UNIT 12 CHANNELS OF DISTRIBUTION I1

12.0 Objectives
12.1 Introduction
12.2 Meaning and Role of Middlemen
12.3 Types of Middlemen
12.3.1 Functional Middlemen
12.3.2 Merchant Middlemen
12.4 Wholesalers
12.4.1 Classification
12.4.2 Functions
12.4.3 Services
12.5 Retailers
12.5.1 Functions ,
12.5.2 Services
12.5.3 Classification
12.6 Trends in Wholesaling and Retailing
12.7 Let Us Sum Up
12.8 Key Words
' 12.9 Answers to Check Your Progress
12.10 Terminal Questions

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12.0 OBJECTIVES
After studying this unit, you should be able to:
explain the meaning and role of middlemen in the distribution of goods
classify the middlemen
describe the functions of mercantile middlemen
narrate the meaning, importance, functions and classification of wholesalers and

explain the recent trends in wholesaling and retailing.

12.1 INTRODUCTION
In the previous unit you have learnt that a number of intermediaries such as agents,
distributors, wholesalers, retailers, etc., operate in moving the goods from producers
to consumers. To be able to appreciate the channel system fully, it is important to
understand the specificroles performed by each of these intermediaries. In this unit you
will study the role of intermediaries, classification of intermediaries, and specific
functions and services rendered by wholesalers and retailers. It also explains the recent
trends in wholesaling and retailing.

12.2 MEANING AND ROLE OF MIDDLEMEN

The term middlemen refer to the business organisations which are the link between
producers and consumers of goods, and render services in connection with the purchase '
and/or sale of products as they move from producer to the consumers.
Some people often question the wide use of middlemen and fekl that it may not only
delay the availability of goods but also add to the cost of distribution and hence, the
Distribution price charged from customers may be higher. But it is not the case in practice. In fact,
the middlemen play a very useful role in the distribution of goods by providing a variety
of functions at reasonable cost. They undertake a11 the channel functions such as
assembling, grading, packaging, storing, financing, risk-bearing, etc. We may however
put them more specifically as follows:
1) Creation of utilities: By performing various functions iil the process of distribution,
middlemen create place utility, time utility, convenience utility and ownership
utility in the goods and services. Thus, the channels greatly help in serving the target
market by adding value to the products. In fact, in the case of'several consumer
products, the value added in distribution is higher than that added during
manufacture/production.
2) Economy in effort: Middlemen greatly increase the efficiency of the exchange
process by reducing the amount of effort on the part of the manufacturers in
contacting the consumers. This, in turn, reduces the total cost of distribution of the
products. For example, assume that there are five manufacturers and ten customers.
N o w l w k at Figure 12.1 carefully and study the number of contacts required when
all the five manufacturers contact the ten customers directly. Study Figure 12.2
carefully where the manufacturers used the services of a middleman.
'
It is evident from the above that there is considerable economy of effort in the
second case (Figure 12.2) where a middleman is in the distribution process. There is
a net saving of 35 contacts in this situation as compared to the first situation in which
there is no intermediary. Assuming that is costs Rs. 20 to make one contact, the cost
of distribution in the first situation would be Rs. 1,000 as compared to Rs. 300 in the
 3) Market coverage: With the increasing liberalisation in trade, the products Ch~amlsd ~istdbutbnu
manufactured at one place have to be distributed throughout the length and breadth
of not only one country but many nations of the world. This vast coverage is possible
only through effective management of the distribution channels.
4) Provide local convenience to consumers: Merchant middlemen like retailers are
located at convenient shopping centres. They provide ready delivery of goods to the
consumers at the convenient points.
5) Provide field stocks: The agents and wholesalers are spread all over the country.
They buy in bulk and keep the goods in stock. The retailers can approach them any
time and buy their requirement. The proddcers, therefore, need not stock their
goods in different cities which would be quite a cumbersome activity involving huge
' investment and management problems.
6) Financing: The agents finance the distribution activity in many ways. They often pay
cash for their hulk purchases from the producers and even advance money to th'em
against their orders. The funding of field stocks is thus fully handled by the
middlemen.
7) Servicing:They arrange for the after sales services and handle all kinds of complaints
by the consumers locally. The manufacturer does not have to open his own service
centres at all places.
8) Acting as channels of communication: The middlemen are in constant touch with
different producers and the market. They can provide feed back about the market
to the producers on the one hand, and pass on information about the products to the
consumers on the other.
9) Help in promotion: They also help the sales promotional activity through displays
and salesmenship. It is literallfimpossible for the producers to organise such activity
through any other means. Even otherwise, the middlemen being local people are
more effective.
Apart from the variety of services provided by the middlemen, what makes their role
more important is the fact that they handle them more efficiently and usually at a
reasonable cost. They are better equipped to perform these functions because they
possess special knowledge and skills, experience and contacts. The manufacturers
would find it very difficult to organise the distribution network and provide the
necessary funds. You should remember that thedistribution of goods and provision of
essential services is a gigantic task which involves huge funds and management
problems. By making use of middlemen the manufacturers are freed from the
botheration of distribution. They can concentrate on production activity which may be
more profitable. Not only that, in case of mass consumption ite-msit is almost impossible
to the producers to organise direct sale in every nook and corner of the country.

