Product Distribution Channel Questions and Answers [With PDF]

A factory can make the best product in the world, but if customers cannot find it, nobody benefits. The distribution channel is the path that carries goods from the producer to the final customer, through middlemen such as wholesalers, retailers and agents. This chapter covers the functions and levels of distribution channels, the types of middlemen, and how a firm designs its channel. Here are 35 important questions with clear answers and tables, ready for exams, vivas and interviews.

This is Chapter 8, the last chapter of our Marketing course. It follows Pricing Products.

Meaning and Importance

Q1. What is a distribution channel?

A distribution channel is the path, or the set of organizations and individuals, through which a product passes from the producer to the final consumer or business user. It makes the product available for use or consumption.

Q2. What are the characteristics of distribution channels?

• They link producers with customers.
• Ownership of the product usually transfers along the channel.
• Different products use different channels.
• The channel affects every other aspect of marketing, such as price and promotion.
• A channel is a group of intermediaries (middlemen), although it can also have none.

Q3. What are the objectives of distribution channels?

• Create place utility.
• Make the product available when and where customers want it.
• Increase sales.
• Keep distribution costs low.
• Widen the area served.
• Deliver quickly.
• Build customer loyalty and satisfaction.
• Improve coordination in the business.

Q4. What are the functions of distribution channels?

• Gather goods according to buyers’ demand and deliver them at the right time, balancing supply with demand.
• Find and contact potential customers.
• Collect market information and pass it to both sellers and buyers.
• Perform marketing functions such as transportation and warehousing.
• Provide finance to producers and customers, for example by giving credit.
• Bear risks such as damage in transit, storage losses, demand changes and accidents.

Q5. Why does a business need distribution channels?

Because there are many barriers between the producer and the consumer. Middlemen remove them:

Q6. How do intermediaries reduce the number of contacts?

Suppose 3 producers each want to sell to 3 customers. Without an intermediary, each producer deals with each customer: 3 x 3 = 9 contacts. If one wholesaler stands in the middle, each producer contacts only the wholesaler (3) and the wholesaler contacts each customer (3), a total of 6 contacts. With more producers and customers, the saving becomes much larger, which is why intermediaries reduce effort and cost.

Q7. What is the importance of a distribution channel?

• It links producers and consumers.
• It supplies products that businesses and households need.
• It gives financial help through credit.
• It extends the reach of the product.
• It balances supply and demand.
• It ensures quick distribution.
• It creates jobs.
• It offers services such as installation and repair.

Levels and Types of Channels

Q8. What are the types and levels of distribution channels?

By the number of middlemen (the levels), a channel is direct or indirect. By the type of product, there are channels for consumer products and for industrial products.

Q9. What is a direct (zero-level) distribution channel?

When the producer sells straight to the customer with no intermediary. The producer arranges everything himself. It is common for industrial goods, and also for door-to-door selling, factory outlets, mail order and online sales.

Q10. What is distribution through retailers?

A one-level channel in which the manufacturer sells to large retailers, who sell to consumers. It cuts out wholesalers and gives the producer more control.

Q11. What is distribution through wholesalers and retailers?

A two-level channel in which the producer sells in bulk to wholesalers, wholesalers sell to retailers, and retailers sell to final consumers. It suits products bought frequently by many scattered consumers.

Q12. What is distribution through an agent or dealer?

The manufacturer appoints agents or distributors in different regions. They find buyers and either sell to wholesalers and retailers (a three-level channel) or deal with consumers on the manufacturer’s behalf. Agents may not own the goods, and the producer keeps more control over price.

Q13. What are the channels for consumer goods?

• Producer to consumer
• Producer to retailer to consumer
• Producer to wholesaler to retailer to consumer
• Producer to agent to wholesaler to retailer to consumer

Q14. What is the channel for industrial goods?

Industrial goods are used in producing other goods, rather than for final consumption. Buyers are few and concentrated, so the channel is usually short. Heavy machinery is typically sold direct from producer to user, while supplies may go through industrial distributors.

Q15. Why is the channel for consumer goods longer than for industrial goods?

Consumer goods are bought in small quantities by a very large number of buyers spread across the country and abroad. Reaching them needs more middlemen. Industrial buyers are few and concentrated in certain regions, so the producer can often serve them directly.

Q16. What are intensive, selective and exclusive distribution?

Q17. How has online selling changed distribution channels?

