By Dr.

Palima Pandey

Retail Management
Unit 1
An Introduction to Retailing

Concept of Retailing
Retailing is a business deal in which the seller sells small quantities of goods to the customers as
per their needs. In simple terms, the function of retailing is to sell products to final consumers by
an individual or a firm.

The word retail has been derived from the French word ‘re-tailler’ which means ‘to break
the bulk’.

According to Philip Kotler, “Retailing includes all the activities involved in selling goods or
services to the final consumes, for personal, non-business use.”

Thus, retailing means, to sell goods in small quantities. Retailing not only covers the sale of
goods which are tangible but also includes the sale of services to individual customers.

Retailing is defined as “Any business that directs its marketing efforts towards satisfying
the final consumer based upon, the organization of selling goods and services as a means of
distribution.”

CHARACTERISTICS OF RETAILING:

1. Direct interaction with customer’s/end customers.

2. Sale volume large in quantities but less in monetary value
3. Customer service plays a vital role
4. Sales promotions are offered at this point only
5. Retail outlets are more than any other form of business
6. Location and layout are critical factors in retail business.

RETAILING MIX

The 6 Ps of Your Retail Marketing Plan

1- Product:- Product is one of the most important element of retail mix. Retailer needs to
identifying and full fill customer's needs. Retailers must be focused about the quality of product
as per the customer's expectations and requirements.
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2- Place:- Place means right location where customer can access the product. The availability of
product must be at the place of customer's need.
3- Promotion::- Promotion tool is used by retailers in order to advertise their products in market
to customers. The promotion can be done by various method i.e. direct marketing, newspaper
advertisement, leaflets and etc.
4- Price:- Price is also plays an important role in retail mix. Price decided by the retailer must be
affordable by customers. Price must be effective by which a retailer can survive in market
between its competitor with same product.
5- Personnel:- Personnel means in the retail mix refers to the people who are involved in process
of providing product or service to the customer. These people have responsibility about a product
or service from pre-sale to post-sale activities.
6- Presentation:- Presentation in retail mix refers to the physical environment of a retail store
(brick & mortgage), website ( non-store retailing). Presentation of retail store (brick & mortgage)
includes ambience, lighting, access to products and etc. While in website (non-store retailing)
includes the virtual store ambience, easiness in access to customer, buying & selling, payment
methods and comparison availability between product by other retailers.

The Strategic Planning of retailing is based on following principles:

(i) Customer Orientation – The retailer makes a careful study of the needs of the customer
and attempts to satisfy those needs.

(ii) Goal Orientation – The retailer has clear cut goals and devises strategies to achieve
those goals.

(iii) Value Driven Approach – The retailer offers good value to the consumer with
merchandise having the price and quality appropriate for the target market.

(iv) Coordinated Effort – Every activity of the firm is aligned to the goal and is designed
to maximize its efficiency and deliver value to the consumer. Through a coordinated strategic
effort pertaining to product, place, promotion, and price (4Ps), the retail maintains its strong
industry position.
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Classification of Retail Business

1. Based on Sector

India’s retail industry can be classified into organized and unorganized sectors:

i. Organized retail refers to trading done by licensed retailers, or those who are registered
for sales tax, income tax, service tax, and also give employee benefits. This includes the
corporate-backed hypermarkets and retail chains, and the privately owned large retail
businesses.

ii. Unorganized retail, on the other hand, refers to the traditional retail, such as
individually owned shops, local kirana shops, general stores, paan/beedi shops, kiosks,
convenience stores, hawkers and sellers using hand carts, and street vendors. They are not
usually registered for payment of tax and have no social security benefits.

2. Based on Ownership

i. Individual Entrepreneurs or Family-Owned Stores:

These stores serve a group of loyal customers, usually living close by. In the US such stores
are called ‘mom-and-pop stores’, implying that a retired couple runs the store. However, in
the Indian context, this would be wrong, since stores are family owned and the more
appropriate description may well be a ‘pop-and-sons store’. The independent retail owner
makes all the decisions, from which type of goods to stock to the level of services to be
provided. Many such stores in India are handed down from generations and have remained
in the same family, sometimes for almost a century.
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ii. Company Owned Stores:

Owned and operated by large companies, these retail outlets have central buying
departments that place large orders with the manufacturers. Retail chains fall under this
category.

iii. Franchise:

Rather than go at it alone, an entrepreneur may decide to open a store with a famous
company by obtaining its license. In this case, the store is operated using the franchisor’s
trade name and business model. The franchisee gets the right to use the name, product,
concept, and business plan of the franchisor who also decides about store layout and design.

The franchisee pays a royalty and commission on sales to the franchisor. In the case of a
strong brand name, like McDonald’s, the franchisee gets an assured business and goodwill
which otherwise would take years to build. In this way, the franchisee reduces most of the
risks associated with starting a retail business. Franchisees get marketing, training, and
operational support needed to run a successful business.

iv. Dealership:

A third form of retail is the model of a licensed dealership. In this, the licensee gets the
right, which is sometimes exclusive, to sell a company’s products. But the arrangement is
more flexible than a franchise, since the dealer can sell a variety of goods in his store. There
is no royalty or fees to be paid to the licensor, and the system works as a mix of franchise
and independent retailer.

