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A REPORT ON

CHANNELS OF DISTRIBUTION

Seminar on Contemporary Issues in Management

Submitted to

Rajasthan Technical University, Kota

in Partial fulfillment of the requirement for the award of the degree of

Master of Business Administration (2009-11)

Supervised by: Submitted by:

Mr. ASHOK KUMAWAT YOGESH KUMAR

(FACULTY OF MANAGEMENT STUDIES MBA II SEM

GOVT. ENGINEERING COLLEGE, AJMER)

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GOVT. ENGINEERING COLLEGE, AJMER(An Autonomous Institution of Govt. of Rajasthan)

Barliya Chouraha, National Highway - 8, Ajmer 305025

Tel. (145) 2671800 Fax (145) 2671801 Website: www.ecajmer.ac.in

CERTIFICATE

This is to certify that Seminar Report entitled Channel of distribution

for increase sales volume submitted by Yogesh Kumar of MBA

Semester- II in partial fulfillment of the requirement for the award of

Master of Business Administration has been completed under my

supervision.

To the best of my knowledge and belief, this study is the original work

of the candidate and has been completed by his own efforts. I am

satisfied with the work and recommend for its acceptance.

I wish him success in his future endeavors.

(Mr. Ashok Kumawat)

Faculty of Management Studies

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ACKNOWLEDGEMENT

I take immense pleasure in completing this project and submitting the final project

report.

I wish to express my sincere thanks to my guide for giving me an opportunity of

learning and contributing through this project. I am highly obliged to Mr.Ashok

Kumawat who made this experience a memorable one.

In this context as a student, Govt. Engineering College Ajmer, I would like to express

my heartiest gratitude to Mr.Ashok Kumawat for assigning me such a worthwhile topic

to work upon banking industry.

I am highly indebted to, Mr.Ashok Kumawat who have been a source of inspiration

through their constant guidance, personal interest, encouragement and help during

the entire project work. In spite of their busy schedule they always found time to guide

me through the project. I am also grateful to them for reposing confidence in my

abilities and giving me the freedom to work on my project.

The project would not reach its final destination without timely and vital help of his

invaluable guidance, cooperation, inspiration and of course moral support throughout

my project session.

Last but not the least I thank all my respondents, family members & friends who have

helped me directly or indirectly without whose help this project would not be

materialized.

Yogesh Kumar

CONTENTS3

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1. Introduction

2. Channel of distribution - Meaning

3. Distribution Channel Function

4. The Need of Distribution Channel

5. Participants In The Distribution Channel

5.1.Wholesaler

5.2.Agents and Broker

6. The Retail Distribution Channel

7. Dual Channel or Multiple channel

7.1.Channel Intermediater-Wholesaler

7.2.Channel Intermediater-Agents

7.3.Channel Intermediater-Retailor

7.4.Channel Intermediater-Internet

8. Customer Marketing Channel

9. Channel organization

10.Export Goods Distributions considerations10.1.Indirect Exporting

10.2.Direct Exporting

11.Locating Foreign Representative and Buyers

12.Role of Middleman

13.How Channel are Chosen

14.Choice of Channel of Distribution

Introduction

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As you know, the primary objective of all business enterprises is to

earn profit by selling goods and services to ultimate consumers or users. In

order to bring goods from the place of manufacture to the place of

consumers, the goods have to follow a path or route which is known as

channel of distribution or trade channel. A trade or marketing channel

consists of producer, middlemen, and consumers or users. The channel

serves as a link between the producer and consumers. In the present

lesson we shall discuss the various aspects of channels of distribution.

This article discusses Methods of Exporting and Channels of Distribution.

The most common methods of export goods are indirect selling and direct

selling. In indirect selling, an export intermediary normally assumesresponsibility for finding overseas buyers, shipping products, and getting

paid. In direct selling, the producer deals directly with a foreign buyer.

The paramount consideration in determining whether to export goods

indirectly or directly is the level of resources a company is willing to devote

to its international marketing effort. These are some other factors to

consider when deciding whether to market indirectly or directly:

The size of the firm.

The nature of its products.

Previous export experience and expertise.

Business conditions in the selected overseas markets.