12.3 TYPES OF MIDDLEMEN

Different types of middlemen participate in the process of movement of goods and its
title from producers to ultimate users. These may broadly be grouped into two
categories as: 1)primary participants and 2) ancillary barticipants.
The primary participants are the individuals or organisations which undertake to
- perform the negotiatory functions of selling and transferring title of the goods to others.
These participants are called the channel members. The ancilliary or facilitating
participants, on the other hand, are the group of institutions and parties that assist
channel members (primary participants) in performing the distribution tasks. They do
not take part in the channel decisions but only provide services to channel members
once the basic channel decisions Gave been made. The most common facilitating
participants are financing institutions, public warehouses, transportation companies
and advertising agencies. Of course some of these services can be undertaken by the
channel members themselves. For example, a merchant wholesaler can operate private
warehouse and trucks. But the essential feature of the facilitating participants is that
they assume limited risk or no risk in the functioning of the chhnnel.
~irtrlb~ual We will study in detail about the facilitating participants in Unit 13. We shall
concenirate the discussion on primary participants in thispnit. Broadly speaking,
primary participants may be further classifiep as: 1)functional middlemen or mercantile
agents, and 2) merchant middlemen. Now let us study these two categories in detail.

12.3.1 Functional Middlemen

Those who undertake various marketing functions in the process of distribution of
goods without having ownership rights are called functional middlemen. These
functional middlemen operate on behalf of owners. They perform a specific function or
undertake general functions relating to purchase and sale. These middlemen are also
called 'mercantile agents'. Depending on the functions performed, the functional
middlemen may be classified into five categories. Let us discuss them briefly.
1) Factors: A middleman who keeps the goods of others and sells them with the
approval of the owner is known as a 'factor'. The goods are normally in his
possession or under his control. With the approval of the owner the factor can sell
the goods as agent, or sell in his own name, or pledge goods in his possession, or can
do all such acts as can be done by the owner of the goods. Afterthe sale of goods,
he receives the paymentfrom the buyer. He receives commission at a fixed,
percentage on sales from his principal.
2) Brokers: They take neither possession nor acquire ownership of the goods, but only
serve to bring the buyers and sellers together. They negotiate purc+se and sale of
goods on behalf of other parties. Their task is over as soon as the buyer and tKe seller
come to terms in respect of the purchase of sale of the goods. When a broker acts on
behalf of the buyer, he is known as buying agent. If the owner of goods employs a
broker for sale of the goods, the brokor is known as a selling agent. The broker
works for a certain percentage of cominission on the business transacted by him on
behalf of his principal.
3) Commission Agents: They also sell goods on behalf of the sellers. But they differ
from brokers in that they not only negotiate the sale of goods but also take
possession of the goods and make arrangements for the transfer of title to the goods.
The commission agent has to perform the functions of warehousing, grading,
packing or sampling in addition to assembling and dispersion. For their services, the
commission agents get a certain percentage of commission on sales. If the
commission agent is authorised to sell on credit and agrees to bear the risk of bad
debts for some additional commission, he is known as a del credere agent.
4) Del Credere Agents: Generally if any mercantile agent sells goods on credit with the
approval of the owner, he is not responsible for any loss which may arise due to
non-payment by the buyer. The owner or principal has to bear the risk cf loss dn
account of such bad debts. When a mercantile agent sells the goods on credit and
assumes the risk of bad debts, he is known as a del credere agent. For bearing such
risk of bad debts, additional commission as a fixed percentage of the amount of
credit sales is given to him. This additional commission is called del credere
commission. In other words, the del credere agent bears the loss which may arise on
account of bad debt and the owner is protected against the loss.
5) Auctioneers: Middlemen appointed as agents to sell goods by auction are known as
auctioneers. They assemble goods from different parties and act on their behalf to
sell them to intending buyers. The date and time of auction are announced in
advance. Goods are displayed for inspection by interested buyers. Bids are then
invited by the auctioneer from those present at the time of auction. Sometimes a
minimum price is fiked for specific items known as reserve price and bids are not
accepted below that reserve price. The goods are sold to the highest bidder. The
auctioneer gets commission from the principal (seller) as a percentage on the sale

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12.3.2 Merchant Middlemen
Middlemen who act on their own right buying and selling goods at a profit are called
merchant middlemen or merchants. They acquire title to the goods and bear the risks
of trade besides performing various functions like storing, grading, packing and
packaging, etc. Merchant middlemen may be divided into two categories.
 Mercheets who buy goods from producers or manufacturers or their agents and sell the
same to industrial consumers or retail traders are known as wholesale traders. The

sfdistribution. You will study in more detail about wholesalers and retaileis later in this
unit.
Look at Figure 12.3 caralully for the summary of the discussion on classification of

Check Your Progreda A"

1) Differentiate between functional middlemen and merchant middlemen. . .

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2) Differentiate between broker and commission agent.
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3) Who is a middleman?
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4) State whether the following statements are True or False.
i) Middlemen who undertake marketing functions without having title to goods
are called merchant middlemen.
ii) Middlemen do not bear risk in the dhtribution of goods.
iii) With the approval of the owner, a factor can do all such acts as can be done by
the owner of the goods.
 nly on behalf of buyers.
vi) In the process of distribution, functional middlemen do not take title to goods

12.4 WHOLESALERS
Simply stated, wholesalers are those who happed to be engaged in wholesaling or
wholesale trade. In a broad sense, any individual or business firm selling goods in
relatively large quantities to buyers other than the ultimate consumers may be called a
wholesaler. Thus manufacturers who sell their products directly to retailers may be
regarded as wholesalers. However, in a more specific sense the term wholesaler may be
defined as a merchant middleman engaged in buying and reselling of goods to retailers
and other merchants, or to industrial or commercial users. Wholesalers do not sell the
products to ultimate consumers. The wholesalers belong to the category of merchant
middlemen who acquire title to the goods they handle. Agents or brokers may also act
as wholesale middlemen but they do not acquire the title to goods. Wholesalers act as
middlemen between producers or importers of goods on the one hand, and retailers o r
industrial users on the other. The goods traded by wholesalers may include agricultural
commodities, forest products, minerals as well as manufactured goods.
Manufacturing companies often do not have adequate capital to employ salesmen to
contact the large number of retailers. Many small retailers run their business in remote
areas and to contact them may be too expensive. Moreover, small retailers generally
prefer to buy products in small quantities due to their limited capital, lack of market
information and sources of supply. The wholesalers solve the problems of
manufacturers as well as small retailers. A wholesaler can place sufficiently large order
with the manufacturer keeping in view the requirements of a number of small retailers
in his area. In that process, the wholesaler is in a positioh to meet the small orders of
retailers.
From the society's point of view, distribution of goods may be efficient because of the
specialised knowledge and skill of wholesalers. On the other hand, manufacturers can
concentrate on efficient production of goods. Naturally, they do not undertake the
distribution of their products because their efficiency in manufacturing would suffer on
account of divided attention.

