MODULE 4

PHYSICAL DISTRIBUTION MIX

Physical distribution describes the overall activities relatedwith the supply of finished product from the
stage of production toconsumption. According to Cundiff& Still, "physical Distributioninvolves the actual
movement and storage of goods after they areproduced and before they are consumed." Physical
distributionfacilitates an efficient and smooth flow (movement) of goods fromthe place of origin
(production) to the place of consumption. Physicaldistribution system includes various middlemen
involved in themarketing of goods and covers areas customner service, inventory,materials, packaging,
order processing transportation and logistics.The system of physical distribution varies with the type of
productand the nature of firms.

IMPORTANCE OF PHYSICAL DISTRIBUTION

Physical distribution is important for marketing companiesin the following ways;

1. The physical distribution system creates place and timeutilities. It helps a company to distribute
products tocustomers at the right time and place.

2.It executes physical flow of product from the place ofproduction to the place of customers.

3. Physical distribution builds customer for the product.

4.It actively participates in the creation and establishment ofmarket for a new product.

5.It minimises the cost of distribution of products and servicesto consumers.

PHYSICAL DISTRIBUTIONAND LOGISTICS

Physical distribution is an umbrella term which involves logistics and supply chain management. These
terms areinterchangeably used to describe the methods used by a firm to acquire, transport and resell
goods. An important aspect of difference between physical distribution and logistics is that physical
distribution focuses on the physical movement of goods from one place to another whereas logistics
encompasses extensive planning and information flow. The primary goal of logistics is to improve the
efficiency of internal warehousing and transportation functions and to collaborate with distribution
partners to maximizeefficiency in the movement of information and goods.

LOGISTICS

The term logistics or logistics management in marketing refersto the management of the flow of raw
materials from the suppliersto the producers and the flow of finished goods to the consumers.It is the
science of the supply and movement of the goods. Logisticsmanagement is a process of managing the
flow of goods from thepoint of origin to the point of consumption in order to satisfy theneeds of the
consumers. It is concerned with planning,implementing and controlling the flow of goods from the
supplierof raw materials to the ultimate consumer. The objective of logisticsmanagement is to ensure a
cost effective and efficient movement ofproducts from the place of its origin to the place of its
consumption

Logistics management is an important functional areamarketing. No marketing firm can succeed without
logistics support .A customer has to get the right product at the right time at the right place at the
lowest possible price. All these rightness depend on the effectiveness of the logistics process
functioning in the organisation. The best logistics process safely preserves the product to keep its
quality and quantity intact, delivers the product in themuch increase in its price. Customers and the
company bothright time and in the right place at minimum cost without making much increase in its
price.Customers & company both benefits from an efficient and effective logistics process.
Customersget their desired products in the place of consumption readily atfair prices and the company
can smoothly deliver its products tothe consumers.

Flow of materials and goods

Suppliers → Raw materials →Production →Distribution→ Retailers→Consumers

DEFINITIONS

According to John Mangan, "logistics management is that partof supply chain management that plans,
implements andcontrols the efficient, effective, forward and reverse flow andstorage of goods, services
and related information between thepoint of origin and the point of consumption in order to
meetcustomers' requirements".

As per the Chartered Institute of Logistics and Transport, U.K.,"logistics is getting the right product to
the right place in theright quantity at the right time in the best condition and at anacceptable cost".

Philip Kotler defines logistics as "planning, implementing andcontrolling the physical flow of materials
and finished goodsfrom the point of origin to the point of use to meet the customer'sneed at a profit".

FEATURES

The salient features of logistics are as follows;

1. Logistics is concerned with the planning, implemen-ting,managing and controlling the flow of
goods from the source of their origin to the place of consumption.

2. It is the physical distribution of goods from the source of originto the place of use.

3. It also deals with the flow of information which is reverse (fromthe customer to the supplier) in
nature compared to theforward (from the supplier to the customer) flow of goods (seethe figure
below)

4. Logistics management links the manufacturing process, thedistribution network and the market
place to give maximumservices to the customers at lower cost.
 5. The scope of logistics extends from the management of rawmaterials to the final delivery of
finished product to theconsumers.

6. It offers time and place utilities to the consumers.

ELEMENTS OF LOGISTICS /LOGISTICS MIX

Logistics is comprised of certain key elements. It is alsoreferred to logistics mix or the functional areas of
logisticsmanagement. They are as follows;

1. Information Flow/Information Logistics

It is an element of logistics which deals with the flow ofinformation within supply chain network
between the different unitsin its physical distribution network. For example, receiving,registering and
processing of orders for goods.

2. Inventory Logistics

This element is concerned with the acquisition of rawmaterials, its control and handling for the
production of goods.

3. Warehousing Logistics

It deals with storage of finished products (Flow of finishedproducts from production to storage).

4. Packaging Logistics

It deals with the wrapping of goods for protecting it fromdamages during transit (transportation). Safe
packing is necessaryto move the goods from the production site to the place of thecustomers without
any damages.

5.Transportation

It deals with the planning of the route and mode oftransportation (air, road and water transports).

PROCESS OF LOGISTICS/PHASES IN LOGISTICS/TYPES OFLOGISTICS

Logistics offers values to the customers in three different phases;

1. Inbound Logistics - In this phase, raw materials and components are moved fromthe place of
the suppliers to the place of the producers forprocessing.

2. Process Logistics- This phase is concerned with the processing of raw materialsreceived from
the suppliers. It includes the inventory managementof raw materials, their movement to the
production process andthe flow of finished goods from the production process.

3. Outbound Logistics- It deals with the flow of goods from production to consumption.includes
warehousing, transportation and the distribution management of the finished products.
4. Reverse Logistics- It deals with the reverse flow of goods when customers sendback (return)
damaged or defective products to the company.

SUPPLY CHAIN MANAGEMENT (SCM)

Supply Chain Management (SCM) broadens the concept oflogistics. It is the management of the whole
system of supply chainnetwork involved in the distribution of products to the customers.A supply chain
is a network of connected and interdependentorganisations working together to control, manage and
improvethe flow products and information from the point of origin to thepoint of consumption. It is a
system of organisations, people,technology, activities, information and resources involved in movinga
product or service from supplier to consumer. The process ofSCM spans from acquisition of raw
materials for production toretailing.