Channel of distribution - Meaning

A channel of distribution or trade channel is the path or route along

which goods move from producers to ultimate consumers or industrial

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users. In other words, it is the distribution network through which a

producer puts his product in the hands of actual users. The channel of

distribution includes the original producer, the final buyer and any

middlemen-either wholesaler or retailer. The term middleman refers to any

institution or individual in the channel which either acquires title to the

goods or negotiates or sells in the capacity of an agent or broker. But

facilitating agencies who perform or assist in marketing function are not

included as middlemen in the channel of distribution. This is because they

neither acquire title to the goods nor negotiate purchase or sale. Such

facilitating agencies include banks, railways, roadways, warehouses,

insurance companies, advertising agencies, etc.The following diagram (chart) is illustrative of the channel of

distribution which may exist in a market. The above chart indicates that the

number of middlemen may vary. If there is direct sale by the produce to the

consumers then there is No. middleman. But that is very rare. As the chart

shows the producer may sell goods to retailer who may then sell the same

to consumers. The producer may sell goods to wholesalers who may in

turn sell to retailers and the retailer may sell to consumers. The fourth

alternative channel of distribution is when any agent/dealer intervenes

between the producer and retailers and acts as a middlemen. The agent is

appointed by the producer for the sale of goods to the retailers. Another

alternative channel is there when producers agent sells goods to

wholesalers who sell to retailers. Agent/dealer is an independent

person/firm buying goods and selling them to retailers. Agent/dealer mayalso sell to wholesalers who may then sell to retailers and goods are thus

made available to consumers. In the channel of distribution there may be

more than one agent/dealer and wholesaler.

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Distribution Channel Functions

Information: gathering and distributing marketing research and

intelligence information about the marketing environment

Promotion: developing and spreading persuasive communications

about an offer

Contact: finding and communicating with prospective buyers

Matching: shaping and fitting the offer to the buyers needs,

including such activities as manufacturing, grading, assembling, and

packaging

Negotiation: agreeing on price and other terms of the offer so that

ownership or possession can be transferred

Physical distribution: transporting and storing goods

Financing: acquiring and using funds to cover the costs of channel

work

Risk taking: assuming financial risks such as the inability to sell

inventory at full margin

The Need for Distribution Channels

Why are all these layers needed in distribution? Why cant a

producer simply sell to a retailer, who sells to a consumer? Its a fair

question, and in some cases, that is exactly how it happens. But the fact is

that many producers are either too small or too large to handle all the

necessary functions themselves to get their products to market. Consider

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the small, specialty manufacturer who is terrific at making fine leather

handbags but may not have the expertise to market its products as

well as it makes them, or they may not have the money to hire a team of

full-time

Salespeople to court the customers and secure the orders.

An intermediary who works for several small, noncompeting firms can

easily handle those functions cost-effectively. An intermediary who

specializes in importing and exporting can handle the intricacies of

customs paperwork, overseas shipping, and foreign markets, too.

Conversely, large companies need intermediaries because they are also in

the business of manufacturing, not marketing. Turning out tens ofthousands of cases of soft drinks, for instance, do you think Pepsi has

time to take and fill individual orders from households? Channel

members like wholesalers and retailers are useful because they are best at

specific aspects of sales in their markets, leaving the manufacturers to do

what they do bestwhich is turn out the best possible product. Having a

distribution channel breaks the whole buying and selling process and all its

related negotiations into manageable tasks, each performed by companies

that specialize in certain skills. Using an import wholesaler, for example,

can be handy because they know the laws and customs of the suppliers

nations; and they generally offer their own lines of credit so the retailer

wont have

Participants In The Distribution Channel

Retailers come in many shapes and sizes, so to speak. Retailers may be

grouped

According to any of the following four categories:

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Ownership. Every brick-and-mortar retailer can be classified as a

large, national chain store; a smaller, regional chain store; an

independent retailer; or a franchisee.

Pricing philosophy. Stores are generally either discounters or

full-price retailers. Within the discounter category, there are several

subcategories such as factory outlets, consignment stores, dollar

stores, specialty discount stores, warehouse membership clubs, and

so on.

Product assortment. The breadth and depth of product lines

carried by the store depends a lot on its ownership. An Ann Taylor

store, for example, sells Ann Taylor branded clothingnot much

breadth of product line there, but extensive depth in that line. A

Kmart, on the other hand, carries thousands of brands, but perhaps

does not have much depth (not many brands)in any given category of

product.

Service level. The more exclusive or specialized the store, the

more types of services it will generally offer from a name-brandedcredit card, to on-site alterations, to liberal return policies for its loyal

customers. With the big box discounters, on the other hand,

customers pay for convenience and bypass traditional service, by

bagging their own groceries and the like. These distinctions between

various types of stores will be important as we discuss their

participation in certain distribution channels.