12.4.1 Classification
Wholesalers may deal in a large or limited variety of products, restrict their activities
mainly to wholesaling or perform various functions incidental to their trade, and may
operate in small or large geographical territories. Accordingly, wholesalers may be
classified on three different bases: (1) merchandise dealt with, (2)method of operation,
and (3) coverage of geographical area. Look at Figure 12.4 for classification of
wholesalers.

Based on Method of Based on Geographical

Figure 12.4 Types of Wholnakr~

Merchandise Basis
On the basis of goods dealt with by the wholesalers, we may distinguish three types of
wholesalers:
i) General merchandisewholesalers- those who deal in two or more unrelated types
of products. For instance, a wholesaler may deal in a number of consumer durables
like electrical goods, sports goods, cosmetics, hosiery, etc.
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ii) General-linewholesalers those who carry a number of goods in the same product
line. For instance, a wholesaler may carry convenience goods of daily household
necessity like soaps, detergents, toothpaste, razor blade, etc., or may stock cereals
and provisions like wheat, rice, dal, etc.
-iii) Single-line or speciality wholesalers- those who restrict their operation to a narrow
range of products or specific products. Wholesalers dealing in a few varieties of
textiles (cloth), or carrying varieties of printing paper only may be called speciality
wholesalers, or single-line wholesalers.
Method of Operation
On the basis oi the method of operations, wholesalers may be divided into two

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i) Service wholesalers those who perform a variety of functions like advertising,
grading, branding, packaging, etc., on behalf of manufacturers and retailers.
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ii) Limited function wholesalers those who undertake to carry out a few limited '
functions, like packaging or grading.
Territory Covered
o n the basis of the geographicalcoverage of dealings, wholesalers may be grouped into

i) Local wholesalers -those who restrict their operation to a particular city or town
and supply products to retailers in that area.
ii) District wholesalers -those who have dealings with retailers located in a district.
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iii) Regional or national wholesalers those who specialise in products having a
national market and are nationally advertised. They have dealings with retailers
located in a region or a country.

12.4.2 Functions
In the preceding section we have learnt that wholesalers perform limited functions or
undertake a variety of functions. Actually, the functions of a wholesaler depend upon
the nature of the products dealt with and the business policy of that particular
wholesaler. Of course every wholesaler must carry out the minimum functions of
buying, storing and supplying one or more products. Besides these primary activities,
several other functions may also be performed by wholesalers.
The wholesalers perform the following important functions of marketing:
1) Assembling: The wholesaler collects varieties of products from different
manufacturers and keeps themin stock for sale to the retailers at the time when they

2) Dispersion: The productsassembled and stocked by the wholesalers are supplied to

the retailers who may be widely scattered.
3) Warehousing: The goods purchased by thq wholesalers from the manufacturers and
producers have to be stocked in warehouse pending their sale to the retailers. The
arrangement for such storage is the responsibility of the wholesaleys.
4) Transportation: The wholesaler has to move the goods from the various factories to
his own warehouse and from there to the retail stores. He may do so either by
employing his own ,vans or by hiring public carriers.
5) Financing: The wholesaler in most cases provides goods on credit to the retailers.
(I) Risk-assuming: The wholesaler assumes the risk arising out of the changes in prices

and demand as also loss due to spoilage or destri~ctionof goods in his warehouse.
7) Grading and Packaging: The wholesaler has to sort out different grades of PI-oducts
according to quality and other considerations and pack the goods ~ n t osmdllcr 10;s
for retailers.
8) Price fixation: The prices of goods which consumers have to pay depend upon the
prices fixed by wholesalers and charged from retailers. This is an important function
performed by wholesalers because a number of factors including prices of competing
goods, effect of prices on demand, etc., have to be taken into account.

12.4.3 Services
We have already learnt how wholesalers serve manufacturers and retailers by buying
goods in large quantities, holding stocks and supplying smaller quantities to the
retailers. In that way the wholesalers act as a bridge between producers and retailers.
Let us now examine closely the services rendered by wholesalers to the manufacturers
and retailers.
Services to Manufacturers: Wholesalers provide the following services to the
manufacturers:
1) The wholesalers place large orders with the manufacturers or procure large
quantities of goods from manufacturers. Thereby manufacturers are relieved of the
task of marketing their goods, and they can concentrate on production only.
Manufacturers need not necessarily hold large stocks in their godown. Hence there
is saving of expenses on storage and warehousing.
2) Wholesalers remain in close touch with the retailers. They get regular information
from the retailers about changes in the consumer's demand for particular products
as also about competing products. On the basis of such information, wholesalers
place orders with manufacturers. Thus, wholesaler's purchase orders reflect the
changing market conditions. Hence the volume of production can be regulated by
the manufacturers in accordance with the changing market conditions as reflected
by the wholesaler's purchase orders.
3) Often the wholesalers place orders in advance on the basis of their expectations '
regarding future demand of products even though the current demand is low. This
helps manufacturers to continue them production on an even pace.
4) Wholesalers may also participate in the advertising of products jointly with the
producers, which is of great advantage to both the parties.
Services to Retailers: Wholesalers render the following services to retailers:
1) A variety of goods cai be procured by retailers in small quantities from the
wholesalers. Most retailers serve a large number of customers. Thus different types
of products have to be stored by a retailer to meet the needs of individual consumers.
It is difficult for him to buy the products from different manufacturers in small
quantities. He can easily do so by contacting a few wholesalers.
2) Small retailers can get repeated supplies of products from wholesalers. Thus they
can able to run their business with a relatively small amount of capital. Large stocks
are not to be held by them, so there is saving of storage space as well.
3) Wholesalers have expert knowledge of the lines of products they deal with. They
procure the items from the best sources, that is from producers who supply the best
quality at competitive prices. Retailers also get advantage of the wholesalers'
specialised knowledge of the products.
4) Retailers are protected from the risk of loss which would arise if they were to hold
l a k e stocks of any product. It is the wholesalers who bear the maximum business
risks arising out of falling demand f6r products.
5) Most wholesalers supply goods on credit to the retailers. This enables small retailers
to pay for the goods after sale or customer payment on account. The working capital
required for retail trading is thus relatively small.
6) Generally retailers come to know about new prodbcts only through the wholesalers
who deal with manufacturers. Whenever any new product isintroduced, wholesalers
bring it to the notice of retailers either through salesmen or display in showrooms.

