CHAIN OF DISTRIBUTION - KCSE BUSINESS STUDIES NOTES, AUDIOVISUALS, QUESTION AND ANSWER

20/4/2018

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CONTENT
NOTES
Q & A

CHAIN OF DISTRIBUTION

SPECIFIC OBJECTIVES

By the end of the topic, the learner should be able to:

explain the meaning of distribution
describe the various channels of distribution
discuss the role of intermediaries in the distribution chain
discuss the factors which may influence choice of a distribution channel.

CONTENT

Meaning o f distribution
Channels of distribution
Intermediaries in the distribution chain
Distribution of various products
Choosing a distribution channel

Introduction

Channels of distribution are the paths that goods and or services follow from the producers to the final users.
The persons involved in the distribution of goods from the producer to consumer are called middlemen or intermediaries.
There are different channels that different products follow. Some of the channels include the following:

Producer to agent to wholesaler to retailer to consumer.
Producer to co – operative society to marketing board to wholesaler to retailer to consumer.
Producer to marketing board to wholesaler to retailer to consumer.
Producer to wholesaler to retailer to consumer.
Producer to wholesaler to consumer
Producer to retailer to consumer
Producer to consumer

Costs incurred by middlemen while distributing goods

Buying costs. They incur this cost by paying for them from the producers or other middlemen.
Transport cost. Some middlemen do transport goods from the producer to other middlemen or to the final users.
Storage costs. Middlemen do keep the goods until their demand arises. This will therefore require them to hire or construct their own warehouses.
Advertising or marketing costs. Some middlemen do carry out marketing of goods on behalf of the producers and other middlemen. In the process, they pay for such services.
Insurance costs. Middlemen do insure the goods they are trading in to ensure compensation in the event of loss.
Operation costs. Middlemen just like other businesses do incur operating costs such as salaries to employees, electricity, maintenance among others.
Preparation costs. Some middlemen to prepare goods before they are sold to the consumers. Such activities include packing, assembling and blending. They have to meet such costs on behalf the producer, other middlemen and consumers.

Roles of Middlemen

The following are some the roles performed by middlemen in the chain of distribution

Bulk accumulation (assembling). They similar goods from different producers in small quantities and then offering the large amount gathered to buyers who may want to buy in large volumes.
Reducing transactions. The interactions between the producers and the consumers will be reduced since the middlemen are the ones who will be communicating to the consumers.
Bulk breaking. They buy in large quantities and then sell in small quantities as desired by the consumers.
Risk taking. They assume all the risks related with the movement of goods from the producers to the consumers. Such risks include theft, damages, loss due to bad debts.
Finance provision. Middlemen provide finance to the producers by buying goods in large quantities and paying for them in time.
Provision of information. Middlemen gather market information from the consumers then pass to the producers who in turn produce goods in line with the tastes of consumers.
Marketing/product promotion. Middlemen are involved in marketing of goods hence stimulating the interest of consumers.
Provision of transport. Middlemen do transport goods from the producers up to the where the consumers can access them. Both the producers and consumers are hence relieved of transport costs.
Storage
Variety provision
Availing goods to consumers

Factors to Consider Before Selecting a Distribution Channel

Factors that influence the choice of a distribution channel include the following:

Product nature. Perishable products should be sold directly to the consumers because delays may result to losses since they go bad fast. In addition, bulky products need direct selling in order to reduce transportation and stock handling costs.
Nature of the market. Where the market is concentrated in one area, direct selling is appropriate. A longer channel of distribution is preferred where the market is widely spread.
Role of intermediary. The channel chosen should be able to perform the services related to the product being sold e.g. for technical goods, the middleman should be able to offer technical support to the customers.
Resources and size of the firm/producer. If the producer is small, then direct selling would be appropriate. Large firms with sufficient financial resources can opt for long channels of distribution.
Channels used by competitors. If a firm wants its products to compete with those of the competitors, then is it prudent to use similar channels. A firm that wants to avoid competition should use a different channel of distribution.
Government policy. The channel chosen should be able to meet government regulations such as all middlemen distributing pharmaceutical products must be recognized by the relevant government bodies (Pharmacy and Poisons Board).
Marketing risks. In the event the firm wants to avoid risks related to distribution, it will opt for middlemen.
Questions

Question and Answer

1. Identify the type of utility created in the following circumstances

2. State four roles played by intermediaries in the chain of distribution
3. Highlight four consequences of eliminating a wholesaler from a chain of distribution
4. Outline four factors used to determine the distribution of Omo, as a common household detergent in Kenya
5. State four circumstances under which it would be advisable for a manufacturer to sell directly to consumers
6. Dady a traders at Kibigori trading centre wishes to import goods from Brand kamp , a Germany. Describe four channels of distribution that Dady’s goods are likely to take to reach his consumers at Kibgori
7. Kenya co-operative creameries (KCC) sell its dairy products directly to retailers. Highlight four factors that were considered in the choice of this channel of Distribution

aNSWERS

QUESTION 1

ACTIVITY	UTILITY
Carpentry	Form
Selling bread to students	Possession
Warehousing of goods imported	Time
Carriage of cargo to the market	Place

QUESTION 2

Reducing transaction between producers and consumers
Breaking bulk
Accumulating bulk
Taking of holding goods
Providing finance to producers
Product promotion
Transporting goods
Storage goods

QUESTION 3

Reduces the range of goods offered to the retailers
Reduces the cost of goods acquired by retailers
Lowers the price of goods because of reduction in the length of distribution

QUESTION 4

Preparing to meet customers/locating prospective customers
Opening sale/presenting the product
Handling objections
Closing of sales

QUESTION 5

Where the commodity is perishable
Where the commodity is a service
Where the use of the commodity requires demonstration
Where the quantity of the commodity is small
Where technical advice is required
Where immediate feed back is required
Where the law requires to be done so

QUESTION 6

Brand Kamp/ Exporter - Consumer
Exporter / Brand Kamp-Government agent –Wholesaler- Consumer
Exporter/ Brand Kamp-Government Agent – Wholesaler- Retail – Consumer
Exporter / Brand Kamp-Wholesaler- Consumer
Exporter / Brand Kamp- Import agent – Consumer

QUESTION 7

Nature of products - perishable
Availability of the channel
The cost of the channel
Channels used by competitors
Market concentration not in use area
Spread of the risk

FORM 1-Meaning of business studies
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FORM 1-Topic 2-Business Environment.pdf
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FORM 1-Topic 3-Satisfaction of Human Wants.pdf
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FORM 1-Topic 4-Production.pdf
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FORM 1-Topic 5-Entreprenuership.pdf
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FORM 1-Topic 6-The Office.pdf
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FORM 1-Topic 7-Home Trade.pdf
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FORM 2-Topic10-TRANSPORT.pdf
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FORM 2-Topic11-COMMUNICATION.pdf
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FORM 2-Topic12-WAREHOUSING.pdf
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FORM 2-Topic13-INSURANCE.pdf
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FORM 2-Topic14-PRODUCT PROMOTION.pdf
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FORM 2-Topic8-FORMS OF BUSINESS UNITS.pdf
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FORM 2-Topic 9-GOVERNMENT & BUSINESS.pdf
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FORM 3-Topic 15-THEORY OF THE FIRM.pdf
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FORM 3-Topic 17-PRODUCT MARKETS.pdf
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FORM 3-Topic 18-CHAIN OF DISTRIBUTION.pdf
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