Supply chain activities are aimed at transforming rawmaterials into finished products in order to
deliver them to theultimate consumer. Supply chain management is concerned withthe efficient
integration of suppliers, factories, warehouses, logisticsand stores so that goods are produced and
distributed in the rightquantities, to the right locations and at the right time in order tominimise total
system cost and satisfy customer servicerequirements.

DEFINITIONS

According to C.M.Harland, "supply chain management is themanagement of a network of

interconnected businesses involvedin the ultimate provision of product and service packagesrequired by
end customers".

The Council of Supply Chain Management Professionals(CSCMP) defines supply Chain Management as
"supply chainmanagement encompasses the planning and management ofall activities involved in
sourcing and procurement, conversion,and all logistics management activities".

FEATURES

The basic features of supply chain management are as follows;

1.It is the management of the whole system of supply chainnetwork.

2.It is the planning and management of all supply chain activitiesincluding logistics.

3.It the management of relationships among the variouselements in a supply chain network such as
suppliers,producers, distributors, transporting companies, warehousingcompanies, wholesalers,
retailers and customers.

4.The objective of supply chain management is improving theoverall effectiveness of the supply chain
system.
LOGISTICS AND SCM

Logistics and SCM are not the same. The functions of logisticsand SCM may overlap. But there exists
clear differences betweenthese two concepts. The following are the major differences betweenlogistics
and SCM;

Logistics Supply Chain Management

1. It is concerned with the planning, implementing, It is the process of planning, implementing,

managing and controlling the flow of goods. managing and controlling the whole system of
supply chain network.

2. It is a part of supply chain management. It is a broader concept covering the entire

aspects of a supply chain system.

3. It deals with the acquisition, storage, It is a network of organisations, people,

transportation and delivery of goods along the technology, activities, information and
supply chain. resources involved in moving a product or
service from supplier to customer.

4. It focuses on optimising products and It focuses on increasing the overall effectiveness

information flows of an organisation. of the supply chain and tries to optimise the
total value of the chain (minimum operating
cost and maximum benefits to the customers).

5. It is a channel of the supply chain which adds It deals with integration of all the partners in the
the value of time and place utility. supply network including logistics.

IMPORTANCE OF SCM

As a result of revolution in customer services, modernconsumers demand more services along with best
quality products.Customer service may be defined as the uninterrupted provisionof time and place
utilities. Products don't have value until they arein the hands of the customers at the time and place
required. Supplychain strategies are the critical backbone of companies in deliveringthe products
desired by the customers in the desired place andtime. Effective Market coverage which is the key
element to generaterevenue depends upon the effectiveness of supply chain strategy.The following
points show the importance of supply chainmanagement in marketing;

1.It co-ordinates the different organisations, processes, information, people and resources in a supply
chain to effectively satisfy the needs of the customers at the lowest possible cost.

2.It ensures better information sharing among the supply chain members.

3.Supply chain planning and decisions are made by way of mutual consultation rather than in isolation.
4.It designs and implements suitable logistics process.

5.It selects competent suppliers to deliver the raw materials.

6.It ensures a systematic inventory control and management.

7.It ensures a proper delivery of products to the consumers through adequate transportation facilities.

8.It creates an atmosphere of mutual trust and understanding among the channel partners.

9.It attempts to offer better customer services.

ELEMENTS OF SCM

The major elements of supply chain management are asfollows;

1. Plan

It is the most important element of SCM which formulatesthe strategy for managing and handling all
resources that are usedin offering the service or product to the customers. Timely andeffective planning
prepares a SCM to meet the contingencies. Properplanning enables SCM to keep costs low, and deliver
high qualityand high value products to customers in time.

2. Source

It involves studying supplier competencies and choosing thebest one, to deliver the raw materials and
components required bythe firm to create finished products. The managers of SCM developpolicies for
pricing, delivery and payment with the supplier. Theyalso supervise inventory and execute tasks such as
collecting andverifying shipments, sending them to manufacturing plants andgiving payments.

3.Manufacture

This element deals with the actual manufacturing process.SCM managers schedule activities for
manufacturing, qualitytesting, packaging and shipping by coordinating the actions of eachand every
entity involved in the manufacturing process.

4. Delivery

This element is concerned with the delivery of goods toconsumers through various distribution
networks. SCM managersin the delivery process co-ordinate the activities of partnerbusinesses involved
in the storing, packaging and transportationof goods. For most efficient operation, managers make use
of anintegrated system, developing a network of warehouses andtransport companies. The delivery
process also involves preparationof an invoicing system for payment receipts.
CHANNELS OF DISTRIBUTION

DEFINITIONS

According to Stanton, "a distribution channel consists of theset of people and firms involved in the
transfer of title to aproduct as the product moves from producer to ultimateconsumer or business user".

According to Louis W.Stern, "marketing channels are set ofinterdependent organisations involved in the
process of makinga product or service available for use or consumption".

According to Cundiff and Still, "distribution channel is a pathtraced in the direct or indirect transfer of
title to a product, as itmoves from a producer to ultimate consumers or industrialusers".

TYPES OF CHANNELS

Every firm requires a channel to distribute its products orservices to the right customers at the right
time and cost. The choiceof distribution channel varies according to products, producer andmarket. A
channel of distribution consists of a set of interdependentorganisations such as wholesalers, retailers,
and sales agentsinvolved in making a product or service available for use orconsumption. Members of
channels of distribution typically buy, sell,and transfer title to goods. Channels of distribution of
distributioncan be broadly classified into four types. They are as follows;

Producer→ Consumer (Direct distribution/ Zero levelchannel)

This is the simplest and shortest channel in which there is nointermediaries act in between the producer
and consumers. Thischannel is known as direct channel where producers, directly sellgoods to the
consumers. It is the fast and low cost channel ofdistribution. The producer himself performs all
marketing activitiesin this channel. He enjoys the full authority over this channel. Aproducer may carry
out door-to-door sales or sell products throughhis own retail outlets. Firms which want to reduce
distributioncosts prefer this channel. Certain industrial firm selling productsof high value choose this
channel. Small producers and producersof perishable products sell directly to local consumers.
Companyretail store of 'Bata' footwears is the best example for this channel.