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Check Your Progress B
1) Who is a wholesaler?
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2) Visit it wholesaler in your area and find out the following:
i) Whether he deals in general merchandise or general line or single line.
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ii) The services rendered by him to the retailers.
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3) State whether the following statements are True or False.
i) Wholesalers do not sell products to ultimate consumers.
ii) Wholesalers sell goods to industrial users.
iii) Wholesaler is a mercantile agent.
iv) General line wholdsalers deal in a very narrow range of products.
V) A local wholesaler normally have dealings with retailers located in a

12.5 RETAILERS
In simple words retailing refers to all transactions which involve sale of goods to the
ultimate consumersfor personalconsumption. If the buyer uses the goods for reselling
purposes it will not be treated as a retailing transaction. Any individual or business unit
or shop primarily engaged in retail selling is known as a retailer or retail store. In a
general sense, even a manufacturer or wholesaler may sometimes engage iq sale of
goods to the ultimate consumers. But they are not called retailers as retailing is not the
major activity of such a manufacturer or wholesaler. Thus a retailer or retail store is one
whose business consists primarily of sale of goods to consumers for their own use, but
not for resale in business. Retail business may include other types of transactions also.
It will be treated as a retailing business if more than half of its total sales revenue is from

A retailer is a middleman because retailing involves procuring goods from suppliers

(generally wholesalers) and selling them to consumers for the personal use. Retailers
perform the very important task of making goods available to consumers, which after
all is the objective that underlies the production of goods. Retailers thus form a vital
link in the channel of distribution of products.
Since the retailers deal with a large number of consumers of many different categories,
the role of retailers in the physical distribution of goods is clearly of vital importance.
The retailers act as a link between the producers or wholesalers on the one hand and
the consumerson the other. Without retailers, neither the products would sell in distant
places, nor would it be possible for consumers to buy goods of their choice in shops
located nearby. Due to large-scale manufacture of a wide variety of consumer goods
and the necessity of making them available to individuals living in distant villages, cities
and towns. retailers are now regarded as the most important middlemen in the chain of
distribution of goods,
Distribution 12.5.1 Functions
Like the wholesalers, retailers also prrform a variety of functions connected with the
buying and selling of goods. They, in brief, perform the following functions.
1) Estimating the demand: All retailers -big or small -have to make an estimate of
the demand for different products and have to determine the nature of products that
consumers need to be'supplied.
2) Procurement of goods: Most retailers dealin a variety of products. So they may ha=
to procure goods from different wholesalers. Besides, they must decide to buy from
those wholesalers who supply goods suited to the requirements of consumers as to
quality and price.
3) Transportation: Usually the retailers are to arrange the transportation of goods
procured from the wholesalers' place. Sometimes delivery is also arranged by the
wholesalers on the basis of orders placed with their salesmen.
4) Storing goods: Small-scale retailers have limited space for the goods to be kept in
stock. Large retail stores often have godowns to store different varieties of goods in
adequate quantities. But in all cases, goods have to be held in stock so as to meet the
customers, needs. For this purpose storage of g; jods must be so arranged that
customers may be ser,cedw.ithoutdelay.. They must be given an opportunity to select
goods of their choice. This is often done by.display of goods on shelves and in show
cases.
5) Grading and packaging: Large-scale retailers c,f:cn have to sort out goods acc%)rding
to the quality and price to be charged. Thcy also make convenient packages of goods
for the benefit of crii!iumers. For instance, fruit vendors purchase apples in
containers [boxes), sort out on the basis of size and charge different rates for
different sizes. Spices which are procured in bags, may be dividedinto small packets
of 100 or 200 grams each.
6) Risk-bearing: Since goods are held in stock, the retailers are to bear the risk of loss
on account of deterioration of quality, fire, theft, etc. Large retail stores are insured
to cover the risks of theft or fire. But losses due to damage or deterioration of quality
caused by {mproper storage cannot be insured.
7) Selling: The main function of retailers is selling the goods to ultimate consumers.
They have to satisfy the needs and preferences of different types of customers and
deal with them tactfully and politely so as to make them regular buyers.

12.5.2 Services
As middlemen engaged in the distribution of goods, retailers deal with wholesalers and
consumers. Manufacturers as well as wholesalers depend a great deal on retailers for
reaching the ultimate consumers to supply various products. Retailers provide the
necessary outlet for goods and thus render very useful service to the wholesalds and
also to the producers indirectly. The services of retailers to the consumers are significant
in several ways:
1) By holding ready stocks ~f various commodities required by the consumers, retailers
relieve the customers of the need for stocking a wide variety of goods which could
be extremely inconvenient and cumbersome.
2) By keeping a good assortment of the various varieties of a particular product, say
soap, toothpastes, etc., retailers provide a wide variety of choice to their customers.
3) By proper display of new products, the retailers keep the consumers informed about
the changing trends in prodqctioll of different varieties of goods, besides helping
manufacturers to promote thelr products.
4) Retailers very often guide their customers about the relative merits of the various
brands of a particular product and thus help them in the selection of goods.
5) Retailers may provide special facilities to their customers, for example, free home
delivery, extension of credit, after-sales service, etc.