Wholesalers

Wholesalers are intermediaries or middlemen who buy products from

manufacturers and resell them to the retailers. They take the same types of

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financial risks as retailers, since they purchase the products (thereby taking

legal responsibility for them), keep them in inventory until they are resold

to retailers, and may arrange for shipment to those retailers. Wholesalers

can gather product from around a country or region, or can buy foreign

product lines by becoming importers. The term wholesale is often used to

describe discount retailers (as in wholesale clubs), but discounters are

retailers, not technically wholesalers.

Agents and Brokers

Agents (sometimes called brokers) are also intermediaries who workbetween suppliers and retailers (or in B2B channels), but their

agreements are different, in that they do not take ownership of the products

they sell. They are independent sales representatives who typically work on

commission based on sales volume, and they can sell to wholesalers as

well as retailers. In B2B arrangements, this means they sell to distributors

and end users.

Resident sales agents are good examples in retail. They reside in the

country to which they sell products, but the products come from a variety of

foreign manufacturers. The resident sales agent represents those

manufacturers, who pay the agent on commission. A resident sales

agent does not always have merchandise warehoused and ready to sell,

but he or she does have product samples for which orders can be placedand is responsible for bringing the items through the importation process.

Retailers that dont have the money, time, or manpower to send someone

overseas for manufacturers site visits to check out the new product lines

can depend on a resident sales agent to do the job.

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Buying offices can also be considered a type of agent or broker, since

they earn their money pairing up retailers with product lines from various

manufacturers.

The Retail Distribution Channel

Well set aside business-to-business channels for now and look at the foursimple

types of retail distribution channels for consumer products:

Direct channel. This is when the same company that manufactures a

product sells it directly to the consumer or end user. Dell,asmentioned in, is

a direct channel marketer. Mail-order catalog sales companies,

like Lands End, are also direct channel sellers.

Retailer channel. This is when the producer sells to the retailer, and the

retailer sells to the consumer.

Wholesaler channel. Intermediaries play a role here, as the

manufacturer sells to a wholesaler . . . who sells to a retailer . . . who sells

to the consumer.

Agent or broker channel. The most complex arrangement involves

several transactions, often because the merchandise is being imported.

The producer sells to an agent . . . who sells to a wholesaler . . . who sells

to a retailer. . . who finally sells to the consumer or end user.

Dual channel or multiple channel.

This term refers to the use of two or more channels to sell products

to different types of customers. A lawnmower manufacturer, for example,

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might sell some product lines at retail and others to commercial lawn care

companies, each requiring different intermediary services.

Channel intermediaries - Wholesalers

Break down bulk

buys from producers and sell small quantities to retailers

Provides storage facilities

reduces contact cost between producer andconsumer

Wholesaler takes some of the marketing responsibility e.g sales force,

promotions

Channel intermediaries Agents

Mainly used in international markets

Commission agent - does not take title of the goods. Secures orders.

Stockist agent - hold consignment stock

Control is difficult due to cultural differences Training, motivation, etc are expensive

Channel intermediaries Retailer

Much stronger personal relationship with the consumer

Hold a variety of products

Offer consumers credit

Promote and merchandise products

Price the final product

Build retailer brand in the high street

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Channel intermediaries Internet

Sell to a geographically disperse market

Able to target and focus on specific segments

Relatively low set-up costs

Use of e-commerce technology (for payment, shopping software

Paradigm shift in commerce and consumption

Channel Organization

A vertical marketing system (VMS) consists of producers,

wholesalers, and retailers acting as a unified system One channel

member either owns the others, has contracts with them, or wields so much

power that they all cooperate

Export Goods Distributions Consideration

Which channels of distribution should the firm use to market its products

abroad?

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Where should the firm produce its products and how should it distribute

them in the foreign market?

What types of representatives, brokers, wholesalers, dealers, distributors,

retailers, and so on should the firm use?

What are the characteristics and capabilities of the available

intermediaries?

Indirect Exporting

The principal advantage of indirect marketing for a smaller company

is that it provides a way to penetrate foreign markets without the

complexities and risks of direct exporting. Several kinds of intermediary

firms provide a range of export services. Each type of firm offers distinct

advantages for the company.

Commission agents

Commission or buying agents are finders for foreign firms that want to

purchase domestic products. They seek to obtain the desired items at the

lowest possible price and are paid a commission by their foreign clients. In

some cases, they may be foreign government agencies or quasi-

governmental firms empowered to locate and purchase desired goods.

Foreign government purchasing missions are one example.

Export management companies

An EMC acts as the export department for one or several producers

of goods or services. It solicits and transacts business in the names of the

producers it represents or in its own name for a commission, salary, or

retainer plus commission. Some EMCs provide immediate payment for the

producer's products by either arranging financing or directly purchasing

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products for resale. Typically, only larger EMCs can afford to purchase or

finance exports.