Online platforms allow producers to reach customers directly (a zero-level channel) or through online marketplaces, which act as modern intermediaries. Many firms now use several channels at once, such as shops and websites, and coordinate them.

Middlemen

Q18. What is a middleman?

A middleman (intermediary) is an independent business that acts as a link between producers and the final consumers, helping goods move from one to the other.

Q19. What are the characteristics of middlemen?

• They stand between producers and consumers.
• Merchant middlemen own the goods and invest their own capital. Agents do not.
• Wholesalers buy in large quantities and break bulk. Retailers buy smaller quantities.
• They sort and grade goods, and some deal in many products.
• They bear business risks such as price falls and unsold stock.
• They provide services such as credit, delivery and advice.

Q20. What are the functions of middlemen?

• Supply capital and credit.
• Supply information about demand and customers’ preferences.
• Balance supply and demand.
• Create place and time utility. Time utility means that goods made at one time can be sold at a later date.
• Help with transport and storage.
• Help keep prices stable.

Q21. How are middlemen classified?

Q22. What is a merchant middleman?

A trader who buys goods, takes ownership, invests his own money and resells them in his own name, accepting the risk of profit or loss.

Q23. Who is a wholesaler?

A wholesaler buys goods in large quantities from manufacturers, importers or other wholesalers and sells them in smaller lots to retailers, other wholesalers or industrial users. He breaks bulk, stores goods, gives credit and takes on risk.

Q24. Who is a retailer?

A retailer buys goods from manufacturers or wholesalers and sells them in small quantities mainly to final consumers. Retailers include shops, supermarkets, department stores and online sellers.

Q25. What is an agent middleman?

A middleman who buys or sells on behalf of another person (the principal), often for a commission, without owning the goods or trading in his own name.

Q26. Who is a broker?

A broker brings buyers and sellers together and helps them make a deal, for a brokerage fee, without taking possession or ownership of the goods.

Q27. Who is an auctioneer?

An auctioneer sells goods on behalf of the owner through public bidding. The goods go to the highest bidder, and the auctioneer earns a commission.

Q28. What is a consignee?

A manufacturer or wholesaler (the consignor) sends goods to a trader in a distant market to sell. That trader is the consignee. He sells the goods on the consignor’s behalf for a commission, and the goods remain the consignor’s property until they are sold.

Q29. What is a del credere agent?

An agent who, in return for an extra commission, guarantees the principal that credit customers will pay. If a buyer fails to pay, the del credere agent bears the loss.

Q30. What is a commission agent?

An agent who buys or sells goods for his principal, in return for a commission on the value of the transaction. He may act for buyers, sellers or both.

Q31. What are travelling, forwarding and clearing agents?

• Travelling agent: works for a manufacturer or wholesaler and travels to different areas to collect orders.
• Forwarding agent: handles the receiving, packing and dispatch of goods, and the paperwork for exports, on behalf of the employer.
• Clearing agent: appointed by an importer to clear imported goods through customs and release them from the port.

Q32. What is a functional intermediary?

An intermediary who does not take ownership or the risk of the product, but helps the marketing of the product by performing specific tasks, such as transport, storage, finance or insurance, in return for a fee.

Q33. What are the benefits of middlemen?

• They supply capital and credit.
• They provide information about demand and customer attitudes.
• They reduce the producer’s costs and workload.
• They give advice.
• They reduce risk for the producer.
• They balance supply and demand.
• They help keep prices stable.

Q34. What are the drawbacks of middlemen, and why is an optimal number needed?

Drawbacks:

• Each middleman adds a margin, so the final price rises.
• Hoarding and artificial shortages are possible.
• Black marketing in times of scarcity.
• Delays and loss of control over how the product is sold.
• Large middlemen can dominate the market.

Optimal number: Each middleman takes a commission or profit, so too many levels raise the price at every stage. Too few levels leave customers badly served and the market poorly covered. The firm should therefore use the number of middlemen that gives good coverage at reasonable cost.

Q35. What factors affect the design of a distribution channel?

Quick Revision Points

• Channel levels: zero (direct), one, two and three. Zero-level has no intermediaries.
• Wholesalers buy in bulk from producers and sell to retailers. Retailers sell mainly to final consumers.
• Intermediaries reduce the number of contacts and widen reach.
• Merchant middlemen own goods. Agents do not.
• Distribution intensity: intensive, selective and exclusive.

You have now finished the Marketing course. Test yourself with the chapter quiz below, then move on to Finance.