12.5.3 Classification
Broadly speaking, we may divide the retailers into two categories as: 1) itinerant
retailers, and 2) fixed shop retailers. Fixed shop retailers can be further classified as:
1) small scale retailers, and 2) large scale retailers. All these categori
classified as shown in Figure 12.5.

Itmerant Rcta~lers

Hdwkcnor Pavcmcnr Market

Traders Traders

General Merchand- Spnallty Second-hand

S,dll-hpldcr,

House owratlve Stores B-

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Itinerant Retailers
Retail traders who carry on business moving about from place to place to sell their
goods are known as itinerant retailer. They do not have any fixed place of business.
They either move from house to house with their goods, or change their place of
business frequently according to convenience and sales prospects. Thus these itinerant
retailers move about and try to reach as nearer to the buyer as possible. There are three
types of itinerant retailers who are explained below:
1) Hawkers or pedlars: These retailers move from door to door in residential localities
and sell their wares which may consist of vegetables, fruits, utensils, toys, icecream,
snacks, etc. They carry their articles in bags or trays hanging from shoulders, on
bicycles or push carts, smav motor vans or horse-drawn carriages.
2) Pavement traders: Pavement traders are found in busy market areas, street
crossings, in front of railway stations and bus terminals. The goods traded by them
include items like hand bags, cut-pieces of cloth, readymade garments, footwear,
household utensils, toys, books and journals, pens and pencils, fruits, vegetables,
etc. These t r a d h sometimes put up temporary sheds or make-shift platforms for
display of goods. More often they spread their wares on pavements at different
places depending on the prospects of sale.
3) Market traders: This type of itinerant retailers generally sell their goods in weekly
markets held in small towns or villages. They move from one market to another in
the neighbouring places on specific days fixed for the market.
Services of Itinerant Retailers: These retailers serve consumers at the nearest and the
most convenient places: They serve either at the consumers' door-step or on busy
places Which consumers normally visit. Thus, housewives and working people find it
very convenient to buy goods from itinerant traders like hawkers and pavement traders
Market traders in small towns and vfilages are also very useful to the consumers as they
do not have fixed shops within easy reach. All itinerant retailers save time and effort of
customers in buying arti~lesof ordinary use. Housewives have the satisfaction of
shopping leisurely at their doorstep.
w Small-scale Retail Shops

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Small-scale retail shops include those small shops dealing with miscellaneous products
of regular use, and shops selling particular products of different varieties. They bold
small stocks and do their business in fixed shops located in residential areas or market
places. According to the nature of goods sold, the small retail shops may be divided into
three categories as follows:
1) Stalls on streets: Small shops on the road side are very common in cities and towns.
These are set up as stalls in front of large stores or in residential areas selling a
limited variety of products of regular use like stationery, grocery, toilet products,
biscuits, etc. The shopsue located within easy reach of consumers' resideece or
nearby roads or street-crossings, or bus stops. These retailers meet the needs of
customers at convenient locations. They supply goods of regular use for which
customers are not prepared to go to ceiitral markets. a

Geneial merchandise shop: These are small retail stores which deal in all types of
general consumer goods of regular use including provisions, bread, butter,
stationery and toiletry, paper and pencils, cigarettes, matches, etC. Thkse shops are
located in thickly inhabited residential areas and busy markets. Consumers find it
convenient to buy all their requirements in one shop. Regular buyers are also offered
bome delivery services and credit facility.
3) Speciality shops: Small retail shops which deal in only one or two special types of
goods are known as speciality shops. The goods dealt with may be only electrical
fittings of different kinds, or medicines, or motor parts, or books and stationery, or
bread and wnfectionary items, or ready-made garments, or toys, etc. People often
find it convenient to buy their requirements from these shops due to the availability
of different grades and sizes in the small product line.

1 L a r g e - d e Retail Shops
- Large-scale retail shops are so called because they deal in a large variety of goods, and
have large volume of business. The types of fixed shops in this category include the
following:
1) Departmental stores
2) Super-market
3) Multiple shops or chain stores
4) Mail order house
5) Consumer co-operative stbres
6) Hire purchase traders
7) Discount houses
8) Super bazars
9) Automatic vending machines
We shall now discuss briefly the characteristics of each of these types of retail shops.

Department St-
A department store is a large-scale institution comprising a number of departments,
each department specialising in a separate line of products. All these departments are
under one roof and one unified control. Department stores offer the widest possible
choice of products. The consumer can find all what he needs in one store rather than
move around from shop to shop. These stores are located in central places in big cities
solti& they are easily accessible to customers. Bigger department stores offer a great
number of amenities like restaurants, post and telegraph offices, recreation rooms and
car parking. A department store indulges in decentralised buying and centralised
selling. In fact, department store is a medium of mass merchandising.
Department stores grew up in developed countries mainlyto cater to the requirements
of well-to-do people who required articles of high quality and looked forward for
comfortable shopping. But they have also become popular in urban centres in many
developing countries. In India too, we find a number of department stores coming up
in urban centres, specially in metropolitan cities. Spencers and Nilgiri of Madras,
Kamalalya of Calcutta and ~ k b a z a lof
l ~Bombay may be cited as examples.
Advantages: Department stores have the following advantages:
I
I

