Development of the Channels of Distribution
The emergence of channels of distribution has been explained in terms of the following factors:
1. Intermediaries evolve in the process of exchange because they can increase the efficiency of the process by creating time, place, and possession utility.
2. Channel intermediaries enable the adjustment of the discrepancy of assortment by performing the functions of sorting and assorting. Discrepancy of assortment will be described shortly.
3. Marketing agencies form channel arrangements to make transactions routine.
4. Channels facilitate the searching process by consumers.
Marketing channels develop because intermediaries (e.g., wholesalers and retailers) make the marketing process more efficient by reducing the number of market contacts. In primitive cultures, for example, most household needs are met by family members. By many household needs can be met more efficiently by exchange. Specialization in production creates efficiency for this reason, it has become a way of life. A household must exchange goods and services to provide for all of its needs.
The advantage of an intermediary is greater as the number of specialized producers increases.
Intermediaries provide possession, time, and place utility. They create possession utility through the process of exchange, the result of the buying and selling functions. They provide time utility by holding inventory available for sale. And they provide place utility by physically moving goods to the market. The assortment of goods and services held by a producer and the assortment demanded by the customer often differ. The primary function of channel intermediaries is to adjust this discrepancy by performing the following "sorting" processes:
1. Sorting out.
2. Accumulating.
3. Allocation.
4. Assorting.