As we have noted, bringing together the buyer and seller and facilitating their exchange is the essence of marketing. From the time of the Roman mercatus (Latin, for a public place where sellers and buyers meet), the town market square has been an important center of commerce where direct transactions between producers and consumers take place. In this type of locale, each producer accepts major responsibility for advertising, finding customers, and setting a price.
With the spread of trade, more and more specialized artisans were able to live without growing their own food. By the second century, Ostia, one of Rome's ports, already had large consumer warehouses. Overseas purchases, shipments, and distribution of grain, oil, and fish were common. Long- distance marketing of textiles and other wares took place along the so-called silk road from China to the Middle East at centers like Samarkand. And by the fourteenth century, Timbuktu, in the Upper Niger region, was one of the world's busiest inland markets with its trans-Saharan caravan trade. The opening of the sea routes between Europe and the East Indies stimulated marketing channels for sugar and other tropical goods. Today the trend in marketing food and other commodities is such that most of the preparation is handled in bulk by specialized agencies. A growing proportion of the food consumers purchase today is ready to eat or has only to be heated.
What this means in practical terms is that many foodstuffs, as well as other products, pass through numerous channels before being sold at countless consumer outlets. They may even be marketed all over the world. The product itself most often determines the places for and methods of distribution. Today, the "rule-of-thumb," or normal method, is that goods go from producers to intermediaries before they get to us.
To the merchant, whether a wholesaler or a retailer, the decision as to what goods to select for resale is the key element of merchandising. To the supplier of these goods, finding the best channels of distribution is a key problem. Marketers must decide what methods are best for distributing their particular products. They may sell directly to customers, to the customers through sales agents, to jobbers, directly to retailers, or to retailers through sales representatives. If they decide to sell to the ultimate consumer through wholesalers who, in turn, sell to retailers, they may also choose intermediaries such as brokers or manufacturers' agents. The producers of industrial goods face similar decisions. Larger firms frequently use their own sales force working out of the main offices or branch offices located throughout the sales territory.
Distribution systems develop in such a way as to match the available supplies to the consumers' demands. Just as the supplies or goods themselves differ in type, quantity, and quality, so do consumer demands. Variations may occur according to season, climate, local customs, fashion, or state of the economy. Distributors must adapt the flow of their supplies to such variations. Distribution channels are an integral part of a complex system that has evolved from cultural and social patterns in order to facilitate exchange transactions. They are governed not only by economic and social restraints, but frequently by legal and political ones as well. Thus, the interaction of the component parts of the marketing mix is considered in selecting channels.
Policies are formulated not only as to the types of intermediaries, but also as to their numbers. At one extreme is the policy of exclusive distribution, where one wholesale or retail intermediary is the sole outlet for the product or service in a given territory. Piano manufacturers typically issue franchises to one dealer in a specific region. At the other extreme, ball-point pen manufacturers use a policy of extensive distribution for the maximum number of outlets. Between these extremes are manufacturers who are variously selective in their channel choices While the entire complex of getting products to users may be complicated for some products or geographic areas, there are fundamentally just three categories of channels: wholesalers, retailers, and agents who may supplement or benefit the other two.
Industrial marketing channels feature a large proportion of raw materials, semi-finished products, and component parts. Consumer channels sell finished products; service is usually more important to the industrial product, so sellers frequently maintain more direct channels to those users than to the household consumer. There are three types of agents employed in marketing channels:
1. Manufacturers' agents may work for several different manufacturers and sell part or all of the producers' product line within a sales territory. These agents usually have no authority to set prices, but may stock items in their own warehouses. They generally work for small firms with no sales staff, for firms carrying products unrelated to their normal line, or for firms entering a new geographic market.
2. Brokers are essentially used to sell food products. They call on grocery wholesalers for the manufacturers who are their clients and help them make inroads into broader markets.
3. Selling agents have the authority to negotiate prices and usually work without territorial limits. They represent the entire line of a manufacturer and may render financial assistance to their principals. This type of agent sells products like textiles, coal, lumber, metals, and clothing.
The first decision in determining channels of distribution is the form it should take. Should a manufacturer of skis sell through retail stores, by direct mail, or both? If retail stores are chosen, what level or type of store: specialty shops, department stores, discount houses, sporting goods stores, or a combination of these? Even within these types, questions of reliable or prestigious reputations and sufficient financial standing may enter into the decisions. Regional considerations, of course, play a role as well. Skis will sell better in regions near the slopes than in those far away. Other considerations for specific products might include taste characteristics of the product, proximity to associated types of goods and services.
These are the major types of retailing found, in one form or another, around the world:
Specialty stores usually sell a complete assortment of one line, or a limited number of closely related lines, of merchandise. Ranging from jewelry, books, and home furnishings to ice cream, baked goods, and electrical appliances, they can usually fulfill any demand for their type of product.
Department stores, because of the many lines of goods they carry, are actually consolidations of many specialty shops under one roof.
Mail order houses are large operations selling a great range of merchandise directly to consumers by mail, without a personal sales force. They are practical where catalog printing, parcel post, and freight services are reliable and economical.
Chain stores are a group of stores under the same management. These mass distribution organizations save money for themselves and the consumer by buying and selling in large quantities. The major types of chains specialize in groceries, drugs, auto supplies, and clothing. In some product areas, they dominate the market; in Canada, five chain supermarkets sell 40 percent of all the food in the country.
Consumers' cooperatives, owned and operated by local groups of farmers or other consumers, are also called "co-ops”. They are popular in rural areas, marketing such items as groceries, animal food, gasoline, and food preparation services. Their chief attraction to consumers is the patronage dividend, based on volume of purchases over a given period.
Direct retailing, or house-to-house selling, makes up a large part of the retail business in certain products, notably household items and makeup. Usually the sales representative carries a small stock or shows samples, takes orders, and makes deliveries later. The overhead is small, and the consumer has the convenience of home shopping.
Vending machines sell many types of small-sized, low-cost, popular- demand, standard-quality goods. Candy, cigarettes, soft drinks, and books are vended in high-traffic areas.
For the most part, wholesalers buy from manufacturers and suppliers and resell to retailers. Usually, they extend credit and make deliveries. They may carry specialized or diverse lines of products. Merchant wholesalers maintain warehouses, so the manufacturer does not need extensive storage facilities. In addition to maintaining a sales force, they are able to regroup different types of goods into acceptable lots and screen the goods presented by the manufacturers. Cash-and-carry wholesalers require customers to transport their own goods and to pay for them in cash. Another type of wholesaler is the drop shipper, who never takes possession of merchandise, but merely takes orders which the producer or supplier fills directly to the customer.
Manufacturers' branch offices also function as wholesalers. They are able to sell to other wholesalers, to retailers, or to final industrial or household consumers. Some have a limited geographic range or sell to a few large customers. They operate entirely from the factory or central office.