EMCs usually specialize either by product or by foreign market or

both. Because of their specialization, the best EMCs know their products

and the markets they serve very well and usually have well-established

networks of foreign distributors already in place. This immediate access to

foreign markets is one of the principal reasons for using an EMC, since

establishing a productive relationship with a foreign representative may be

a costly and lengthy process.

One disadvantage in using an EMC is that a manufacturer may lose

control over foreign sales. Most manufacturers are properly concerned that

their product and company image be well maintained in foreign markets. An

important way for a company to retain sufficient control in such an

arrangement is to carefully select an EMC that can meet the company's

needs and maintain close communication with it. For example, a company

may ask for regular reports on efforts to market its products and may

require approval of certain types of efforts, such as advertising programs orservice arrangements. If a company wants to maintain this type of

relationship with an EMC, it should negotiate points of concern before

entering an agreement, since not all EMCs are willing to comply with the

company's concerns.

Export trading companies

An ETC facilitates the export of domestic goods and services. Like anEMC, an ETC can either act as the export department for producers or take

title to the product and export for its own account. Therefore, the terms

ETC and EMC are often used interchangeably. A special kind of ETC is a

group organized and operated by producers. These ETCs can be

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organized along multiple- or single-industry lines and can represent

producers of competing products.

Export agents, merchants, or remarketers

Export agents, merchants, or remarketers purchase products directly

from the manufacturer, packing and marking the products according to their

own specifications. They then sell overseas through their contacts in their

own names and assume all risks for accounts.In transactions with export

agents, merchants, or remarketers, a firm relinquishes control over the

marketing and promotion of its product, which could have an adverse effect

on future sales efforts abroad. For example, the product could be under

priced or incorrectly positioned in the market, or after-sales service could

be neglected. On the other hand, the effort required by the manufacturer to

market the product overseas is very small and may lead to sales that

otherwise would take a great deal of effort to obtain.

Piggyback marketing

Piggyback marketing is an arrangement in which one manufacturer

or service firm distributes a second firm's product or service. The most

common piggybacking situation is when a domestic company has a

contract with an overseas buyer to provide a wide range of products or

services. Often, this first company does not produce all of the products it is

under contract to provide, and it turns to other companies to provide the

remaining products. The second company thus piggybacks its products to

the international market, generally without incurring the marketing and

distribution costs associated with exporting. Successful arrangements

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usually require that the product lines be complementary and appeal to the

same customers.

Direct Exporting

The advantages of direct exporting for a company include more

control over the export process, potentially higher profits, and a closer

relationship to the overseas buyer and marketplace. These advantages do

not come easily, however, since the company needs to devote more time,

personnel, and corporate resources than are needed with indirect

exporting.

When a company chooses to export directly to foreign markets, it usually

makes internal organizational changes to support more complex functions.

A direct exporter normally selects the markets it wishes to penetrate,

chooses the best channels of distribution for each market, and then makes

specific foreign business connections in order to sell its product. The rest of

this chapter discusses these aspects of direct exporting in more detail.

Organizing for exportingA company new to exporting generally treats its export sales no

differently from domestic sales, using existing personnel and organizational

structures. As international sales and inquiries increase, however, the

company may separate the management of its exports from that of its

domestic sales.

The advantages of separating international from domestic businessinclude the centralization of specialized skills needed to deal with

international markets and the benefits of a focused marketing effort that is

more likely to lead to increased export sales. A possible disadvantage of

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such a separation is the less efficient use of corporate resources due to

segmentation.

When a company separates international from domestic business, it

may do so at different levels in the organization. For example, when a

company first begins to export, it may create an export department with a

full or part-time manager who reports to the head of domestic sales and

marketing. At later stages a company may choose to increase the

autonomy of the export department to the point of creating an international

division that reports directly to the president.

Larger companies at advanced stages of exporting may choose to retain

the international division or to organize along product or geographic lines. A

company with distinct product lines may create an international department

in each product division. A company with products that have common end

users may organize geographically; for example, it may form a division for

Europe, another for the Far East, and so on. A small company's initial

needs may be satisfied by a single export manager who has responsibility

for the full range of international activities. Regardless of how a company

organizes for exporting, it should ensure that the organization facilitates the

marketer's job. Good marketing skills can help the firm overcome the

handicap of operating in an unfamiliar market. Experience has shown that a

company's success in foreign markets depends less on the unique

attributes of its products than on its marketing methods.

Once a company has been organized to handle exporting, the proper

channel of distribution needs to be selected in each market. These

channels include sales representatives, agents, distributors, retailers, and

end users.