The advantage is that the retailer gets an assured supply of goods from a company, the
company provides some branding or product name recognition, and, thus, a regular stream
of customers can be expected. Existing retailers may find the dealership model lucrative, as
it adds to their business. The dealer maintains his independence. But companies may
pressurize dealers to achieve a certain level of sales. Dealers do not receive help from
companies in setting up their business.

v. Network Marketing:

This is a retail model where a person sells the companies’ products to friends, family
members, and others for a commission. The agent also recruits other people to sell products,
on which he or she earns commission. It is a business for individuals to do on part- or full-
time basis. The main advantage of network marketing is that individuals can start the
business with relatively less investment.
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Network marketing provides freedom for people to sell in their spare time. However, one
may find oneself stuck with unsold stock, and unscrupulous multi-level companies simply
shut down after recruiting a lot of representatives. Network marketing relies more on
personal selling rather than store selling.

3. Based on level of Service

Level of service varies from full service to self-service. When customers visit a shop and
ask for goods, the shopkeeper gets them him/her, packs them, and hands over the packet.
This is called full service. In a supermarket, however, customers pick goods themselves and
carry them to the cash counter. This is an example of self-service. Some other stores operate
somewhere in between these two, providing partial/ limited service, as in apparel stores,
where a sales person assist in selecting products and the customer carries his/her shopping
to the cash counter.

4. Based on Product Assortment

Stores may have a single line of products as in a specialty store, or stock many items as in
shops and supermarkets. Convenience stores will stock only some items that are required
by their customers on a daily basis.

5. Based on Price

Retail stores are also classified on the basis of full price and discounted price. Customers
visit these stores depending on their needs. An upmarket fashion store, for instance, will not
offer discounts, but a store selling mass-produced goods may offer goods at discounts. Some
such stores offer discounts all the year round.

Retailer
A Retailer buys goods in large quantities from a wholesaler, divides the goods in the
smallest quantities possible and sells it to final customers.

A retailer should:
• establish the shop in a place where customers are attracted.
• stock the goods which are needed by the customers.
• competitive in price and quality of goods to be sold.
• financially sound.
• be cautious of over-stocking or under-stocking of goods.
• be up-to-date with trends in the market and its position.
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• ensure window display and counter display to promote sales.

• always be accessible to the customers.

Functions performed by Retailers

The retailer provides the products and services that the customer needs, in the required quantity,
at the right place and time. This activity of the retailer creates value addition or utility to the
customers. There basic functions performed by a retailer are as follows:

(1) Buying and Assembling:

A retailer deals in different variety of goods which he purchases from different wholesalers for
selling to the consumers.

(2) Storing:
After assembly of goods from different suppliers, the retailers preserve them in stores. The goods
are kept as reserve stocks in order to ensure uninterrupted supply to the consumers.

(3) Breaking bulk into smaller quantities:

To reduce the cost of long-distance transportation, producers ship the goods in large quantities;
the middlemen, including the retailers, open these large packages and make the product available
in much smaller quantities to the consumers, as per the needs.

(4) Grading and Packing:

Retailers have to sort out in different lots goods or products left ungraded by the producer or the
wholesaler. Also, they must make arrangements for proper packing of goods which are sold
loose.

(5) Providing product and service information to customers:

The retailer or salesperson is an important source of information, especially they make the
customers aware about features of the different brands available in the market.

(6) Selling:
The end objective of the retailer is to sell the goods to consumers. He undertakes various
methods to sell goods to the ultimate consumers.

(7) Speedy Delivery:

As the retail landscape expands digitally, beyond the traditional brick-and-mortar store, logistics
becomes even more integral. Aside from keeping a shop or suppliers stocked, contemporary
retail logistics ensure customers around the globe receive the right product at the right time in the
right condition for the right price. By applying strategy to product transportation and researching
best available couriers and routes, retailers can ensure faster, more direct delivery.
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(8) Providing customer services:

Retailers provide various services to their customers. These may include—free home delivery,
gift wrapping, credit facility and after-sales services.

(9) Credit Facilities:

He caters to the needs of the customers even by supplying them goods on credit. He bears the
risk of bad debts on account of non-payment of amount by the customers.

(10) Creating a convenient, comfortable and pleasant shopping experience for

consumers:
The aim of the retailer is to provide products required by the consumer, conveniently. This
creates place utility. Also, the number of customers increases when the environment inside the
retail stores is friendly and pleasant. Playing soft music, proper lighting, creating a larger space
for movement, courteous and well-dressed employees, etc., create a positive environment for the
customers.

(11) Risk Bearing:

A retailer has to bear different type of risks in relation to goods. While in stores, goods are
exposed to various risks like deterioration in quality, spoilage and perishability etc. The products
are confronted to natural risks viz; fire, flood, earthquake and other natural calamities. Other type
of risks like change in customer’s tastes also adversely affects the sales.

(12) Collection and Supply of Market Information:

The retailers are in direct touch with the consumers. They gather invaluable information with
regard to likes dislikes tastes and demands of the consumers and pass on this information to the
wholesalers and the producers which are very helpful to them.