! 1) Department stores make shopping convenient to consumers by providing them a

whole range of goods in one building.
2) Their central location attracts a large number of customers leading to a large
turnover. Thus they can afford to make large profits even with smaller margins.
3) Bulk-buying by department stores enablesthem to obtain heavy discounts fiom
manufacturers and thus buy at a cheaper fate. There are savings in freight charges
as well.
4) Department stores can afford to have effective advertising through press, radio and
television and thus they are able to attract more and more customers.
I
5) Being large business units, department stores can afford to employ skilled and
expert staff for all their operations and thus they are able to achieve a high degree
of efficiency in their working.
b Handicaps: Department stores suffer from the following limitations:
1) Experience has shown that operating costs of department stores tend to become
very high because of the necessity to run some departments at a loss to attract
customers and heavy emphasis in service. As a result, more often than not, their
goods are marked at higher prices.
2) Central location also involves higher rents and thus higher overheads. Central
location may not be convenient to persons living in far off places which means that
they will make their purchases of articles of everyday use from nearby shops.
,
However, in recent years, department stores have branched themselves out to
suburban areas as well to reach the customers nearer their location.
3) It may nc2 be possible for customers in general to receive personal attention which
is possible when they deal with small retailers.
I Cooperative Stores
Consumers sometimes join together to form co-operative societies to sell goods on
retail basis. The basic purpose is to eliminate middlemen and obtain their requirements
at a lower price. The capital is subscribed by the members through the purchase of
shares of small denominations. Co-operative stores purchase their requirements in
bulk, from manufacturers or wholesalers. This enables the co-operative stores to sell
b
their products at somewhat lower prices than the ordinary retailers. These stores usually
sell on a s h basis and thus avoid the loss due to bad debts. Some example of department
stores run on co-operative basis are Super Bazar and Central Government Employees'
Consumer Co-operative Stores in Delhi and Kamdhenu, TUCS and Amudhan in
Madras.
Advantages: Co-operative stores have the following advantages:
1) Consumers can be sure of the quality of goodsin the sense that there is no possibility
'
of an adulteration practiced by some retailers in the private sector.
2) These stores are able to offer various products at more reasonable prices than most
other retailers.
3) Consumers are assured of availability of certain products even when there is an
overall shortage in the market and that too at reasonable prices. Retailers usually
take advantage of such situations by either increasing prices or earharking supplies
to their favoured customers.
Weaknesses: Co-operative stores suffer from the following limitations:
1) Consumers do not patronise these stares regularly, coming to these stores only in
times of shortages.
2) In practice, they have not been able to reap the benefit of bulk purchases from
manufacturers.
3) Large co-operative stores tend to s- from all the drawbacks of bureaucratic
management.
Multiple Shops or Chain Stores
The multiple shop system denotes an organisation which controls a number of stores
under one common ownership and management. THe various stores are located in
various cities and in various localities of bigger cities. Multiple shops refer to a group of
retail stores dealing in similar types of goods. The basic idea behind the establishment
of the multiple shops is to approach the customer in his vicinity unlike department
stores whichseek to attract customers to a central location. These shops could be
operated by manufacturers or by wholesalers with the basic objective of eliminating
retailers. Bata Shoes and Usha Sewing Machines are the two examples of products for
which multiple shops have been opened by manufacturers in India. Some textile mills
also have some shops of their own in bigger cities. If wholesalers decide to operate
multiple shops, they indulge in centrahsed buying with decentralised selling. Some of
the important features of these shops are:
1) Each shop deals in the same type of goods and products.
2) The goods dealt are generally those meant for everyday use.
3)' There is a high degree of standardisation and uniformity in the interior layout of
stores, window displays and outward appearance.
4) A uniform policy of salesis adopted.
Advantages: Multiple shops have the following merits:
. -
1) Multiple shops are able to offer lower prices due to the economics of bulk buying.
2) As sales are on cash basis, losses on bad debts are eliminated and accounting is also
made simpler.
3) Rapid turnover and common advertising for all shops make the operation'of
multiple shops economical.
4) Any shortage of goods faced by one branch can be easily made up by transfer from
some other branch in the same city.
5) Since advertising material and interior layout of each shop is similar, each shop
serves to advertise the other shops. This leads to further economy in advertising and.
a quicker turnover.
Disadvantages: Multiple shops suffer from the following limitations:
1) Multiple shops cannot offer the variety of choice which department stores or even
ordinary retail stores offer.
2) These shops do not normally offer home delivery service or credit sales and thus lose
a good number of customers.
3) Each unit is controlled by the head office and thus branch managers cannot adjust
their sales policy to local conditions and emerging opportunities.
4) Limitations of bureaucratic organisation usually creep in so that the shop personnel
tend to lose initiative.
Mail-order House
Retail trading which consists of receiving orders by mail and delivery of goods by parcel
post is known as mail-order business. The mail-order house is thus a retail trading
organisation which uses the post office as its channel of distribution. Standard consumer
goods with trade marks or brand names are generally dealt with by mail-order houses.
This is because customers are to place orders without physically checking the items.
Bulky goods whicb cannot be delivered by post, and those for which delivery costs ate
relatively higher, are not included in the items traded. Orders from customers may be
secured by advertising in newspapers or journals. Sometimes circular letters are issued
by mail to certain categories of customers. For this purpose, a mailing list may be
prepared from the telephone directory or from the list of members of a club, or traders'
association. The mailing list contains the names and addresses of persons likely to be
interested in the particular goods. Customers are invited to send their orders by post to
the address of the mail-order house.Delivery is made by V.P.P. (Value Payable Post).
Goods are thus available to the customers on payment of the price which is remitted by
the post office to the sender of goods.
Mail-order business helps customers to get their requirements at their own place and
save the time and expense of shopping. The mail-order house, on the other hand, is also
benefited in a number of ways. Goods can be procured accordingto the order received.
The business can thus be started with a small amount of capital. Payment for goods is
 communication. However, mail order business has not developed in India mainly due Channels of Distribution 11
to the existence of retail trading shops in every locality. Besides, illiterate people
cannot be approached through the mailing list.
Hire-purchase Trading
Hire-purchase trading consists of supplying durable goods for use by customers who
agree to pay the price by instalment at regular intervals. The buyer acquires ownership
' of the goods only after the total price has been paid. In other words, in hire-purchase
trading, the buyer takes possession of the goods, but does not get the ownership until
the last instalment has been paid. The instalments are regarded as hire charges. If there
is default in paying an instalment, the seller has the right to recover the goods or sue the
buyer for the balance amount due. Durable goods like refrigerators, television sets,
radio, sewing machines, electric fans, automobiles, industrial machinery,
air-conditioners, etc., can be sold by hire-purchase trading houses. The instalments
,
payable by the buyer includes interest on unpaid balance. Hence, the total price paid is
relatively higher than in the case of outright cash purchase. But the customers get the
advantage of deferred payment, as in the case of purchase on credit, and is also able to
use the goods meanwhile. Hence, hire-purchase becomes attractive as a means of
saving large initial payment required for outright purchase of goods.
Discount Houses
Large scale retail establishments which offer discounts on the prices are known as
'Discount Houses'. Durable goods like household appliances (cooking ovens, electrical
gadgets, hc.) camera, binoculars, etc., are generally available through discount houses
at a relatively lower price as compared with the price charged by other retail stores. This
is possible as the discount houses directly purchase from manufacturers and operate the
business on a low margin of profits. They expect to cover expenses and make substantial
profits through large volume of sales.
Super-Bazars
These are large retail stores organised by co-operative societies which sell a variety of
products under a single roof. The goods traded by super-bazars include consumer
goads which are procured at wholesale rates from manufacturers or wholesalers. The
stores are operated either on the principle of self-service or with separate counters
served by salesmen. The difference between a super-bazar and super-market is that the
former is organised by co-operative society whereas the latter is generally established
as a private sector organisation. Similarly, the difference between a consumer
co-operative store and super-bazar is that a consumer co-operative store is usually run
on small scale, while the super-bazar may be a large-scale establishment.
Automatic Vending Machines
Retail sale of articles with the help of coin-operated automatic machines is known as
automatic vending. Retailing on a large scale is possible in this way by placing machines
at convenient locations like bus terminals, railway stations, airports, shopping centres,
etc. This method of retail selling is very popular in western countries. Cigarettes, razor
blades, postage stamps, milk, ice-cream, soft drinks, soup, paper-back books,
newspapers, etc., are sold in cities through vending machines. Customers are ;equired
to insert necessary coins in a slot and press a button whereby the article is released
automatically. The coins are collected from the machine periodically, and articles are
put in as needed. Automatic vending facilitates buying of small items round the clock.
There is no necessity of salesmen's services. However, the stocking capacity of machine
is limited and there are risks of mechanical failures irritating the customers. Moreover,
paper currency may not be used and coins of exact value are required to operate the
machine. In India, automatic vending has been used for limited purpose like selling
postage stamps, flight insurance, milk, etc. It is not a popular retailing device in India
due to the existence of a large number of small retail shops.