Producer → Retailer → Customer (Retail distribution)

There is only one intermediary act in between the producerand consumer in this channel. The
intermediary is known as'retailer'. In this channel, the producer sells his product to bigretailers or
retailers who buy goods in large quantities who in turnsell them to the ultimate consumers. This channel
relieves themanufacturer from burden of selling the goods himself and at alsogives him control over the
process of distribution. This channel isbest suited for distributing consumer durables and products
ofhigh value.
Producer → Wholesaler →Retailer → Customer (Wholesaledistribution)

This is the widely seen conventional channel of distribution.In this channel, there are two intermediaries
act in between theproducers and consumers. They are known as 'wholesaler' andretailer'. The producer
first sells the products to wholesalers, who inturn sell them to retailers and the retailers finally sell the
productsto the consumers. This channel is suitable for large markets whereconsumers are highly
scattered and for the producers who needexpert services and promotional support of wholesalers.

Producer → Agent → Wholesaler → Retailer → Customer

There are three intermediaries involved in this channel. Theyare 'agent', 'wholesaler' and 'retailer'. This
is the longest channel ofdistribution in a marketing process. This channel is adopted whenthe producer
wants to be fully free from the burden of distribution.At first, the producer delivers the finished
products to the sellingagents. The selling agents distribute the products among thewholesalers. The
wholesalers then distribute the product amongthe retailers and they finally sell it to the consumers.

FUNCTIONS OF VARIOUS INTERMEDIARIES IN THEDISTRIBUTION CHANNELS/ROLE OF MIDDLEMEN

A distribution channel is an interrelated agencies, institutionspeople and processes which act as a

connecting link between producers and the consumers. They are also known asintermediaries or
middlemen between producers and consumers

The following are some of the major functions of distribution channel or middlemen in marketing,

1.To provide a link between production and consumption.

2.Identifying and contacting buyers for making the sale.

3.Making the delivery of goods as per the requirements of market.

4.Delivery of goods in suitable packages to the dealers and customers.

5.Encouraging and influencing the prospective buyers to purchase products.

6.Formulating pricing policies in accordance with the market conditions.

7.Providing product and market related information to the producers.

8.Managing the overall process of distribution (Producers are relieved from the burden of distribution).

9.Supporting in the creation and development of market for anew product.

10.Extending pre sales and after sales services to consumers.

11.Educating the customers about the usage of a product.

12. Giving credit facilities to retailers and consumers.

DISTRIBUTION CHANNEL STRATEGY

A distribution channel strategy describes the method thatcontrols the flow of goods and services from
the manufacturer tothe end-user. A distribution channel strategy is influenced by thefollowing factors;

1. Distribution intensity

2. Channel configuration and

3. Channel arrangement

1. Distribution Intensity

The first strategic decision is concerned with the intensity ofdistribution in a target market. Distribution
intensity decides thelevel of availability of a product and its market coverage. There arethree variants
(strategies) of distribution intensities. They are;

a) Intensive Distribution

The manufacturer aims to give maximum possible coveragefor his products by supplying them to all
outlets. For example,distribution of chocolates, pen etc. Intensive distribution is usuallyrequired where
customers have a wide range of acceptable brandsto choose from. If one brand is not available; a
customer will simplychoose another.

b) Selective Distribution

In this type of distribution, a manufacturer supplies hisproducts to a limited number of outlets in a

target market. Anadvantage of this approach is that the producer can choose thebest-performing
outlets and concentrate on them. Selectivedistribution works best when the consumers maintain a
preferencefor a particular brand. For example, certain premium brands inShirts like 'Louis Philippe', 'Van
Heusen' etc. are available only inselected retail outlets.

c) Exclusive Distribution

This is an extreme form of selective distribution in which onlyone wholesaler, retailer or distributor is
appointed in a specificgeographical area. For example, Car manufacturing companiesfollow this type of
distribution. They appoint dealer for a particulararea of the market.

2.Channel Configuration

The next stage of strategic decision is the configuration ordesign of the distribution channel. It is the
number of levels orintermediaries within a channel such as agents, distributors,wholesalers, retailers. It
is the design, composition and size of adistribution channel. The length of a distribution channel may
beshort, long or medium depending on the product and the market.their distribution expertise and
resources. This helps them toeffectively cover the target market.
FACTORS AFFECTING THE CHOICE OF CHANNEL OFDISTRIBUTION

The channel of distribution must be an ideal one whichsatisfies the consumer's needs and preferences.
In choosing thechannel the manufacturer has to study in detail the quality of theavailable channels so as
to select the best one. Usually, everycompany wants to select the lowest cost channel, but the
lowestcost channel is not necessarily the best for the product. There arenumerous factors that affect
the selection of a distribution channel.These factors can be categorized under five heads. They are;

1. Market factors

2. Product factors

3. Company factors

4. Middlemen factors and

5. Environmental factors

1. Market Factors

The nature of the market is a key factor influencing the choiceof channels of distribution. The following
are the major marketfactors influencing the selection of a distribution channel;

a) Number of Buyers

When the number of buyers is large, a long channel is neededto reach the buyers. Consumer goods
usually adopt a longdistribution channel because of the large number of users.

b) Geographical Distribution

If the customers are highly scattered throughout thegeographical area of the target market, a long
distribution channelis essential. For example, a company marketing a diabetes medicinein India must
adopt a long chain to reach diabetes patients residingat different parts of the nation.

c) Size of Order

Direct selling is suitable, when customers place bulk quantityorder. If the orders are placed regularly for
small quantities moremiddlemen must be deployed in a channel.

d) Buyer of Products

If the buyers want direct dealings with the manufacturers,then no middlemen are required in marketing.

2. Product Factors

A company should understand the features of its productbefore selecting a distribution channels. A
distribution channel bestsuited for a particular product may not be suitable for the other.
The following are some of the important product related factorsaffecting selection of a distribution
channel;

a) Perishability

If a product is highly perishable, then a shortest channel wouldbe ideal for that product. Fruits, milk,
vegetables etc. must reachthe consumer immediately after production.

b) Unit Value

Products of low unit value and common use are generally soldthrough middlemen, as they cannot bear
the cost of direct selling.On the other hand, expensive consumer goods and industrialproducts are sold
directly by the producers.

c) Weight

Products having heavy weight are usually sold directly orthrough a short channel to the consumers
because of difficulty intransportation. For example, bricks, stones etc.

d) New Products

They are usually marketed through short channels or directlybecause of low demand.