(13) Helps In Introducing New Products:

Without the services of retailers, new products cannot be introduced properly in the market. This
is so because a retailer has a direct link with the consumer. He can explain nicely about the
utility and the characteristics of a new product to the customer.

(14) Window Display and Advertising:

The retailer displays the products in show windows in order to attract the customers. This leads
to immense publicity for the product.

(15) Provide feedback to producers about customer needs: With their first-hand
interaction with the customers, retailers have a good understanding of the customers’ needs. This
information, in the form of feedback can greatly contribute to product improvement by
producers.
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IMPORTANCE OF RETAILING

1) Sales to Ultimate consumers of the products

In a retail transaction, the goods and services are sold to ultimate or final consumers. The
products don’t get resold after this transaction. Goods and services sold at this point can be used
for various purposes such as for domestic use, household use or for industrial use.

2) A convenient form of selling quantity-wise

The meaning of word retail is to break down the goods in small pieces and reselling them. The
goods are bought by the retailer in large quantities from the middleman or manufacturer and bulk
is divided into small quantities and sold to consumers as per their requirements. To do this, the
retailer can repack goods in various quantities and shapes so that it is convenient for consumers
to choose and carry them to their homes.

3) Convenient Place and Location

Retailer stores are generally set up at locations which are convenient for consumers to reach. A
retail store can be of various forms such as it could be a small shop, small store, or a multiplex.
Goods can be sold through internet and mobile apps as per the convenience of consumers.
Moreover, shopping online is becoming a new trend because of the advancement in technology
and courier services. Therefore, more and more companies are taking their business online where
customers can view products at the comfort of their home and buy them.

4) The lifestyle of the people is shaped by retailing

Retailing is an integral part of modern society. People highly depend on retail stores to lead a
comfortable life. in the past time, goods and service were made available through the process of
trading. But in present times trading is replaced by buying and selling goods which makes retail
stores an important part of the society.

5) Retail businesses contribute to the economy

In many countries, the retail business is one of the biggest contributors to the Gross Domestic
Product (GDP) and its contribution has increased as compared to past and is also increasing by
leap and bounds. Retailing is a driving force of the economy and its ambition is to encourage
sustained growth.

6) Retail dominates the supply chain

In a supply chain, goods and services flow from the manufacturer or a service provider to final
consumers and when there is a huge number of consumers and they are distributed worldwide
then the role of retail stores become much more important. Retailers play the role of a connecting
link between a manufacturer and final consumers. Because of their crucial importance in the
supply chain the structure of retail stores has improved gradually over the years. In modern
times, retailing is categorized by large multiple chains and not by small scale independent retail
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stores. The increasing importance and formalization of retailing have made it a powerful part of
the supply chain.

7) Retail is interdisciplinary
Retailing has developed from a number of interrelated disciplines such as economics, geography,
management, economics, and marketing. Economics is useful to manage the finances of a store.
The good knowledge of geography is important to make the right choice of location to open a
store. Management plays an important role in managing your staff and inventory and similarly,
right marketing helps you to penetrate in the market.

8) Retailers provide maximum employment

At the present time, the retail world employs maximum people. As per an estimation, one in nine
of the workforces is employed in the retail industry. Moreover, two third of the total workforce
in the retail world is women and more than half employees in retailing are part-time employees,
which provides flexibility to workers to adapt to the particular needs of any employer. In the
past, the salaries paid to employees were very low. Therefore, people worked on a temporary
basis in the retail sector. But as the work conditions and salaries paid in the retail sector are
improving more and more people are considering retail jobs as a permanent career.

9) Retailing is an important subject area of study

Retailing is a separate subject of studies like management and marketing. Researches have been
conducted and professionals being hired to make this sector flourish.

10) Retailing offers scope for expansion in other countries

Retail provides a great opportunity to expand in international markets. A retailer who wants to
extend their business by selling their goods in other countries opens stores in different countries
to increase the number of consumers of their products.

11) Retailers rule the channel of distribution

Retailers are becoming the rulers of a channel of distribution. In past times, the power was in the
hand of suppliers because of a limited number of suppliers in the market. Retailers had no other
option than getting goods from the supplier to sell in their stores. But in present times there are
many suppliers for a single type of product. Therefore, a retailer can make a decision for which
brand to stock in their stores and consumers buys products stock provided by the retailers.
Therefore, retailers play an important role in shaping the demands of consumers.

12) Provides Comfort and facilities for shopping

Shopping has become a pleasant experience because of all the facilities and comfort provided by
chain stores, shopping malls, multiplexes, etc. people now don’t think shopping as work but they
look forward to it and consider it as a stress releasing and family activity. The giant retailers
provide various facilities such as air conditioning, parking, entertainment, kids play section, lifts,
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trolleys to carry goods, and food facilities, etc. and retailing through mobile phones ensures
doorstep delivery on all orders placed through the website or mobile apps.

13) Provide services to the manufacturer

The retailer is the end part of the supply chain and he is the one who interacts with the
customers. therefore, he has the opportunity to know about the views of customers and their
likings and disliking. Retailer gathers this information from his customers and shares it with the
manufacturer. This helps the manufacturer to make the required changes in the quality of the
product and improve its services to satisfy their customers. Therefore, a retailer plays an
important role in helping the manufacturer to increase his revenue generation.