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Sales representatives

The representative uses the company's product literature and

samples to present the product to potential buyers. A representative usually

handles many complementary lines that do not compete. The salesrepresentative usually works on a commission basis, assumes no risk or

responsibility, and is under contract for a definite period of time (renewable

by mutual agreement). The contract defines territory, terms of sale, method

of compensation, reasons and procedures for terminating the agreement,

and other details. The sales representative may operate on either an

exclusive or a nonexclusive basis.

Agents

The widely misunderstood term agent means a representative who

normally has authority, perhaps even power of attorney, to make

commitments on behalf of the firm he or she represents. Firms in the

developed countries have stopped using the term and instead rely on theterm representative, since agent can imply more than intended. Any

contract should state whether the representative or agent does or does not

have legal authority to obligate the firm.

Distributors

The foreign distributor is a merchant who purchases merchandise

from an exporter (often at substantial discount) and resells it at a profit. Theforeign distributor generally provides support and service for the product,

relieving the export company of these responsibilities. The distributor

usually carries an inventory of products and a sufficient supply of spare

parts and maintains adequate facilities and personnel for normal servicing

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operations. The distributor typically carries a range of non-competitive but

complementary products. End users do not usually buy from a distributor;

they buy from retailers or dealers.

The payment terms and length of association between the export

company and the foreign distributor are established by contract. Some

export companies prefer to begin with a relatively short trial period and then

extend the contract if the relationship proves satisfactory to both parties.

Foreign retailers

A company may also sell directly to a foreign retailer, although in

such transactions, products are generally limited to consumer lines. The

growth of major retail chains in markets such as Europe and Japan has

created new opportunities for this type of direct sale. The method relies

mainly on traveling sales representatives who directly contact foreign

retailers, although results may be accomplished by mailing catalogs,brochures, or other literature. The direct mail approach has the benefits of

eliminating commissions, reducing traveling expenses, and reaching a

broader audience. For best results, however, a firm that uses direct mail to

reach foreign retailers should support it with other marketing activities.

Manufacturers with ties to major domestic retailers may also be able to use

them to sell abroad. Many large retailers maintain overseas buying offices

and use these offices to sell abroad when practicable.

Direct sales to end users

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A business may sell its products or services directly to end users in

foreign countries. These buyers can be foreign governments; institutions

such as hospitals, banks, and schools; or businesses. Buyers can be

identified at trade shows, through international publications, or through

government contact.

The company should be aware that if a product is sold in such a direct

fashion, the exporter is responsible for shipping, payment collection, and

product servicing unless other arrangements are made. Unless the cost of

providing these services is built into the export price, a company could end

up making far less than originally intended.

Locating foreign representatives and buyers

A company that chooses to use foreign representatives may meet

them during overseas business trips or at domestic or international trade

shows. There are other effective methods, too, that can be employed

without leaving the country. Ultimately, the exporter may need to travel

abroad to identify, evaluate, and sign overseas representatives; however, a

company can save time by first doing homework at home. Methods include

use of banks and service organizations, and publications.

Contacting and evaluating foreign representatives

Once the company has identified a number of potential

representatives or distributors in the selected market, it should write directly

to each. Just as the firm is seeking information on the foreign

representative, the representative is interested in corporate and product

information on the export firm. The prospective representative may want

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more information than the company normally provides to a casual buyer.

Therefore, the firm should provide full information on its history, resources,

personnel, the product line, previous export activity, and all other pertinent

matters. The firm may wish to include a photograph or two of plant facilities

and products or possibly product samples, when practical. (Whenever the

danger of piracy is significant, the exporter should guard against sending

product samples that could be easily copied.)

A firm should investigate potential representatives of distributors

carefully before entering into an agreement. See table 4-1 below for an

extensive checklist of factors to consider in such evaluations. In brief, the

firm needs to know the following points about the representative or

distributor's firm:

Current status and history, including background on principal officers.

Personnel and other resources (salespeople, warehouse and service

facilities, etc.).

Sales territory covered.

Current sales volume.

Typical customer profiles.

Methods of introducing new products into the sales territory.

Names and addresses of firms currently represented.

Trade and bank references.

Data on whether the exporting firm's special requirements can be

met.

View of the in-country market potential for the exporting firm's

products. This information is not only useful in gauging how much the

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representative knows about the exporter's industry, it is also valuable

market research in its own right.

A company may obtain much of this information from business

associates who currently work with foreign representatives. However,

exporters should not hesitate to ask potential representatives or distributors

detailed and specific questions; exporters have the right to explore the

qualifications of those who propose to represent them overseas. Well-

qualified representatives will gladly answer questions that help distinguish

them from less-qualified competitors.