Company Factors

The important company wise factors affecting selection of adistribution channel are;

a) Financial Resources

The financial position of a company is a very important factoraffecting channel selection. A financially
weak company appointsfinancially strong intermediaries to support the distribution process.If the
company is in a good financial position, then it may try toexercise more control over the distribution by
reducing theintermediaries.

b) Size of the Company

Size of the company is determined on the basis of the rangeof products marketed and the share of
marketing activities. A largecompany offering a wide range of products and enjoying aconsiderable
share of the market is in good position to market moreproducts through its existing system of network.

c) Policy of Distribution

The policies of a company in distribution such as the speed ofdelivery, safety and efficiency are the
major factors affecting thechoice of a distribution channel.
4.Middlemen Factors

The choice of a channel is influenced by the availability,attitude, efficiency and cost of the middlemen
involved in theprocess. These factors are as follows;

a) Attitude of Middlemen

The attitude of the middlemen towards the distribution of acompany's product is a major affecting the
selection of a channel.Most of middlemen are high profit makers who demand morecommission from
the manufacturers and take high profit marginsfrom the sale of the products. Usually they will select a
productwith higher returns and brands which sell most. It is difficult for a new company to attract
middlemen for distributing its products inthe market. It has to offer more profit margins, commission
andshare in marketing expenses to draw the attention of the middlemen.

b) Availability of Middlemen

If the right type of middlemen required is not available, thenthe company has to establish its own
distribution network. Non-availability or shortage of middlemen may arise, when the existingmiddlemen
are handling competitive brands and they are notinterested in dealing more brands.

c) Services

A distribution channel becomes effective when the middlemeninvolved are able to provide all the
essential services in connectionwith the distribution of products. The services include,warehousing,
promotion and after sales services.

d) Sale potential

Usually companies appoint middlemen on the basis of theirability to sell goods. They prefer middlemen
who enjoy high salepotential.

5.Environmental Factors

Another important aspect in the channel decision is thegeneral characteristics of the total environment
of the market.Environment includes the social, economic and political conditions.In an economic
condition of depression, firms may choose shorterchannels to cut costs. If a multipoint tax system exists
in a market,then short channels are desirable to reduces tax points and controlprice.

CHANNEL CONFLICT

Channel conflict occurs when the intermediaries or middlemenin a distribution channel compete each
other by breaking themutually agreed (usual) channel route for selling the products. Forexample, a
manufacturer sells products directly to the consumersthrough internet or other media or a wholesaler
sells productsdirectly to the consumers. In these situations channel partnersviolate the accepted
channel of distribution. Channel conflict isalso known as 'disintermediation'. Conflicts damage
therelationships between the channel members.
TYPES OF CHANNEL CONFLICTS

Basically there are three types of channel conflicts. They are;

1. Vertical channel conflict

2. Horizontal channel conflict and

3. Multi channel conflict

1. Vertical Channel Conflict

If a conflict occurs between members in higher and lower levelsof a channel, it is known as vertical
conflict. For example, conflict

2. Horizontal Conflict

If a conflict occurs between members in the same level of achannel, it is known as horizontal conflict.
For example, conflictsbetween retailers in a distribution channel.

3. Multi Channel Conflict

When a conflict occurs between two more channels establishedby a manufacturer, it is known as multi
channel conflict. Certaincompanies establish different channels to distribute their products.Conflict is
likely to occur, when a channel gets products at lowerprices compared to other channels.

CONFLICT RESOLUTION STRATEGIES/CONFLICT MANAGEMENT

Companies adopt different strategies to manage conflicts. Thefollowing are some of the common
strategies adopted to minimize and manage conflicts;

1. Communication

This is the best way to resolve conflict. Lack of communicationis the major source of conflict. In this
strategy, companies maintainregular communication with its channel members to understandtheir
problems and settle their complaints.

2. Dealer Councils

In this strategy, a committee or body of the channel membersare formed to facilitate a platform for
discussing and resolvingconflicts and other problems in the distribution of goods. The councilacts as
forum to resolve disputes between the channel membersand between the company and the channel
members

3.Prioritising Customer SatisfactionThis is a strategy which convinces the channel members aboutthe
necessity of placing customer satisfaction above all personalinterests of the channel members. It
establishes customer rsatisfaction as the common objective of the distribution network.
4. Arbitration and Mediation

In this strategy, a conflict is resolved by seeking the mediationand arbitration of a third party.
Sometimes, the Court or governmentdepartments take part in the arbitration process. The
partiesinvolved in conflict may appoint an arbitrator to settle the conflict.

RETAILING

The term 'retail' was originated from the old French word'retailler' which means to cut off, trim, clip and
divide in the contextof tailoring. The prefix're' in the word retailer means again and theverb tailor means
'to cut'. So the literary meaning of the word retaileris 'to cut again'. Obviously, retail trade is cutting off
smaller portions/pieces from large quantities of goods and selling them tothe ultimate consumers. The
term is ordinarily used to refer saleof goods in small quantities or pieces. Consumers want goods insmall
quantities to meet their individual and family needs. Retailsystem acts as a connecting link between
production and ultimateconsumption of goods.Retailing entails the delivery of finished goods into the
handsof consumers for satisfying their individual needs and wants. Theprocess of retailing consists of all
the activities related to the saleof goods and services to the ultimate consumers for personal ornon-
business use. Retailing transforms dreams into reality byoffering the goods desired by the consumers. It
is the mostconvenient, convincing and comfortable method of buying andselling goods meant for
consumption. Retailing facilitates timelydelivery of goods and services demanded by consumers at
pricesthat are competitive and affordable.

DEFINITIONS

David Gilbert defines retail business as "any business thatdirects its marketing efforts towards satisfying
the finalconsumer based upon the organisation of selling goodsand services as a means of distribution."

William J.Stanton defines a retailer or retail store as "abusiness enterprise which sells primarily to the
ultimateconsumers for non-business use."

According to James Stephenson, "retailer is that trader whoresells the goods to the ultimate or final
consumers.Different goods are collected at the shop of the retailerso that many consumers can buy or
collect those goodsaccording to their necessities and convenience."

According to Philip Kotler, "retailing consists of all theactivities related to the sale of goods and services
to theultimate consumers for personal non-business use.

According to Cundiff and Still, "retailing consists of thoseactivities involved in selling directly to ultimate

consumers."
RETAIL, RETAILER AND RETAILING

Retail, retailing and retailer are the common terms used inthe trade scenario. But these terms have
different meanings. Inthe above definitions, some experts defined retail business, somedefined retailer
and others retailing. These three terms aredescribed below;

RETAIL

The meaning of retail is sale of commodities in small quantitiesto the ultimate consumers. The term
retail is used to indicate thenature of sale in a trade deal. Specifically, it indicates, the quantityof goods
dealt by the trader. Goods in small quantities are offeredfor sale in a retail trade.