14) Provision of warehousing and storage

Warehousing is a big problem for a manufacturer. A retailer buys goods in advance from the
manufacturer and reduces the problems of warehousing and storage for the manufacturer.

15) Advantage of an expert and specialist

Retailers are experts and have experience in selling products to customers. he has a better
understanding of customers and their likes and dislikes because of this regular contact with them.
He stores products as per the need of customers and sells them to customers in different sizes and
shapes.

16) Creates utilities and value

Retailer increases the value of the product by creating a place, time, and utility in the distribution
of goods. Retailers buy products in bulk and break them in small quantities and sell them in
small packs. In this way, he creates form utilities.

Types of Retailers
Retailers are divided into two main categories, Store or Non-Store Retailers, which are
further broken into retail types.

A. Store Based Retailers / Retail Formats

A store retailer is a traditional brick-and-mortar establishment where products are displayed for
customers to purchase. Store retailers can be categorized in many ways based on their strategy
mix, which includes a combination of store hours, location, product assortment, and prices.
There are following types of store retailers:
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Specialty Stores

A Specialty store is any store that sells a unique product or product line. The employees of
specialty stores are often very knowledgeable about the products they sell and offer high levels
of customer service. For example, when customers need new battery in their car, they may
head straight to AutoZone, a retailer specializing in vehicle parts. When they arrive, an
associate assists them in choosing the correct battery as per the make and model of their car, and
sometimes, they may either install it for the customers.

Department Stores

Department stores are typically larger than specialty stores and have separate areas or
departments for similar product lines. For example, areas could include shoes, kids’ clothing,
housewares, and so on. Each compartmentalized area may mimic the look and feel of a specialty
store to make for a more intimate experience, but often the sales associates are not highly trained
in each area. For example, Kohl’s, a department store chain in the United States, has
separate departments containing women’s fashion, shoes, kitchenware, and toys.
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Supermarkets

A Supermarket consists of large stores with high volume and low profit margin. They target
mass consumer and their selling area ranges from 8000 sq.ft. to 10,000 sq.ft. They offer fresh as
well as preserved food items, toiletries, groceries and basic household items. Here, at least
70% selling space is reserved for food and grocery products. For example, Food Bazar and
Tesco. Another example is Publix, an employee-owned supermarket chain that opened in 1930
and has nearly 1,000 stores in the southeastern United States. Publix’s average retail size is
roughly 32,000 square feet, and more than 50 percent of its shelves are dedicated to grocery
items. The other 50 percent consists of cleaning items, toiletries, over-the-counter
medicines, beer/liquor, and personal hygiene products. Like most supermarkets, Publix also
offers a bakery, hot food bars, a pharmacy, some apparel, and sometimes even pool supplies,
toys, and other non-food items.

Convenience Stores

They are small stores generally located near residential premises, and are kept open till late night
or 24x7. These stores offer basic essentials such as food, eggs, milk, toiletries, and groceries.
They target consumers who want to make quick and easy purchases. For example, Reliance
Fresh, DMart, hypercity, 7-Eleven etc.
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Superstores

Superstores are very large retailers that have characteristics of both supermarkets and
department stores. Like supermarkets, they sell a wide range of grocery items. But they
also have considerable space dedicated to non-food departments, as in the case of
department stores. For example, ‘Target’ operates 1,927 retail stores in the United States.
Some of its stores are considered superstores, where consumers can purchase not only (nearly)
everything on their grocery list, but also clothing, household goods, electronics, toys, and
sporting equipment.
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Category Killers

Category killers are large superstores or big-box retailers that are bigger, cheaper, and more
convenient than other types of stores. Category killers typically dominate a product category
by offering low prices and wide product selection. They achieve this by using a cost
leadership strategy, which involves becoming a price- or discount-based mass-retailer. Because
of their sheer size, they have the advantage of buying products in very large quantities, which
gives them a strong negotiation position for the price they pay to distributors. In turn, they can
offer discounted prices to consumers. These stores are called category killers because they often
put nearby specialty stores out of business. Home Depot, IKEA, Best Buy, Lowe’s and Toys R
Us are considered category killers of their industry because of their exhaustive inventory
selection and low prices. The popularity of this big-box format means that smaller hardware
stores may find it difficult to compete.

Discount Stores

A discount store is one of the categories of retail business where a retailer sells products at
greater discounts. Mostly, discount stores operate on the same principles as a departmental store.
That said, discount stores also sell different types of products under one roof (all in one
shop). However, in comparison to departmental stores, the prices are lower at discount
stores. These stores mainly deal in grocery, fresh and preserved food, electronics, clothing, and
other similar items. Discount stores are able to sell products at discounted price as these retailers
buy products in bulk quantities directly from the manufacturers. Therefore, manufacturers charge
them lower prices. Discount stores do not offer much assistance when it comes to customer
services. Ross is an example of a discount store that sources different brands at reduced prices
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and sells them to the end consumer at prices that are much lower than other department
stores and specialty stores.