In addition, the company may wish to obtain at least two supporting

business and credit reports to ensure that the distributor or representative

is reputable. By using a second credit report from another source, the firm

may gain new or more complete information. Reports are available from

commercial firms.

Commercial firms and banks are good sources of credit information

on overseas representatives. They can provide information directly or from

their correspondent banks or branches overseas. Directories of

international companies may also provide credit information on foreign

firms.

If the company has the necessary information, it may wish to contact

a few of the foreign firm's domestic clients to obtain an evaluation of their

representative's character, reliability, efficiency, and past performance. To

protect itself against possible conflicts of interest, it is also important for thefirm to learn about other product lines that the foreign firm represents.

Once the company has qualified some foreign representatives, it

may wish to travel to the foreign country to observe the size, condition, and

location of offices and warehouses. In addition, the company should meet

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the sales force and try to assess its strength in the marketplace. If traveling

to each distributor or representative is difficult, the company may decide to

meet with them at local and worldwide trade

Negotiating an agreement with a foreignrepresentative

When the company has found a prospective representative that

meets its requirements, the next step is to negotiate a foreign sales

agreement.

The potential representative is interested in the company's pricing

structure and profit potential. Representatives are also concerned with the

terms of payment, product regulation, competitors and their market shares,

the amount of support provided by the exporting firm (sales aids,

promotional material, advertising ), training for sales and service staff, and

the company's ability to deliver on schedule.

The agreement may contain provisions that the foreign representative

not have business dealings with competitive firms (this provision maycause problems in some European countries and may also cause problems

under U.S. antitrust laws); not reveal any confidential information in a way

that would prove injurious, detrimental, or competitive to the exporting firm;

not enter into agreements binding to the exporting firm; and refer all

inquiries received from outside the designated sales territory to the

exporting firm for action.

To ensure a conscientious sales effort from the foreign

representative, the agreement should include a requirement that the foreign

representative apply the utmost skill and ability to the sale of the product for

the compensation named in the contract. It may be appropriate to include

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performance requirements such as a minimum sales volume and an

expected rate of increase.

In the drafting of the agreement, special attention must be paid to

safeguarding the exporter's interests in cases in which the representative

proves less than satisfactory. It is vital to include an escape clause in the

agreement, allowing the exporter to end the relationship safely and cleanly

if the representative does not work out. Some contracts specify that either

party may terminate the agreement with written notice 30, 60, or 90 days in

advance. The contract may also spell out exactly what constitutes just

cause for ending the agreement . Other contracts specify a certain term for

the agreement (usually one year) but arrange for automatic annual renewal

unless either party gives notice in writing of its intention not to renew.

In all cases, escape clauses and other provisions to safeguard the

exporter may be limited by the laws of the country in which the

representative is located. For this reason, the exporting firm should learn as

much as it can about the legal requirements of the representative's country

and obtain qualified legal counsel in preparing the contract. These aresome of the legal questions to consider:

How far in advance must the representative be notified of the

exporter's intention to terminate the agreement? Three months satisfy the

requirements of most countries, but a verifiable means of conveyance may

be needed to establish when the notice was served.

What is just cause for terminating a representative? Specifyingcauses for termination in the written contract usually strengthens the

exporter's position.

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Which country's laws (or which international convention) govern a

contract dispute? Laws in the representative's country may forbid the

representative from waiving its nation's legal jurisdiction.

What compensation is due the representative on dismissal?

Depending on the length of the relationship, the added value of the market

the representative has created for the exporter, and whether termination is

for just cause as defined by the foreign country, the exporter may be

required to compensate the representative for losses.

What must the representative give up if dismissed? The contract

should specify the return of patents, trademarks, name registrations,

customer records, and so on.

Should the representative be referred to as an agent? In some

countries, the word agent implies power of attorney. The contract may need

to specify that the representative is not a legal agent with power of

attorney.

In what language should the contract be drafted? An English-language text

should be the official language of the contract in most cases.

Role of middlemen in the distribution of goods

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The middlemen perform the following marketing functions which are

listed in sequence.

a. Searching out buyers and sellers (contacting & Mechandising),

matching goods to the requirements of market.

b. Offering goods in the form of assortments or packages.

c. Persuading and influencing the prospective buyers to favour a

certain product and its maker (personal selling/sales promotion).

d. Implementing pricing policies in such a manner that would be

acceptable to buyers and ensure effective distribution.

e. Providing feedback information, marketing intelligence and sales

ore casting services for the regions to their suppliers.

f. Looking after the process of distribution where necessary.

g. Participating actively in the creation and establishment of a market

for a new product.

h. Offering pre and after sale services to consumers.

i. Communicating the use of technique of the product to the users.

j. Offering credit to retailers and consumers.

k. Risk bearing with reference to stock hoarding/transport.