RETAILER

The term retailer is used to denote the party, trader orenterprise engaged in the sale of commodities to
the end users.The retailer is a dealer whose line of business is selling finishedgoods to the consumers. A
retailer performs the role of an agent ofthe consumers who buys finished goods from the
manufacturersor wholesale dealers for the use of the consumers. Retailers arethe most important
element in the distribution network of goodsand services.

RETAILING

Retailing refers to all the activities related to the sale of goodsand services to the ultimate consumers.
The term encompassesthe whole process of retail trade. Retailing is concerned with theselling of goods
to the buyers for their personal, family or householduse. Retailing is distinguished on the basis of the
nature of thebuyer at one end of the deal. Anyone selling goods directly to theend users is retailing. If a
manufacturer sells his products directlyto the ultimate consumers, it is retailing.Thus, retail refers to
selling of goods in small quantities tothe end users, retailer is the dealer or firm engaged in such
sellinggoods and retailing is the whole process of retail sale.

CHARACTERISTICS OF RETAILING

1.Retailing is the last phase of the marketing process which facilitates the reach of finished goods in the
hands of the end users.

2.In retailing, the retailer buys goods in large quantities from the manufacturer or the wholesaler and
sells them in small quantities to the ultimate consumers for their personal or household use.

3.Generally, retailing deals with a wide variety of goods for the use of the consumers.

4.The mechanism of retailing functions on the direct contact with the retailer and the consumers.

5.Retailing is a medium of marketing communication which transmits product related information to the
consumers.
SCOPE AND IMPORTANCE OF RETAILING

Retailing facilitates high level exposure and widespreadproduct distribution in the marketing process.
Retailers offer a widerange of services, from promoting products directly to consumersto giving them a
chance to view and test products. The followingpoints clearly describe the scope and importance of
retailing;

1.Wide Range of Goods

Retailers offer wide range of goods to the consumers for theirchoice. This gives consumers an
opportunity to select goods fromdifferent brands, sizes and prices at one location. In the absence
ofretailing, people have to the sites of different manufacturers forselection and purchase of a single
product.

2.Break-of-Bulk (Breaking Bulk)

Breaking bulk is an important service offered by retailers tothe consumers and the manufacturers. In the
distribution channel,manufacturers and wholesalers sell goods in large quantities orbreak down thebulk
to the retailers. The retailers thenmerchandise into smaller quantities as per the individual
consumerneeds and household consumption patterns. The system helpsmanufacturers to efficiently
bundle (pack) and transport theirproducts in larger quantities to the dealers which considerablyreduces
their storage and transportation costs. It enablesconsumers to buy products from the retailers in smaller
quantities.

3. Merchandising

Merchandising is an important aspect of retailing. It refers tothe various activities which contribute to
the sale of products tothe consumers. Every retail store has its own line of merchandiseto offer products
to the customers. It plays an important role inattracting the customers into the store and encouraging
them topurchase. The various tools of merchandising include store layout,packing, arrangement of the
products in the store, display andpresentation. Merchandising helps manufacturers in the promotionof
their products. It gives consumers awareness about the productsavailable in a store.

4. Dissemination of Information

Retailers act as an important centre of product, market andcustomer information. They give valuable
information to both themanufacturers and the consumers. Retailers have direct relationwith the
consumers which helps them to understand the buyingbehavior and market conditions. The
manufacturers can collect allthe relevant information they need from the retailers for makingchanges in
their products and marketing strategies. Retailers giveconsumers details about the various products and
uses. They alsoprovide product usage instruction and guidance to the consumers.Information about
different brands and their prices are availablefrom the retailers.
5.Holding Inventory

Retailers hold stock of goods for ensuring ready availabilityfor the consumers. Thus, consumers need no
hold goods in largequantities at home. They can purchase goods from the retailers asand when needed.
This saves the money and space of theconsumers.

6.Prominent Role in the Value Chain

When consumers purchase goods, retailers order more goodsto refill their stock. As a result, companies
have to manufacturethe goods for the retailers. For production, companies have topurchase more raw
materials from the suppliers. Retailers occupya unique position in the supply chain of products from
theproducers to consumers. They act as a gatekeeper betweenproducers and consumers and play a
crucial role in thesustainability of consumption and production.

7. Economic Development

Retailing is one of the most important industries in the worldand plays a predominant role in economic
development of thecountry. Retailers aim at maximization of sales and creation ofdemand for products.
Increase in sales leads to increase in thevolume of production. This accelerates the growth of GDP
(GrossDomestic Product) of a country which is one of the primaryindicators of economic development.

8.Creation of Employment Opportunities

Retail sector is the largest employment provider across theworld. It provides wide range of career
opportunities to the poorestand unskilled along with the educated and skilled people.
Careeropportunities in retailing include store management, merchandisingand owning of a retail store.

FUNCTIONS OF RETAILING/RETAILERS

Functions of retailing or retailers can be examined under twoheads;

1. Primary Functions and

2. Secondary Functions

1. Primary Functions

Primary functions refer to the basic and core functional areasof retailing. The following are the
important primary functions ofretailing;

1) SearchingA retailer deals in different variety of goods which he purchasesfrom different

manufacturers and wholesalers. He has to searchand identify the manufacturers and wholesalers of
goods requiredby the consumers. Finding appropriate sources of goods isnecessary for ensuring better
sales in a retail store.
2) BuyingPlacing of orders and buying of the required goods is animportant function of retailing. For
this, retailer has to study themarket taste and preference of the consumers, market conditionsand
competition. Selection and variety goods in a store determinethe volume of sales.

3)TransportingThe retailer transports goods from the place of manufactureror wholesaler to his store
for selling them to the consumers. Hefills the gap between the origin of goods/wholesale store and
thePoint of Sale (POS) through transportation. Retailing facilitates thesale of goods to consumers which
are manufactured in differentplaces.

4) StoringGoods bought from the manufacturers or wholesalers have tobe stored by the retailers for
ensuring uninterrupted supply to theconsumers. Storing helps the retailer to buy large quantities
fromthe wholesalers and deliver the goods as and when required by theconsumers. It also gives the
retailer the benefits of the economiesof large scale buying such as trade discount and reduced cost
oftransportation.

