CHAPTER I

I INTRODUCTION AND DESIGN OF THE STUDY

1.1 INTRODUCTION
A channel of distribution or trade channel is defined as the path or route along which
goods move from producers or manufacturers to ultimate consumers or industrial users. In
other words, it is a distribution network through which producer puts his products in the
market and passes it to the actual users. This channel consists of producers, consumers or
users and the various middlemen like wholesalers, selling agents and retailers(dealers) who
intervene between the producers and consumers. Therefore, the channel serves to bridge the
gap between the point of production and the point of consumption thereby creating time,
place and possession utilities.
A channel of distribution consists of three types of flows:

Downward flow of goods from producers to consumers

Upward flow of cash payments for goods from consumers to producers

Flow of marketing information in both downward and upward direction i.e. Flow of
information on new products, new uses of existing products etc from producers to
consumers. And flow of information in the form of feedback on the wants, suggestions,
complaints etc from consumers/users to producers.

An entrepreneur has a number of alternative channels available to him for distributing his
products. These channels vary in the number and types of middle men involved. Some channels
are short and directly link producers with customers. Whereas other channels are long and
indirectly link with two or more middle men in the channels of distribution.
These channels of distribution are broadly divided into four types

Producer-Customer This is the simplest and shortest channel in which no middlemen is

involved and producers directly sell their products to the consumers. It is fast and
economical channel of distribution. Under it, the producer or entrepreneur performs all
the marketing activities himself and has full control over distribution. A producer may
sell directly to consumers through door-to-door salesmen, direct mail or through his own
retail stores. Big firms adopt this channel to cut distribution costs and to sell industrial
products of high value. Small producers and producers of perishable commodities also
sell directly to local consumers.

Producer-Retailer-Customer This channel of distribution involves only one middlemen

called 'retailer'. Under it, the producer sells his product to big retailers (or retailers who
buy goods in large quantities) who in turn sell to the ultimate consumers.This channel
relieves the manufacturer from burden of selling the goods himself and at the same time
gives him control over the process of distribution. This is often suited for distribution of
consumer durables and products of high value.

. Producer-Wholesaler-Retailer-Customer This is the most common and traditional

channel of distribution. Under it, two middlemen i.e. wholesalers and retailers are
involved. Here, the producer sells his product to wholesalers, who in turn sell it to
retailers. And retailers finally sell the product to the ultimate consumers. This channel is
suitable for the producers having limited finance, narrow product line and who needed
expert services and promotional support of wholesalers. This is mostly used for the
products with widely scattered market.

Producer-Agent-Wholesaler-Retailer-Customer This is the longest channel of

distribution in which three middlemen are involved. This is used when the producer
wants to be fully relieved of the problem of distribution and thus hands over his entire
output to the selling agents. The agents distribute the product among a few wholesalers.
Each wholesaler distribute the product among a number of retailers who finally sell it to

the ultimate consumers. This channel is suitable for wider distribution of various
industrial products.

1.2 NEED FOR STUDY

There is a need to access retailers in towns and larger millages and promote products
there so that the products that are purchased locally can reach smaller retail outlets in
villages. Consumer royalty can be to the brand or to the retailer. It follows that type of
consumer loyalty exhibited by the group has implications for the markets. The influence of
retailer is perceived to be high in rural markets. ITCS branded packaged food business is
one of the fastest growing business in India driven by market standard and consumer
franchise of his popular brand Aashrivad, Sunfeast, Bingo etc.
The business continue to invest in every aspects of manufacturer, distribution and sales to
ensure that it can leverage emerging opportunities and fulfill its aspiration of being the most
trusted provider of branded packaged foods.
This study helps ITC to identify the issues in the distribution channel and suggest
strategies to improve and enhance the distribution network.