Desirability of eliminating the middlemen

You have already learnt the role of middlemen above, which

indicates the significance of middlemen in the channel of distribution.

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Indeed without the existence of middlemen goods produced on a mass

scale could not have reached the consumers at right time and place.

However the existence of middlemen may lead to several short comings.

The elimination of middlemen is based on the following grounds.

I. Excessive number: Often there are too many middlemen between

the manufacturers and consumers. As every middleman charges some

commission or profit, the ultimate consumer has to pay a very high price for

goods. They are social parasites thriving at the cost of the consumer and

their ultimate elimination will reduce prices and burden on consumers.

II. Superfluous: Most middlemen do not render any useful service in lieu

of profit or commission. They act as only transfer agents and unnecessarily

cause delay in the flow of goods. Their elimination will result in quick and

smooth flow of goods.

III. Limited risk taking: Middlemen do not bear the producers' risk such

as loss due to strikes, lockouts, depression and change in fashions and

habits, etc.

IV. Anti-social activities: They take undue advantage of adverseconditions in business. Some businessmen (middlemen) indulge in anti-

social activities like hoarding and adulteration to earn huge amount to

profits.

V. Limiting consumers' choice: The middlemen often promote

products which are inferior in quality and get high margin of profit. Thus

they exploit consumers and limit their choice.

Role of wholesaler and retailer in distribution of goods

Role of Wholesaler:

Wholesaler acts as a middleman in the channel of distribution as he

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retailers in small quantities. His role in distribution of goods is discussed

below:

I. Buying and assembling: A wholesaler forecasts the demand for

goods and assembles different varieties of goods from several

manufacturers. Some wholesalers also import goods from foreign

countries.

II. Selling and dispersing: A wholesaler breaks the bulk so that

retailers and users can buy them in small lots. His representatives regularly

call on retailers and industrial users/buyers to distribute the goods among

widely scattered people.

III. Transportation: A wholesaler arranges transportation of goods from

producers to his godowns and from there to retailers.

Sometimes he has his own transport arrangement for this purpose.

IV Storage: He holds large stocks and serves as a reservoir and supplies

to retailers. He helps in stabilising prices by adjusting supply of goods to

their demand.

V. Packing and grading: A wholesaler packs and repacks goods inconvenient lots. He sorts out goods in different grades. He also gives brand

names to the products packed and graded by him.

VI. Advertising and sales promotion: A wholesaler performs

advertising and sales promotion activities to increase the sale of products.

He also takes the services of experts for this purpose.

VII. Financing: Sometimes the wholesaler buys goods on cash basis

from manufacturers and sells them on credit to retailers. In this way he

provides financial help both to the producers and retailers.

If necessary, the wholesaler also provides financial help by way of advance

payment to producers.

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VIII Risk-taking: A wholesaler bears risks of changes in demand and

prices, bad debts and damage to goods in the course of transportation and

storage. By undertaking various risks he simplifies the process of

distribution.

Role of Retailers

Retailers buy goods from wholesaler and sell them directly to

consumers. Thus he acts as a direct link between the wholesaler and

consumers. His role in distribution of goods is enumerated below:

I. Wide choice to consumers: The retailer anticipates needs of

consumers. He assembles goods from different sources and stocks

different varieties of products. Thus, he offers a wide choice to consumers.

They can buy according to their purchasing power and requirements.

II. Availability of goods in small quantities and at convenient

locations: A retailer provides ready supply of goods so thatconsumers

can buy conveniently and quickly in small lots withoutany inconvenience of

placing advance orders and waiting forsupplies. By ensuring uninterrupted

and fresh supply of goods, he saves consumers from the botheration of

buying goods inbulk and storing them.

III. Home delivery: A retailer transports goods from wholesalers to

ultimate consumers. Some retailers provide free home delivery service to

their consumers. Thus they create place utility.

IV. Assurance of regular supply: He maintains adequate supply of

goods so that consumers are sure of getting regular supply at the time of

their need.

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V. Credit facility: Although retailers mostly sell goods for cash, they also

supply goods on credit to their regular customers.

VI. Close interaction with customers: A retailer brings new products

to the notice of customers and educates them in their uses. A retailer thus,

acts as a friend and guide to his customers. Indeed his interaction with

customers is of intimate personal nature and thus he is able to provide

feedback to wholesalers and manufacturers about consumers' preferences.