Off-Price Retailers

Retailers that provide high-quality, name-brand goods at deeply discounted prices are
considered off-price retailers. Off-price retailers are independent of manufacturers and buy
large volumes of branded goods directly from them. The off-price retail model relies on the
purchase of over-produced, or excess, branded goods at a lower price, thus being able to sell to
consumers at a discount compared to other stores which purchased an initial run. While these
retailers offer goods within more than one product line, often consumers cannot be guaranteed to
find the same brand or item(s) in a store twice. T. J. Maxx is the flagship chain of the TJX
Companies and one of the largest off-price retail stores. It sells men's, women's and children's
apparel and shoes, toys, bath and beauty products, accessories, jewellery, and home products
ranging from furniture and decor to housewares and kitchen utensils.
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Factory Outlets

In some ways, factory outlets are similar to off-price retailers. The goods found in factory
outlets are typically over-manufactured and sold at lower prices. However, factory outlet goods
are sold directly from the manufacturer rather than through a third party. Many clothing
manufacturers have factory outlets, which are typically clustered together in a factory outlet
mall, a space where numerous factory outlets are located. For example, one often see
Coach, Gap, or Lands’ End stores in outlet malls. Sawgrass Mills Factory Outlet, located in
Sunrise, Florida, is the largest factory outlet mall in the United States. It houses over 350 factory
outlet stores, including Adidas, LEGO, and Zales.

Warehouse Clubs

Warehouse clubs constitute the type of retailer that sells goods in bulk at discounted prices
to members only. Shoppers must first become members of the warehouse club before they are
allowed to purchase. Costco and Sam’s Club are two of the largest warehouse clubs in the United
States, and both offer a limited variety of perishable and non-perishable goods. Warehouse clubs
operate out of enormous, no-frills, low-cost facilities that resemble warehouses.
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B. Non-Store Based Retailers / Retail Formats

Non-store retailers are those retailers that operate outside of the traditional brick-and-mortar
location. There are following types of non-store retailers:

Automatic Vending

Also referred to as vending machines, automatic vending is the use of an electronic device
that dispenses a product. There is no direct human contact in the transaction. Traditionally,
automatic vending machines would dispense items such as potato chips, candy, and soft drinks.
However, recently, companies have found automatic vending to be successful with other items,
from cell phones to hot meals to automobiles. Carvana is an automatic vending non-store
retailer. Using Carvana, consumers can purchase their cars online, complete with financing, and
pick up their vehicles at one of its vending machines or have it delivered with little or no human
interaction needed. Debuting its 27th car vending machine in Atlanta, Georgia, in 2020 Carvana
now has a location that is 12 stories high and holds 43 vehicles. The company unveiled its first
car vending machine in 2012, taking automobile shopping—and automatic vending—to a whole
new level.
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Direct Mail and Catalogs

Direct mail involves solicited or unsolicited advertising of products and services to prospective
customers through the mail. Direct mail and catalogs are likely the oldest form of non-store
retailing. The first mail-order catalog in the United States was Tiffany & Co.’s Blue Book in
1845. The company still uses catalogs in addition to store retail locations, and the catalogs
feature some of the rarest diamonds and jewels in the world. A more popular mail-order catalog
that began in the 1800s was the Sears Roebuck and Co. catalog, the “big book,” which came to
feature hundreds of pages of products offered by the company; the last was published in 1993.
With the rise of the Internet, catalogs and direct mail are not as prevalent in marketing today, but
it is still a retailing strategy that works for many companies.
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Television Home Shopping

Another example of a non-store retailer is television home shopping. Television home shopping
is a business practice in which products or services are sold via television. There are some cable
network stations that are dedicated solely to home shopping 24 hours a day, 7 days a week. One
example is QVC, which stands for Quality, Value, and Convenience. The company was founded
in 1986 and purchased its rival Home Shopping Network (HSN) in 2017. It generated $14.1
billion in profits in 2018.

Similar to online shopping, consumers can order products directly from a company via telephone
or the Internet. Unlike the Internet and direct-mail catalogs, however, viewers can see the
product being demonstrated or modeled in real time. While QVC hosts are demonstrating
products, control room employees are able to monitor sales in real time as they are placed.

Online Retailing

Online retailing allows consumers to search and purchase products remotely over the Internet.
Although the Internet’s public birthday is debatable, online retailing started shortly thereafter.
Though Amazon (started by Jeff Bezos in 1995 as a book retailer) was not the first online
retailer, its inception prompted thousands of companies to follow suit. In 2021, US consumers
spent $5.4 trillion at online retail stores, a figure that is expected to increase. It is anticipated that,
by 2023, online shopping will make up 22 percent of retail sales across the globe.

Telemarketing

Telemarketing is the attempted sale or marketing of goods and services to potential customers
via telephone. The telephone has been used as a sales tool since shortly after its invention. The
1970s, however, was the decade when technology became advanced enough that call centres—a
centralized location or department that handles calls from customers—became an economical
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way of contacting potential customers. Over the next few decades, telemarketing became a staple
in marketers’ strategies. But this resulted in consumers being annoyed with these calls and a rise
in scamming calls, particularly those targeting the elderly. In 1991, the Federal Trade
Commission (FTC) addressed this problem with new rules for telemarketers, but it was not until
2003 that the Do Not Call Registry was created. Even with these changes, legitimate and non-
legitimate telemarketing finds its way onto phones. While many (legitimate) companies still
utilize this form of non-store retailing, telemarketing is generally used (and more widely
accepted) in business-to-business (B2B) settings.

