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Question

Difficulty: MediumChannels of Distribution

A manufacturing company producing standard household detergents decides to discontinue using wholesalers and retailers, choosing instead to sell directly to individual final consumers online. Which major commercial challenge is the company most likely to face as a result of this distribution channel decision?

  1. High unit logistics and freight costs when fulfilling small, individual consumer ordersAnswer
  2. B
    Loss of direct control over final retail pricing and promotional strategy
  3. C
    Inability to issue home trade credit notes for undercharge corrections
  4. D
    Mandatory reliance on ocean freight forwarders for domestic order delivery

Answer

High unit logistics and freight costs when fulfilling small, individual consumer orders
Wholesalers and retailers perform the essential economic function of 'breaking bulk'—buying in large quantities from manufacturers and distributing in smaller quantities to end users. When a manufacturer of low-cost, mass-market consumer goods (like detergents) bypasses these intermediaries, it must handle thousands of small, individual orders itself. This creates immense operational overhead and leads to very high unit logistics, handling, and shipping costs.

Step-by-Step Solution

1
Analyze the nature of the product and the original distribution channel
Household detergent is a fast-moving consumer good (FMCG) characterized by low unit value, high purchase frequency, and broad consumer demand.
FMCGs typically require long channels (Producer → Wholesaler → Retailer → Consumer) so middlemen can break bulk and handle wide market coverage.
2
Evaluate the impact of bypassing wholesalers and retailers (direct distribution)
The producer assumes all intermediary functions, including holding large inventory, sorting, packing micro-orders, and delivering directly to households.
Without wholesalers to purchase in bulk and store stock, unit distribution and order-handling costs rise dramatically for the producer.
3
Identify the primary commercial challenge
The manufacturer incurs disproportionately high unit transportation and order fulfillment costs when shipping small individual parcels directly to consumers.
The financial burden of breaking bulk shifts entirely onto the manufacturer.

Key Concept

Impact of Channel Length on Logistics and Breaking Bulk Functions
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Topics

Channels of Distribution

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