TRENDS IN WHOLESALING AND RETAILING - -

Marketing is a dynamic area of Management. As such, with a constantly changing

environment of business, various important developments have taken place in almost
all the areas of marketing. Some of the important developments have taken place in the
field of distiibution channels also. These developments not only reflect the trends in
respect of major channel participants i.e., wholesalers and retailers, but also indicate
the future of these intermediaries in the country.
The fi~tsmajordevelopment is the emergence of Integrated Marketing Systems.
Instead of the conventional distribution system, in which an individual channel member
operates independently on the basis of self-interest and without taking interest in what
occurs later in the chain, now the channel participants at different levels have started
working in an integrated and coordinated manner. This integration may be either
vertical or horizontal. Vertical integration refers to coordination between channel
participants at different levels. For example, coordination between manufacturers and
wholesalers, between wholesalers and retailers. Such coordination may be organised
on a corporate, contractual or administered basis. The objective of such integration is
to achieve operating economies and increased market impact. Horizontal integration,
on the other hand, refers to alignment of two or more firms at the same level of channel
patticipation to jointly exploit a marketing opportunity. This integration may be at the
level of manufacturers or wholesalers or even retailers. For example, in India, cement
manufacturing companies have formed an 'Associated Cement Company' so as to
channelise their produce to the market. Similarly, tyre manufacturers had built up a
guild through which the prices, etc., of the tyres were being fixed jointly. This tendency
of integrated marketing is likely to grow in the coming years.
Secondly, more number of firms are adopting direct marketing techniques for selling
t h i r products. This is particularly so in the case of distribution of consumer durable
products. This is being done to ensure great control over the market and to bring
economy in the cost of distribution.
Thirdly, in the field of retailing, two important developments are the opening of self
service outlets, and the increased use of automatic vending machines. The super bazars
and departmental stores, particularly those selling grocery items have almost become
common in big cities and towns. Similarly, the automatic vending machines which of
late were used for the distribution of milk have also been used by some foreign banks
for the purpose of withdrawal of cash. As a result, the role of personal selling has
slightly decreased while the role of branding and packaging has tremendou .ly
increased.

'CbeekYour Progress C
i
1) How is a retailer different from a wholesaler?

2) Differentiate between departmental store and multiple shop.

..........................................................................................................
\
3) Differentiate between a consumer co-operative store and super-bazar.

..........................................................................................................
I

4) State whether the following statements are True or False.

i) Retailers always buy goods from manufacturers.
ii) Retailers also sell goods to other retailers.
iii) Super-markets normally deal with consumer durables.
 iv) Retail traders who move fro'm place to place are called itinerant retailers. Chmne~sof Wstribulien II
. V) Super-bztzar is a retail shop organised by a co-operative society.
a) Csnsumer m-opersltives are run on no-profit no-loss basis.