5)SortingRetailers buy and collect an assortment of goods from varioussources in large quantities for
offering a wide variety of choices forthe final consumers. The sorting function is essential to break-upthe
assorted goods into different homogeneous categories for theeasy selection and buying of the
consumers. Goods are usuallysorted on the basis of properties such as quality, grade, quantity,shape,
size colour and price.

6) Breaking BulkRetailers break down the merchandise bought from thewholesalers into smaller
quantities as per the individual consumerneeds and household consumption patterns. The system
helpsmanufacturers to efficiently bundle (pack) and transport theirproducts in larger quantities to the
dealers which considerablyreduces their storage and transportation costs. It enablesconsumers to buy
products from the retailers in smaller quantities.

7)PackingSelling in small quantities necessitates the retailers to packthe goods in small boxes, covers
and containers for the convenienceof the customers. Packing by retailers helps the consumers in
thetransmission, preservation and storage of goods. Some retailersoffer attractive bags with their
names printed to the consumers forcarrying the goods bought.

8)PricingRetail price refers to the price at which a commodity is sold tothe end user. Price is the decisive
factor of the profit earned of theretailer. There are various methods of pricing adopted by the
retailerwhich include cost plus pricing, competition based pricing, multiplepricing, psychological pricing
and discounted pricing. In certaincases, retail price of the product is suggested by the
manufacturerwhich is popularly known as MSRP or manufacturer suggested retailprice.

9)SellingSelling is the final phase of retailing where the ownership andpossession of the goods are
transferred from the retailer to theconsumer. All the other functions of retailing are performed
tocomplete this transaction. The consumer remits the cash/price andtakes delivery of the goods bought
on completion of a retail deal.
2.Secondary Functions

Secondary functions of retailing aim at the promotion of theproduct and the store in order to increase
the volume of sales.They also include the supplementary activities in connection withthe selling of
goods to the consumers.

1)AdvertisingRetailers often give advertisements for the products andbrands offered by them.
Advertising helps to inform the consumersabout the product, price, discounts and offers given by the
retailstores. It leads to increased sales and wider publicity to variousbrands dealt by retailers.

2)MerchandisingMerchandising in a retail store comprises various activitieswhich contribute to the sale

of products to the consumers. Everyretail store has its own line of merchandise to offer products to
thecustomers. The various tools of merchandising include store layout,packing, arrangement of the
products in the store, display andpresentation. Merchandising helps manufacturers in the promotionof
their products. It gives consumers awareness about the productsavailable in a store.

3) FinancingRetailers offer credit facilities to consumers to increase sales.Selling of goods on credit

enables consumers to buy goods withoutready/spot payment of cash. Credit sales require the
consumersto pay the money on an agreed future date. The relaxation inpayment terms brings more
sales to the retailers and allows theconsumers sufficient time in making the payment of
goodspurchased.

4)Risk BearingA retailer has to face many kinds of risks in connection withthe selling of goods to
consumers. In credit sales, he has to bearthe risk of bad debts on account of non-payment of amount by
theconsumers. Goods dealt by the retailers are subject to various riskslike deterioration in quality,
spoilage, perishability and obsolescence(changes in style and fashion). The goods are also exposed to
naturalrisks like fire, flood, earthquake and other natural calamities.

5)Collecting Tax Retailers act as an intermediary between the government andthe consumers in the
collection and payment of tax. The retail priceof a commodity comprises indirect taxes levied by the
governmentsuch as the VAT or sales tax. Such taxes raise the price of productsbecause of the addition of
taxes. So at the time of purchasing goodsfrom a retail shop, the sales tax is actually paid by the
consumers.The retailer eventually passes this tax to the respective authority.

SERVICES OF RETAILERS

1. Services of Retailers to Consumers

The important services provided by retailers to the consumersare as follows;

1)Offer wide variety of GoodsRetailers offer different types of products and brands for thechoice of the
consumers. This helps consumers to easily selecttheir preferred products and brands.
2) Shopping Experience- In the contemporary world, retailing is not just selling of goodsbut a pleasant
experience to consumers. Retail stores try to makeshopping a fascinating experience for the consumers.
Ambianceand lay out of the retail stores are designed in such way as to givemaximum relaxation and
enjoyment to the consumers.

3)Credit Facility- Retailers offer credit facilities to consumers to help them tobuy goods without ready or
spot payment of cash. Credit salesrequire the consumers to pay the money on an agreed future
date.The relaxation in payment terms allows the consumers sufficienttime in making the payment of
goods purchased.

4) Home Delivery- Certain Retailers arrange home delivery of goods to the consumers. Home delivery of
goods saves the cost and time of consumers. It also helps the consumers to get an easy access of the
required goods at their place of living.

5)After Sales Service- After sales services of retailers make sure that consumers are satisfied with the
products bought. Good after sales services increase the loyalty of consumers to a retail outlet. After
sales services of retailers include feedback calls, replacement of the defective goods, exchange and
repair services.

6) Information and Guidance- Retailers provide valuable product related information to consumers.
They provide details regarding the features and specifications of different products to consumers.
Retailers give valuable advice regarding the use and maintenance of the products delivered by them.

2. Services of Retailers to Manufacturers and Wholesalers

The following are some of the important services rendered by the retailers to the manufacturers and the
wholesalers;

1)Means of Sustainable Production- Retailers help the manufacturers to carry on the process of
production on a continuous basis by selling their products to the end users. When consumers purchase
goods, retailers order more goods to refill their stock. As a result, manufacturers have to produce the
goods to meet the demand of the retailers.

2)Intermediation Service- Retailers act as an intermediary or connecting link between the

manufacturer/wholesaler and the consumers. They give manufacturers or wholesalers access to
markets by offering them the opportunity to present their products to consumers. Manufacturers and
the wholesalers are relieved of making individual sales to consumers in small quantities. The
responsibility of selling goods to the consumers is borne by the retailers and the manufacturers can
concentrate on the production process.

3)Information Sharing Service -Retailers are the first parties to receive the suggestions, complaints and
grievances of consumers because they are in direct touch with the consumers. Retailers clearly
understand the market trend and the pulse of the consumers. They provide valuable and reliable
information to wholesalers and manufacturers about the consumer needs and preferences. Feedback
from the retailers helps the manufacturer to modify their products and marketing strategies in
accordance with the interests of the consumers. Information supplied by the retailers offers valuable
inputs for the decision making of the manufacturers and the wholesalers.