1.3 STATEMENT OF PROBLEM

Distribution channel are pathways along which product travel from producers and
manufacturers to ultimate consumers.
They are routes along which product, information and finance flow. While some
manufacturer deal directly with the manufacturer and with their customers. Most
manufacturer use a distribution channel to take products to consumers. Considerable
thoughts,efforts and investment are required to develop and maintain a distribution channel.
Channel margin and expenses of sales effort in managing channels can form a substansial
proposition of total marketing cost. An effective channel can be source of strategic
advantage for company.
Channel design and channel management are therefore important elemts in companies
competitiveness. Hence the present study undertaken to answer the following questions
1. How to minimize the pricing conflict in ITC and to find the best route for
distribution of products?
2. What are the key problems in distributing a product to the retailers?
3. What are the factors that increases the time and cost of distribution network?

1.4 OBJECTIVE OF THE STUDY

 To minimize pricing conflict and to find best route for the distribution of products.
To identify the key problems and to provide solutions for distributing a product to
the retailers.
To reduce the time and cost of distribution network.

1.5 METHODOLOGY ADOPTED

In the present study the descriptive research design has been administrated. Since this
research describes to find out the best route for distributing a product. It is concentrated with
descriptive in nature. Mean while this study analysis the key problems in distributing a product
to the retailers and to identify the factors that increases the time and cost.
Besides the study is completely based on research design, sampling, data collection,
processing of interpretation and reporting. Hence this study is descriptive in nature.

1.5.1 DATA COLLECTION

Data collection is carried out through questionnaires, direct interviews and browsed over
the internet to collect valid information that are discussed on similar research articles thereby
adding to the credibility of this research articles. Key area of concentration include marketing
strategies, sales and distribution channel.
1.5.1.1 PRIMARY DATA
Primary data is collected form general public through questionnaires answered by
random samples to measure the effectiveness of distribution channel for AASHIRVAD in
departmental stores.
1.5.1.2 SECONDARY DATA
Secondary

data

is

collected

from

Bruce

Mallen

(1996)

on

Selecting channels of distribution: a multistage process , Yong kyu Kim (1998)8, research on
Distribution channel decisions in import consumer goods markets, Asa Gustafsson and LarsOlof Rask (2006) examined

Distribution channel structure and integration , Benjamin

Neuwirth (2011)13 explored Determinants of Margins in the Distribution Channel: An Empirical

Investigation and Dr.Prathap Oburai (2004) research on Grounded exploration of sales and
distribution channel structures

1.5.2

DISCUSSION AND INFORMAL INTERVIEW

The data collected from data collection is further refined by gathering information from

experts and public by interviewing method.

1.5.3

TOOLS FOR DATA COLLECTION

The tools used for data collection are questionnaire, survey, observation and

interviewing. These tools are used randomly to gain insight into the problem.

1.6 SCOPE OF THE STUDY

Scope of distribution channel its gives the detail structure of how goods passed from
manufacture to distributor/retailers.
Channels of distribution helps you to move to the places that you cannot reach directly.
You can cater the market that are geographically dispersed.
Business mangagement/ERP systems allow distributors to monitor their overall
businesses more closely.
PRM software, also called partner portals, improve communications between suppliers
and distributors. Social media may help resellers improve their relationships with
customers.
Data mining will help distributors better match products and services to customers needs.
RFID will allow better tracking of products throughout the entire supply chain.

1.7 PERIOD OF STUDY

The complete period of the course of this study is 3 months

1.8 LIMITATION OF THE STUDY

A distribution channel may be affected by the costs of transport and the costs of
remunerating the distributors. A long distribution chain definitely increases the end cost
that is passed on to the end user.
Technology affects distribution channels in numerous ways. Automated warehouse
systems (WMS) reduce inventory requirements, lower distribution costs and improve
customer service levels.

 There are many factors that affect distribution channels, the main factors that affect
distribution channels are transport, taxes, expenses, licences etc
The factors influence the selection of distribution channel may involve 1)distribution

policy 2)characteristics of the product 3)the target customer in view 4)supply

characteristics 5)type of middlemen in the field 6)channel competition