. Collection: A middleman accumulates and maintains a large stock of the goods so as to ensure a continuous and smooth flow of supply.
3. Allocation and Packing: A middleman breaks a whole lot of goods into small, marketable units. It repacks the goods into convenient packets.
4. Building Variety: An intermediary acquires various goods from different sources and assembles them in a single place. Thus, it maintains a variety of goods. For example, a grocer maintains a wide variety of products for sale.
5. Promotion of Product: They assist in the promotion activities undertaken by the manufacturers. For example, the manufacturers use advertising for the promotion of their products. The intermediaries can aid this process by putting up banners and displays.
6. Mediation: On one hand, the middlemen interact with the producers and, on the other hand, with the customers. Thus, they form a link between the producers and the customers. They negotiate on matters related to price, quality, etc., and work towards satisfying the needs of both parties.
7. Bearing Risk: Intermediaries acquire goods from the producers and keep them in their possession till the final sale. In the process, they bear the risk of fluctuations in demand, price, spoilage, etc. For example, suppose a retailer acquires large quantities of sugar. However, after a period of time, the price of sugar rises, which reduces its demand. Thereby, the retailer may lose out as the stock remains unsold.