Direct Selling

Direct selling is selling products and services directly to the consumer in a non-retail setting.
Direct selling typically consists of a salesperson attempting to sell a product or service to a
potential customer at their residence or place of employment. This practice was very popular in
the 1950 and 1960s when women were often stay-at-home mothers and/or homemakers.
Salespeople would bring the product—a vacuum, for example—to the consumer’s home and
demonstrate its benefits in an attempt to make a sale. With the rise of two-income families and
the Internet, direct selling is not used frequently today in the consumer market. It is, however,
still a widely used practice in B2B. However, it remains effective for some companies, such
as Kirby, which still sends salespeople door-to-door to sell its vacuums.

Kiosk

A kiosk is a small, simple stand, usually a temporary structure established by a retailer as an

extension of either online or direct selling retailers with a single operator. These stands are
usually created as a point where customers can directly interact with a representative from the
company.
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Retailer’s Role in the Distribution Channel

According to the American Marketing Association, “A channel of distribution or marketing
channel is the structure of intra – company organization units and extra company agents and
dealers, wholesalers and retailers through which a commodity, product or service is marketed”.

The retailer provides the products and services that the customer needs, in the required quantity,
at the right place and time. This activity of the retailer creates value addition or utility to the
customers.

TYPES OF CHANNELS OF DISTRIBUTION

1. MANUFACTURER / PRODUCER – CONSUMER

This is the direct channel. Products are transferred directly to consumers. It is the shortest and
simplest channel. This channel is adopted by the producers of perishable goods, producers of
fashion goods who wants to sell the products before the fashion disappears, when the plan t is
located near the customers, when the new products are introduced into the market for aggressive
sales etc.

The major drawbacks of this direct channel are:

1. It is uneconomical to have a direct contact with the customers, who are countless and scattered
all over.
2. It is not possible for a direct contact with the multi millions of potential customers for the
products.
 By Dr. Palima Pandey

For direct selling the methods adopted by the producers are opening sales counter at
manufacturer plant, door to door sales, sales by mail order method, sales by opening own shops,
sales through mechanical devices.

2. MANUFACTURER – RETAILER --- CONSUMER

In the channel there is an intermediary retailer. A manufacturer sells goods to consumers through
these retailers. There is a gap between the manufacturers and the consumer. This method is
adopted when the buyers are large, for perishable goods that need speed in distribution. In this
channel wholesalers are ignored and the manufacturers renders the functions of a wholesaler.
Generally, automobile appliances, clothing, shoes are sold directly to retailers. Bata India limited
uses this channel.

3. MANUFACTURER – WHOLESALER --- RETAILER --- CONSUMER

Wholesaler and retailers are the two types of intermediaries in this channel. A manufacturer
channels his products to consumers through these intermediaries. The gap between the
manufacturers and the consumers is widened due to these intermediaries.

4. MANUFACTURER --- AGENT MIDDLEMEN --- WHOLESALER --- RETAILER

– CONSUMER

Agent middlemen, wholesalers, retailers are the three types of intermediaries in this channel. The
gap between the manufacturer and the consumer is very great. In this channel the manufacturer
uses the services of the agent middlemen for the dispersal of goods. The agent distributes the
goods to the wholesalers who sells the goods to retailer and who in turn sells the goods to the
consumers.

MIDDLEMEN

Middlemen refers to, such institutions or business concerns situated in the marketing channels at
points between the producer and the final buyers.

According to American Marketing Association, “A middlemen is one who specializes in

performing operations or rendering services that are directly involved in the purchase and sale of
goods in the process of their flow from the producer to the final consumer.”

CLASSIFICATION OF MIDDLEMEN

There are two types of middlemen in distribution. They are ‘Agent Middlemen’ and ‘Merchant
Middlemen’.
 By Dr. Palima Pandey

1. AGENT MIDDLEMEN

They are mostly engaged in wholesale dealing. They assist in negotiating sales or purchase or
both on behalf of the seller or buyer. They do not take title of the goods which they handle.

KINDS OF AGENT MIDDLEMEN

1. Broker: A broker is an agent. He represents the buyer or the seller in negotiating purchases or
sales without having physical control over the goods involved. His main service is to bring the
buyer and the seller together. He is the agent of the owner of goods, seeking a buyer other than
the agent of a buyer who is seeking for supply.

2. Commission Agent: Commission agent is an agent – individual, firms or even companies. It

negotiates the sales of goods belonging to the principal. It customarily exercises physical control
over the sale of goods. It has the power on price, and terms of sale under the condition that it
must obey the instructions of the principals.

3. Manufacturer’s Agent: Manufacturer’s agents are employed by the manufacturers to sell

their products. The agent receives a percentage of commission based on his sales. He uses his
techniques. He employs his sales representatives, who work for him. Selling is his main function.
This type of middlemen is important in the marketing of industrial goods.