Role of specialised retail outlets e.g., departmental stores,

multiple shops and mail order business house

A retailer is the final link in the distribution channel between a

manufacturer and the consumers. He is directly and continuously in touch

with people of varied tastes and preferences. Retailers may be divided into

two categories, namely institutional and non-institutional.

The institutional retailers (retail outlets) include departmental stores,

multiple shops and mail order houses. Non-institutional retailers include the

floating population of street sellers, pedlars, and hawkers.

(a) Departmental Stores: A departmental Store is a big retail store with

many departments under one roof. It offers a wide range of products so as

to suit different consumer tastes and preferences. All the departments are

centrally controlled but each department forms a complete sales unit in

itself. The examples of such stores in metropolitan cities are akbarallys

and Saharawi Bhandar in Bombay and Spencers in Madras.

(b) Multiple shops or chain stores: Manufacturers often use their

own retail shops for direct sale of their products to consumers. These retail

shops are established as multiple shops operating in the same city or

different parts of the country. These shops have identical product display.

Bata India Ltd and DCM provide typical examples of multiple shops system.

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In this type of retail selling manufacturers have control over distribution

channel and have first hand information regarding customers' preferences.

(c) Mail-order business: These are retail outlets which sell goods by

mail only. The mail order house centrally procures products, advertises

them and expect perspective buyers to send offers/ orders. The products

are sent through value-payable post. Mail Order Sales Ltd, Bombay, the

seller of Bull worker health aid, is a typical example of such mail order

business in India.

It is through these retail outlets that manufacturers often by pass the

wholesalers in trade route or path. You have already learnt in detail about

departmental stores, multiple shops and mail-order business in lesson No.8

on Internal Trade.

How Channels Are Chosen

Although retailers drive distribution channels, it is not usually the retailer

who makes the decision to utilize one channel over the others. The

producer of the to deal with currency exchange or negotiate payment

terms with a bank in another country.

Another advantage of the distribution channel is its ability to even out the

natural ebbs and flows of a supply chain. This comes from the ability of

some channel members to store excess goods until they are needed,

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and to stockpile goods in anticipation of seasonal sales peaks. Depending

on how close their relationships,

channel members may also work together to purchase goods or

services in greater quantity at discounts, passing the savings on to

customers Even for consumers, the distribution chain is handy beyond

handy, in fact! It has become a necessity in our society. What if there

were no supermarkets, for instance? Can you imagine how much more

time and money you would spend having to buy every item at its source?

How practical would it be to run out to the nearest farm to pick up a quart of

milk and some salad ingredients.

Choice of a channel of distribution

The factors to be considered before choosing a suitable channel of

distribution are listed below:

1. Product considerations: The nature and type of product have an

important bearing on the choice of distribution channels. For examples,

perishable goods need speedy movements and hence shorter channel or

route of distribution; for durable goods, longer and diversified channels may

be used; similarly, for technical products requiring specialized selling and

serving talents, the shortest channel should be used.

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2. Market considerations: The nature and type of customers and size

of market are important considerations in the choice of a channel of

distribution. For example, if the market size is large, there may be long

channels, whereas in a small market direct selling may be profitable. The

nature and type of consumers include factors such as desire for credit,

preference for the stop shopping, demand for personal services, amount of

time and effort the customer is willing to spend. It also includes factors like

age, income group, sex, and religion of customers.

3. Company considerations: The nature, size and objectives of the

business firm also play an important role in the selection of distribution

channel. It includes financial resources, market standing, volume of

production, desire for control of channel, services provided by

manufacturers', etc. For example a company with substantial financial

resources need not rely too much on the middlemen and can afford to

reduce the levels of distribution.

Similarly a company desiring to exercise greater control over channel will

prefer a shorter channel.

4. Middlemen considerations:The cost and efficiency of distribution

depend largely on the nature and type of middlemen. It includes

characteristics of middlemen such as availability, attitudes, services, sales

potential, costs etc. For example, if the terms and conditions of engaging

wholesalers are unfavorable, a manufacturer may like to channelize his

products through wholesalers or retailers, thereby, bypassing wholesalers.

However, the determining factor would be the differential advantage

involved in the choice.

To conclude, the channel generating the largest sales volume at lower unit

cost will be given top priority. This will minimize distribution cost.

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BIBLIOGRAPHY

Books Referred

Marketing Management By Philip Kotler

Business world

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Websites Referred

www.google.com

www.answer.com

www.smartmarketing.com

http://www.google.com/http://www.answer.com/http://www.smartmarketing.com/http://www.google.com/http://www.answer.com/http://www.smartmarketing.com/