Distribution Channels
A distribution channel is the route taken by goods from producer to final consumer, together with the intermediaries who handle them. Its "length" is the number of intermediaries between producer and consumer.
Common channels
- Zero-level (direct): producer → consumer. Farmers at roadside markets, bakers, producers selling online.
- One-level: producer → retailer → consumer. Bread, sachets of water, phone credit.
- Two-level: producer → wholesaler → retailer → consumer. Imported rice, soap, cement sold through hardware stores.
- Channels with agents: brokers, commission agents and import agents negotiate but do not take title to the goods.
Choosing a channel - deciding factors
- Nature of the product: perishables and bulky goods need short channels; durables can pass through many hands.
- Market: many scattered buyers favour wholesalers; a few large buyers allow direct selling.
- Producer's capacity: a small producer lacks capital and contacts to sell directly.
- Control and cost: direct selling gives control but raises unit selling cost; intermediaries cut that cost but take a margin.
- Risk: whoever holds stock bears the risk of unsold or spoiled goods.
What intermediaries add
Merchants (wholesalers, retailers) buy and resell, taking title and risk; agents only arrange sales. Removing an intermediary removes its services - storage, credit, breaking bulk, delivery - as well as its margin.
Worked example
A poultry farmer in Buea produces 400 eggs a day; they spoil within two weeks. She may sell at the farm gate at 90 FCFA each, or to a market retailer at 75 FCFA who resells at 100 FCFA. Direct selling earns more per egg but limits volume and consumes her time. The retailer takes all 400 daily and absorbs spoilage risk. Decision rule: choose the channel with the higher total return after the cost of time and spoilage. With 400 eggs daily and no cold storage, the retailer wins provided the margin gap (15 FCFA × 400 = 6,000 FCFA a day) is smaller than the value of eggs lost and selling time consumed.
Traps
- Drawing channels from consumer to producer.
- Counting an agent as a merchant, forgetting agents never own the goods.
- Claiming wholesalers are always wasteful; examiners want the services they perform and who benefits from them.
- Ignoring physical distribution (transport, warehousing, stock control) as part of the channel.