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Marketing channel can be defined as the procedure of activities that need to be performed to distribute the finished goods at the point of production to the customer at the point of consumption.
Manufactures use different channels to distribute the finished goods to customers. However, the most common methods are wholesale or retail, which are discussed further.
The profit is distributed between the elements of distribution channel, so if the channel is longer, each element has lower profit margin and there is less scope for discounts for the consumer. In a shorter channel, the distribution is divided between fewer elements, profit is higher for each element and higher discounts can be provided to the customer.
In this distribution channel, wholesalers buy the products and then distribute to consumers. Wholesalers directly purchase goods from the manufacturer in large quantity at a discounted price. Several service taxes and sales taxes are also reduced, which in turn reduces the cost of the final product.
The wholesaler then sells the product to the consumer. From the consumer’s perspective, wholesale is a cheaper option as the cost of the product is lower than retail value and for wholesalers, the profit margin is higher because of bulk purchase from the producer.
In retail distribution channel, the finished goods are purchased by a wholesaler or distributor, the wholesaler sells to retail shops and then the product is sold to the consumer.
The wholesalers buy the product in bulk; then the product is sold to the retailers in lesser quantities; further, the retail shops sell the product to the customers. Here the distribution channel is longer than wholesale, so the profit margin for each element is comparatively lower and the customer gets a higher cost than wholesale.