4)Product Promotion Service- Retailers take huge effort in the promotion of products through
advertising, merchandising and personal selling. They play a crucial role in positioning a brand in the
minds of consumers. Opinions and suggestions of the retailers influence the buying decision of the
consumers.

5)Product Launching Service- Retailers offer valuable services in the launching and commercialisation of
new products in the market. The direct contact of retailers with the consumers gives them the
opportunity to explain in detail about the utility and the characteristics of a new product to the
consumers.

TYPES OF RETAILING

There are different types of retailing. In order to make a systematic study, the various types of retailing
can be divided in different classes. They are described below;

1. Types of Retailing on the basis of Ownership

2. Types of Retailing on the basis of Product Line

3. Types of Retailing on the basis of Place/Location

4. Types of Retailing on the basis of Sales Volume

5. Types of Retailing on the basis of Store

Types of Retailing on the basis of Ownership

On the basis of ownership, retailing can be of the following types;

1) Independent Stores -An independent store is a retail shops owned by a single person. Independent
stores are sole trading concerns owned, operated, directed and controlled by an individual. The owner
of independent store is usually assisted by local staff or family members. Independent stores are passed
from one generation to other generation. Examples of independent stores include small scale grocery,
stationery and cloth stores.

2)Chain Stores/Multiple Shops- Two or more retail outlets under a common ownership constitute a
retail chain. In chain store retailing, stores are opened at different places under the management and
control of a company's central office. Chain Stores are groups of retail stores engaged in the same
general field of business or same merchandise. A chain store can exist in only one town or across the
globe. For example, Walmart, Big Bazaar and Pantaloons Fashion & Retail Limited,
3)Franchise- It is a contractual agreement between two parties, the franchisor and the franchisee in
which the former gives license to the latter to start and operate a business under an established name.
In franchise contract, the franchisee usually pays the franchisor annual licensing fees. Pizza hut, Bata and
McDonalds are some of the examples of franchise business.

4) Consumer Co-operative Stores- Consumer Co-operative Stores are retail enterprises owned by the
consumers who are the members of the co-operative society. They are also known as consumer co-
operative societies. Co- operative stores eliminate middlemen and offer goods to consumers at
reasonable prices.

2.Types of Retailing on the basis of Product Line

Major types of retailing on the basis of product line are as follows;

1)Mom and Pop Stores/ Kirana Stores- Mom and Pop stores are small neighborhood retail stores which
occupy a small space in a single location to cater to daily needs of the consumers in the area.. They offer
selected few products and carry out low volume of sales.

2)General Stores - General stores deal in all the necessary goods required by the consumers. Goods
handled by general stores include food items, clothes, medicines and household goods. A general store
is usually located in a in a small space, where people from the town and surrounding rural areas come
to purchase all their general goods.

3) Department Stores- A department store is a set-up which offers wide range of consumer products in
different categories known as departments. It is a large shop constituted by different departments each
of which deals in different goods. Consumers get different categories of products under one roof in a
department store. Department stores have different sections or departments to sell garments,
furniture, home appliances, toys, cosmetics, toiletries, food, books, jewelry, electronics and stationery.

4) Supermarkets- Supermarkets are large self service retail stores which generally sell food products,
stationery and household items, They are large-scale retail outlets specialised in necessaries and
convenience goods. In a supermarket, consumers choose the products themselves from the racks and at
the end, the cashier collects the cash.

5) Shopping Malls- A Shopping mall is a big retail center containing large number of stores in nearby
buildings or inside a big building. Many retail stores operating at one place form a mall. A mall consists
of different retail outlets each selling their own products at a common platform.

6)Convenience Stores- Convenience stores are small retail stores which stock a range of items for daily
use such as food items, bakeries, soft drinks and toiletries. They operate as a convenient supplement to
larger stores and give long shopping hours for the consumers. Convenience stores are usually located
beside busy roads or in urban areas for easy access to consumers.
7) Speciality Stores- Speciality stores are small retail outlets that deal with a particular product line and
related items. Garment shops, home appliance shops, hardware shops are some of the examples of
speciality stores. Speciality stores can be further classified into;

a) Single Line Stores: Single line stores deal in items belong to a particular product line, A store
that offers dress wears is a single line store. Single line stores have specialisation in selling a particular
line of product.

b) Limited Line Stores: Shop that are specialised in offering a particular category of goods in a
product line are limited line stores. Men's wear shops, Cosmetic shops for Ladies are examples of limited
line stores.

c) Super Speciality Stores; Retail outlets that are more concentrated and specialised in dealing
with particular brands in a product line are super speciality stores. For example, a paint shop dealing
only in 'Asian Paints' or a sanitary ware store dealing only in 'Parryware' brand products.

3)Types of Retailing on the basis of Place/Location

On the basis of place or location of retail trade, retailers can be classified into two types;

1) Itinerant Retailers- Itinerant retailers do not have fixed location for trade. They move from one place
to another for selling goods. They are usually found in road sides, streets, bus terminals, stands and
railway stations. Itinerant retailers carry small quantity of stocks which can be conveniently sold during
the day. They deal in daily need articles which include vegetables, fruits, milk, eggs fishes, stationery and
fancy items. The important types of itineratnt retailers are as follows;

a) Hawkers and Peddlars: These are small retailers who carry goods on their heads or on
wheeled vehicles from door to door. They usually sell goods like fruits, vegetables, fish eatables and
kitchen utensils. They have no fixed place of sale and travel from place to place to sell goods by calling
out (screaming/shouting).

b) Cheap Jacks: A cheap jack is a travelling vendor who sells inferior and low priced goods. They
set up temporary shops in towns and exhibit their goods for sale. Cheap jacks do business for a short
period in one locality and keep moving from one locality to another.

c) Market Traders: These are periodical traders who sell products at periodical markets on
market days. The markets may be weekly or fortnightly.

d) Street Traders: These traders sell goods on busy streets or footpath. They sell goods laid out
on the pavement of streets. Street traders are also known as pavement traders. Street traders usually
deal in vegetables, fish, toys and bangles.

2) Fixed Shops- Under this category, retailing is carried out in permanent stores in a locality. Fixed shop
retailers own a fixed store for selling goods and do not move from place to place. Fixed shop retailing
ranges from small scale retail outlets to large scale retail stores. Fixed shops include kirana stores and
big shopping malls.