4. Selling Agents: Selling agent is an independent middleman. He operates on a contractual

basis. He negotiates all sales of a specified line of merchandise or the entire output of its
principal. He has authority over the price, terms and other conditions of sale. He is the sole
selling agent for the line.

5. Resident buyers: Resident buyer is an independent agent, and he specializes in buying for
retailers. He receives compensation or a fee on commission basis. He operates in lines of trade,
such as furniture, garments etc. He has his office in the market place. The resident buyers are
purely and simply an independent agent specialized in buying for principals who are retailers.

6. Auctioneers: They are generally appointed by business firms. The auctioneer receives the
goods and invites bids for the goods. The highest bidder gets the goods and the auctioneer
collects the amount from him.

MERCHANT MIDDLEMEN

Merchant middlemen buy and sell goods on their own account and risk. They take the title to
goods. They resell the goods at profit. They are mostly wholesalers and retailers.
 By Dr. Palima Pandey

FUNCTIONS OF MERCHANT MIDDLEMEN

1. They are the connecting link between the producers and consumers and goods are supplied
where they are in demand.
2. They match the demand with production.
3. They perform the important functions of advertisement, display etc.
4. They know the purchasing powers of customers and by informing the producers, fix
reasonable price.
5. They offer too many communications between producers and customers.

WHOLESALER

A wholesaler is a businessman who specializes in performing wholesale activities. The word

wholesaler means to market goods in relatively large quantities.

According to American Marketing Association,” Wholesalers buy and resell merchandise to

retailers and other merchants and to industrial institutions, and commercial users, but do not sell
in significant amounts to ultimate consumers.”

FUNCTIONS OF THE WHOLESALERS

1. Buying and Assembling: The wholesalers procure varieties of goods from various producers
regularly and preserves them in his shop for resale.
2. Warehousing: The wholesaler stores goods in large quantities in his own or hired warehouses.
This ensures uninterrupted supply of goods to the retailers.
3. Transporting: Transportation involves the bringing of goods from the plant door to his
godown and also from his godown to the retailer’s shop.
4. Financing: He offers financial assistance to the retailers through extension of credit facilities.
On the other hands, he buys from the manufacturers for cash or for relatively shorter period of
credit.
5. Risk bearing: Since he acquires the title over the goods in which he deals, he assumes the risk
arising out of changes in demand, spoilage and deterioration in quality of the goods kept in his
godown.

Services rendered by Wholesalers to Retailers

a. Wholesalers have a large stock of varieties of goods. Hence retailers are free from holding big
stock of goods. The wholesaler’s warehouses serve as a reservoir for retailers. They can buy
things as and when they need.
b. Retailers have only limited capital resources. Hence, they cannot buy large quantities from the
manufacturer. Wholesalers buy large quantities and resell them to retailers in small quantity.
 By Dr. Palima Pandey

c. If the retailers purchase goods from the manufacturer, then there will be delay in delivery. On
the other hand, if the wholesaler has the stock of goods, he can deliver the goods to the retailers
promptly.
d. Wholesalers grant credit to their permanent retailers. After selling the product, retailer settles
the accounts with the wholesaler. He will repay the money once a month or as agreed upon.
e. Wholesaler informs the arrival of new goods to the retailers. The manufacturer advertises the
new product. The wholesaler helps the retailers in efficient window display of the new products
in his job.

Retailer meaning and Functions of Retailers

(Already discussed above) OR (refer from below)

Functions of Retailers in Distribution Channel

Retailing has many important functions in the distribution channel:

Provide Assortment

Retailers provide assortment for consumers. Assortment simply refers to the number of options
in a given product category or the number of products offered. For instance, if customer is not
sure about the drink he prefers, rather than going directly to a particular bottling plant, he decides
to go to a retail store where he will find an assortment of drink varieties and brands to choose
from. The assortment of brands and products in general gives the consumer options and
convenience—something most consumers value in their busy lives. Many large retailers also
offer their own brand of products. This allows the company to provide competing options to
consumers at different price points, typically lower than the name brands. By providing multiple
purchase options, the retailer is able to target more than one consumer market.
 By Dr. Palima Pandey

Buy in Bulk

As retail establishments are often large and have ample storage, they are able to purchase and
sell items in bulk. In addition, these stores keep stock in the back room for when the shelves are
empty. Retailers’ ability to buy in bulk allows them to serve a large number of consumers at any
given time.

Store Inventory

The ability of retailers to hold inventory allows them to quickly restock shelves or, in the case of
Internet retailers, get the product shipped quickly. This allows consumers the convenience of
being able to get an item as quickly as possible.

Provide Convenience to Consumers

Retailers provide a considerable amount of convenience to consumers. For most consumers,

retailers are within a few miles. This proximity makes retailers convenient. The process of
choosing a retail location for development has become somewhat of a science in recent decades.
There are companies that specialize in partnering with retailers to determine the best locations
for store placement. To determine locations, things like traffic patterns and demographics are
collected and analysed. A second service that retailers provide is convenient hours of operation.
Consider Walmart, which has locations that are open 24 hours, or grocery stores that are open on
Thanksgiving morning for last-minute food purchases. Retailers also allow consumers to more
closely evaluate a product for purchase. For example, some consumers would much rather
purchase clothing items from a brick-and-mortar retailer rather than online because they can feel
the texture of the cloth and try the item on to determine if it fits and looks good.