12.7 LET US SUM UP 7

Intermediaries play a significant role in the distribution of goods and services. They
create a number of utilities, bring in economy of effort, niake shopping convenient for
the buyers and help in regulating demand for the products. There are two broad
categories of intermediaries -primary and ancilliary. The primary participants are
those who undertake the negotiatory functions of selling and transferring of title of
goods. The ancilliary participants such as financial institutions, public warehouses,
etc., on the other hand, assist the channel members (primary participants) in
performing the distribution task. The primary participants may again be divided into
two categories: 1) merchant middlemen (retailers and wholesalers) ahd 2) merchant
agents (brokers,-commission agents, del credere agents, auctioneers, etc.).
Wholesalers are defined as merchant middlemen who are engaged in buying and
reselling goods to retailers, other merchants, indostrial and commercial users, but not
to ultimate consumers. Wholesalers may be classified on the basis of merchandise dealt
with methods of operation, and geographical coverage of their dealings. The functions
performed by wholesalers include assembling, storage, grading and packaging,
transportation, financing retail traders, price-fixation, risk-bearing and making
advances to manufacturers. Wholesalers render valuable services to manufacturers as
well as retail traders.
A retailer is one whose business consists primarily of selling goods to customers for
their own use, not for use in their business. If manufacturers sell goods to consumers,
they are not treated as retailers as retailing is not the major activity of a manufacturer.
The retailers perform several functions such as estimating demand, procuring goods,
arranging transport, holding stocks, grading and packaging, and selling. They render
valuable service to consumers, wholesalers and indirectly also to the producers of

Retailers may be divided'into two broad categories: itinerant retailers and fixed-shop
retailers. Itinerant retailers (hawkers, pedlars, pavement traders, and market traders)
either move from house to house or change their place of business according to
convenience. Fixed-shop retailers locate their stores at fixed places where customers
can easily come and make their purchases. Fixed shop retail trading may consist of two
types: 1) Small-scale retailing (stall-holders, general merchandise shops, speciality
' shops, and second-hand goods sellers) who deal in a limited range of products or
. 2) Large-scale retailers establish stores (departmental stores, super markets, multiple
shops, mail-order houses, consumer co-operative stores, super-bazars, hire-purchase
tfading, discount-houses, and automatic vending) which deal in and stock a wide range

12.8 KEY WORDS

Ancilliary Participants: Group of individuals and organisations which do not perform
the negotiatory functions of selling and transferring title of products but assist the
primary participants in performing the distribution tasks.
*
Auctioneer: A middlemen appointed as an agent to sell goods by auction.
Automatic Vending: Sale of small articles of regular use by installing coin-operated
automatic machines at different piaces
Broker: A middlemen who brings together the buyer and seller, and negotiates the
terms and conditions df sale on behalf of either buyer or seller.
Distribution Commission Agent: A middlemen who sells goods on commission basis on behalf of the
owner. *
Consumer Co-operativeStores: Retail stores run by co-operative societiesorganised in
the interest of consumer groups.
Del Credere Agent: An agent middleman authorised to sell goods on credit and who
assumes the risk of bad debts.
Departmental Stores: Large retail stores consisting of separate departments selling
different types of products.
Discount Houses: Retail stores engaged in selling durable consumer goods at a discount.
Factor: A mercantile agent who keeps the goods of other for sale. He can sell the goods
in his own name, pledge and do all acts necessary for sale.
Hire Purchase Trading: Supply of durable goods on hire against the payment of
periodical instalments with ownership transferred to the buyer, after all instalments
have been paid.
Itinerant Retailers: Retail traders who sell goods moving from house to house or change
their place of business frequently.
Mail-Order House: Receiving orders by mail and delivering goods through the post
office.
Mercantile Agent: A functional Middleman who undertakes specificfunctionsof sale or
purchase of goods as agent of the owner without having ownership right.
Merchant Middleman: A middleman such as wholesaler or retailer who buys and sells
goods in his own name and performs neceskary functions in that connection.
Middleman: An intermediary between the producer and the consumer to help
distribution of goods.
Multiple ShopsIChain Stores: Retail stores under the ownership and management of a
single firm dealing in similar products at uniform prices and located at different places.
Primary Participants: Group of individuals and organisations undertaking to perform
the negotiatory functions of selling and transferring title of the products.
Retailer: One who is engaged in wholesale trading.
Retailing: Purchasing goods from wholesalers or manufacturers and selling them to
consumers for their personal non-business use.
Speciality Shops: Small retail shops dealing in one or two special types of goods.
Super-Markets: Retail stores selling consumer goods of regular use and operating on
self-service basis.
Wholesaler: One who is engaged in wholesale trading.
Wholesaling: Purchasing and reselling of goods to retailers and merchants.

12.9 ANSWERS TO CHECK YOUR PROGRESS

t

A 4 i) False ii) False iii) True iv) True v) False vi) True
B 3 i) True ii) True iii) False iv) True v) False
C 4 i) False ii) False iii) False iv) True v) True vi) True

12.10 TERMINAL QUESTIONS

1) What role does intermediaries play in the distribution of products? Can
intermediaries be eliminated?
*
2) What do you understand by retailing? What important functions do the retailers
perform in the distribution of
3) What do you understand by wholesaling. How does it differ from retailing?
4) Compare the advantages and disadvantagesof departmental stores and chain stores.
5 ) Write notes on the following Chnnsds of Distribution n

a) Itinerant retailers
b) Ancilliary Participants
c) Consumer co-operative store
d) Merchant agents

7) Explain briefly about various types of middlemen.

Note: These questions will help you to understand the unit better. Try to write
answers for them. But do not submit your answers to the university for
assessment. These are for your practice only.