4. Types of Retailing on the basis of Volume of Sales

1)Small Scale Retailing- In small scale retailing, retailers buy and sell small quantity of goods. Small
scale retailers keep small stock of goods and usually operate as sole trading concerns. They buy essential
goods from wholesalers and sell to local consumers.

2) Large Scale Retailing- Large scale retailers buy and store large quantity of goods for selling to
consumers. They invest more amount of money in the business to overcome competition in the market.
The financial position of large scale retailers is high and they undertake more risks in business compared
to small scale retailers.

5. Types of Retailing on the basis of Store

The following are the major types of retailing on the basis of store;

1) In-store Retailing - Selling of goods through a store or shop is termed as in-store retailing. In this
mode of retailing, consumers buy goods from a retail shop. In-store retailing comprises wide range of
stores such as small retail shops, departmental stores, supermarkets and big shopping malls.

2) Non-store Retailing - Retailing without establishing any store is known as non-store retailing. It
describes retailing activities outside shops and stores. Non-store retailing is also known as 'home
shopping'. The method of selling goods to consumers at their homes is a form non-store retailing. Non-
store retailing can be of the following types;

a) Direct Selling: It is the personal presentation, demonstration and selling of goods to

consumers in their homes or in any other location away from permanent retail premises. Direct selling is
performed by means of face-to- face contact with a consumer or group of consumers. It is based
principally on personal contact with the consumers.

b) Mail Order: It is a type of retail trade where orders for the goods are received from
customers through mail and goods are dispatched through mail. The goods are supplied either by
registered Parcel or Value Payable Post (V.P.P.). In this trade, there is no direct personal contact
between the seller and the buyer. The retailer in mail order business advertises in the leading news
papers and magazines about his products for collecting orders from the buyers. The goods required by
the consumers are sent by post and the payment is made at the time receipt of goods.

c) Electronic Retailing (E-tailing): It is the sale of goods through internet. The services of e-tailing
begin from browsing products to placing orders to paying for purchases on the Internet. There are
thousands of virtual stores or e-commerce sites on the internet. E-tailing sites usually comprise e-
catalogue, shopping cart and a payment gateway. E-catalogue offers a database of products with prices
and available stock. Consumers have to select the goods to fill the shopping cart and finally make
payment through credit or debit cards or other modes such as cash on delivery and online bank
transfers.

d) Automatic Vending Machine: It is a method of selling goods through a vending machine. The
vending machine gives out snacks, candies, beverages, newspapers, magazines and other goods to
consumers automatically on inserting currency into the machine.

DIRECT MARKETING

Direct marketing is a channel free distribution of products. There are no middlemen functioning in
between the manufacturers and the consumers. In this type of marketing, companies deal directly with
its customers. Simply, direct marketing refers to a communication between the seller and the buyer
directly. It is direction communication with a marketing purpose. Direct marketing uses different media
such as brochures, internet and telephone to communicate and persuade buyers to purchase a product.

According to the Direct Marketing Association (DMA), direct marketing is defined as

"communications where data are used systematically to achieve quantifiable marketing objectives and
where direct contact is made, or invited between a company and its customers and prospective
customers".

According to Drayton Bird, "direct marketing is any advertising activity which creates and
exploits a direct relationship between the company and the customer as an individual".

One-to-one (direct) communication, open dialogue and personal relationships for repeated
dealings are the significant features of direct marketing.

DIRECT MARKETING AND MARKETING

Direct marketing Marketing

1. It communicates directly with the customer. Mass distribution network is used to reach the
customer.

2. Communications are mostly personal in nature Communications are impersonal which are
(One-to-one communication). directed to all customers.

3. It presents product offers to individuals It presents a uniform product offer to all the
specially tailored to satisfy their needs. customers.

4. It tries to build long term personal relationship Personal relationship (one-to-one relationship)
with the customers. with all customers is not possible.

5. The marketer/company enjoys full control over The company has limited control the
the delivery of products to the customers. intermediaries. over the distribution network or
the intermediaries.
MERITS

1. Clear Targeting- Customers are targeted with the help of customer data bases created and
maintained by the company. The company can make direct communications with the individual
customers easily because the company has all the relevant information of a customer.

2. Personalisation- Customers can be addressed by their name because of the company maintains a
personal relationship with its customers. The usual way of addressing in general marketing is 'Dear
customer or Dear sir' whereas in direct marketing companies address customers by their names.
Personalisation increases the relationship between the company and the customer.

3.Immediate Action- Direct marketing usually requests for immediate action from a customer. The call
for immediate action in direct marketing may result in positive responses from the customers compared
to impersonal requests in marketing. 'Limited offer', 'special offer for you', 'your prompt reply is
requested' are some of the common catchphrases in direct marketing.

4. Invisible Strategies- The strategies followed in direct marketing are invisible to competitors. The
marketing offers are made by way of personal communication between the company and the
customers. It is difficult for a third party to understand the details of such communications. So direct
marketing helps companies to resist competition.

5. Measurability- A company can measure the effectiveness of a specific strategy in direct marketing. It
can directly understand what offer has worked and what did not by evaluating the reactions of the
customers. But in the case of ordinary marketing, measurability is not so easy because of the
involvement of the several different intermediaries.

DEMERITS

Direct marketing is not free from drawbacks. The following are the major drawbacks of direct marketing;

1. People see advertisement mails by companies as junk mails' or 'spam' which are nuisance and an
invasion of their privacy.

2. By concentrating on directing marketing, companies are unable to get the numerous benefits of mass
marketing such as mass promotion through the different media and the support of the different
intermediaries.

3. The success of direct marketing highly depends on the accuracy of the customer database kept by the
company. If it is not properly updated, the marketing communication reaches the wrong customers.

TYPES/TOOLS OF DIRECT MARKETING

The following are some of the common types of direct marketing;

1. Direct Mail Marketing - It refers to sending product communications and advertisement m3aterials
to the home and business addresses ofthe consumers.
2.E-mail Direct Marketing- This form of direct marketing contacts consumers through their Email
accounts. Product communications and advertisements will be sent to the E-mail of the consumers.

3.Telemarketing- It is a type of direct marketing that involves contacting people over telephone for the
purpose of marketing products.

4.Catalogues- A catalogue is a multi page direct marketing booklet published by a company and issued
to a prospective customer to give complete information regarding the products offered. It employs high
quality design and photography to create a visual impact of the products.