Providing Services to Customers

Most retailers provide services to consumers that are not a core product offering. For example,
customers can purchase groceries and household essentials at retailers such as Walmart
or Kroger, but they can also purchase stamps, buy a lottery ticket, refill their prepaid phone
minutes, drop off mail, and in some locations get a haircut or an eye exam and deposit a check at
the bank. With the convenience of multiple services, retailers make other tasks more convenient
for consumers. While there is an added value to the consumer to have all these services in one
location, it’s also a benefit to the retailers. For example, the hair salon located inside Walmart
has the added benefit of the higher foot traffic inside the store. Since so many consumers are
already in the store, they may be more apt to stop in for a haircut. Furthermore, while hair salon
 By Dr. Palima Pandey

owners or individual stylists pay rent on the space inside Walmart, they don’t have the overhead
that might come with a standalone building. The advantage of this partnership for Walmart is
that it receives additional income through the rent paid by the hair salon. The company also may
build consumer loyalty since it is providing its consumers with additional convenience by
offering these services.

Collecting and Providing Feedback

An important factor in any distribution channel is that of member relationships. Remember that
all parties in the distribution channel have a stake in one another’s success. Because retailers are
the last link between the product and the consumer, they have a unique opportunity to collect
feedback from customers and share that with other channel members. This can take many
different forms. For example, if customer use a loyalty card at his favourite grocery retailer, his
purchases are tracked. The data collected is a wealth of information that informs a retailer’s
strategy and decisions. For example, the company may use the data to inform the type of
promotions to run or coupons to offer. Retailers also provide customer feedback to their channel
partners. This feedback can let suppliers know the demand for products and if products are being
offered at the right time and the right place. If products are not selling well in a retail
establishment, the retailer and channel partners can look to customer feedback to determine the
issue and resolve it.

FACTORS INFLUENCING THE SELECTION OF A DISTRIBUTION CHANNEL

1. MARKET CONSIDERATION

(a) Nature of the market: This is one of the important factors in market consideration.
Consideration takes place about the product which is meant for customer or the industrial buyer.
Long channel will have to be employed if the product is meant for consumer market and
industrial market.
(b) The number of potential customers: There is the need for a number of middlemen service
if the number of potential customers is large. If the number of potential customers is small direct
selling is suggestible.
(c) Geographic Concentration of the Market: Direct selling is effective if the customers are
concentrated in a few places. If they are situated over the whole country, then a large number of
middlemen will have to be employed.
(d) Order Size: If the sales volume is large, direct selling is suitable. Industrial distributors sell
industrial operating supplies.
(e) Customer Buying habit: This affects the channel policies very much. When the buyer’s
habit and purchase pattern of consumers are frequent and small in size, then indirect selling is
suitable.
 By Dr. Palima Pandey

2. PRODUCT CONSIDERATION

a. Unit sale value of the product: When the unit value of a product is high, direct channel is
effective. On the other hand, when the unit value is low, the direct channel is ineffective. If the
product is of low value, larger and cheaper channels will be better. Short and costly channels
may be used of the products is of high value.
b. Bulk and Weight: To minimize the freight, heavy or bulky goods may be sent by train or
truck.
c. Perishable Nature: Perishable products such as milk, dairy products, bread, meat etc are sent
by shorter channel or direct channel, while long channel is used for non-perishable products.
d. Technicality: The technical nature of the product requires services. Hence, sales and
servicemen are needed to explain the use of the product to the customers. For products like
computers, business machines etc., direct channel is more advantageous.
e. Seasonal: Sales of the product are subject to seasonal variation, for example, woollen clothes
etc. Hence to sell these seasonal products intermediaries are needed. Direct selling is ineffective.

3. COMPANY CONSIDERATION

a. Financial Strength: Financially sound companies are in a better position to select and design
their distribution channel. As such, direct channel is adopted. On the other hand, financially
weak companies have to select indirect channel, as they depend on the intermediaries.
b. Reputation: It has been said that reputation travels faster than man. There are many
companies, which have good reputation because of the product preference by the customers.
Many intermediaries are eager to have connection with such companies.
c. Market Control: When a firm wants to exercise control over the price, the way in which
customers are served etc., direct channel is suggested.

4. MIDDLEMEN CONSIDERATION

The middlemen, who is able to offer a good facility of storage may be considered. The channel
which facilitates maximum sales must be preferred. The cost of each attractive channel may be
estimated on the basis of unit sale. The best type of channel which gives a low unit cost of
marketing may be considered.

5. CONSUMER CONSIDERATION

The characteristics of buyers as to their number, location, frequency of the purchase, quantities
bought by them etc. influence the channel selection. If the customers are scattered
geographically, a long channel can be adopted. Consumers may wish to have the product at a
convenient place; for example, daily consumption items like milk, paper, bread etc., consumers
may like to have them at the door. The channel adopted must facilitate the commodities
produced to be available to the consumers in time.