12 SENIOR HIGH SCHOOL

PRINCIPLES
OF MARKETING
Quarter 4 – Module 3
Structure of Distribution Channels, its Functions,
and the Nature of Supply Chain Management

NegOr_Q4_Principles of Marketing12_Module3_v2
Principles of Marketing – Grade 12
Alternative Delivery Mode
Quarter 4 – Module 3: Structure of distribution channels, its functions, and the
nature of supply chain management
Second Edition, 2021

Republic Act 8293, section 176 states that: No copyright shall subsist in any
work of the Government of the Philippines. However, prior approval of the government
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Borrowed materials (i.e., songs, stories, poems, pictures, photos, brand names,
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materials from their respective copyright owners. The publisher and authors do not
represent nor claim ownership over them.

Published by the Department of Education

Secretary: Leonor Magtolis Briones
Undersecretary: Diosdado M. San Antonio

Development Team of the Module

Writer: Rosita Alaban Lozano
Editor: Maria Acenith D. Pastor
Reviewer: Salvador G. Aguilar Jr
Layout Artist: Maria Cristina M. Salasalan
Management Team: Senen Priscillo P. Paulin, CESO V Elisa L. Baguio, EdD
Joelyza M. Arcilla EdD, CESE Rosela R. Abiera
Marcelo K. Palispis JD, EdD Maricel S. Rasid
Nilita L. Ragay, EdD Elmar L. Cabrera

Printed in the Philippines by ________________________

Department of Education –Region VII Schools Division of Negros Oriental

Office Address: Kagawasan, Ave., Daro, Dumaguete City, Negros Oriental

Tele #: (035) 225 2376 / 541 1117
E-mail Address: negros.oriental@deped.gov.ph

NegOr_Q4_Principles of Marketing12_Module3_v2
Introductory Message
This Self-Learning Module (SLM) is prepared so that you, our dear
learners, can continue your studies and learn while at home. Activities,
questions, directions, exercises, and discussions are carefully stated for you
to understand each lesson.

Each SLM is composed of different parts. Each part shall guide you step-
by-step as you discover and understand the lesson prepared for you.

Pre-tests are provided to measure your prior knowledge on lessons in

each SLM. This will tell you if you need to proceed on completing this
module or if you need to ask your facilitator or your teacher’s assistance for
better understanding of the lesson. At the end of each module, you need to
answer the post-test to self-check your learning. Answer keys are provided
for each activity and test. We trust that you will be honest in using these.

In addition to the material in the main text, Notes to the Teacher are
also provided to our facilitators and parents for strategies and reminders on
how they can best help you on your home-based learning.

Please use this module with care. Do not put unnecessary marks on
any part of this SLM. Use a separate sheet of paper in answering the
exercises and tests. And read the instructions carefully before performing
each task.

If you have any questions in using this SLM or any difficulty in

answering the tasks in this module, do not hesitate to consult your teacher
or facilitator.

Thank you.

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 I

This module was designed to provide with fun and meaningful opportunities for
guided and independent learning at our own pace and time. You will be enabled to
process the contents of the learning resource while being an active learner.

The module discusses the different structure of distribution channels, its functions
the nature of supply chain management.

Multiple Choice: Choose the letter of the correct answer for each item.
1. The goal of channels of distribution is to move products from producers to ____________.
A. Intermediaries
B. Industrial users
C. Final consumers
D. Middlemen

2. Channels of Distribution benefit consumers by _____________.

A. Making a variety of products available to them
B. Lowering the prices of all consumer products
C. Raising quality of all consumer products
D. Increasing profits for business

3. Channels of Distribution benefit businesses by _____________.

A. Lowering the prices of all industrial goods
B. Getting their products to consumers more efficiently
C. Raising their profits each year
D. Allowing them to avoid all channel tasks

4. Providing marketing information is an important channel activity. Businesses rely on

marketing information to determine _____________.
A. How intermediaries are performing
B. How much to charge for their products
C. What to name their products
D. Their target markets needs and wants

5. The costs of promoting products are often _____________.

A. Avoidable in certain channels
B. Very inexpensive, especially for new products
C. Paid for entirely by one channel member
D. Shared by channel members

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6. Retailers perform an important channel activity by negotiating with consumers on issues
such as _____________.
A. Risk taking
B. Delivery
C. Promotion
D. Manufacturing

7. A wholesaler breaks down a large shipment of a product and sells portions of it to several
retailers. The wholesaler is reducing a discrepancy of _____________.
A. Quantity
B. Assortment
C. Installation
D. Promotion

8. A retailer buys a variety of toys from a number of different producers and makes them all
available for sale in the same place. The retailer is reducing a discrepancy of _____________.
A. Quantity
B. Assortment
C. Installation
D. Promotion

9. Channels of Distribution allow channel members to share _____________.

A. Profits
B. Equipment
C. Risk
D. Employees

10. Channel members add value to a product by _____________.

A. Bridging the major time, place and possession gaps
B. Making the product difficult for consumers to find
C. Making the product more costly
D. Pursuing individual goals

’s In

Marketing Vocabulary

Identify the following.

______________1. It involves marketing intermediaries who link product

manufacturers to consumers.
______________2. These are small retail shops that are found in
neighborhood and cater to residents of a particular community.
______________3. This include all the activities involving the sale of goods or
services directly the final consumers.

2 NegOr_Q4_Principles of Marketing12_Module3_v2
 ______________4. Huge superstores that offer a greater variety of
products.
______________ 5. These refers to large stores which offer a variety of
products that are organized into department or areas.

’s New

Read the selection carefully and answer the questions being asked.

An ukay-ukay is the perfect place to thrifty buyers who are on a tight budget to
shop for goods. It sells low-priced second-hand products of well- known brands or in most
cases, cheap limitations of the original. Many ukay-ukay stores dot the streets, especially near
dry and wet markets or palengke. Ukay-ukay goods are bought in bulk from retailers and
traders. Ukay-ukay stores have become a cheaper option compared to regular retail stores
which sell the original goods at a higher price. These stores have form a unique market which
caters to the needs and preferences of the ordinary masses and customers who wish to cut costs
by buying cheaper items.

Discussion Questions:

1. What kind of goods does a flea market or an ukay-ukay sell?

2. What factors influence the customers to buy ukay-ukay goods?

Rubrics for Grading the Essay:

5- If the answer consists of 4 or more sentences with correct and complete
Information.
4- If the answer consists of 3 sentences with correct information.
3- If the answer consists of 2 sentences with correct information.
2- If the paragraph consists of 1 sentence with correct information

is It

Marketing Intermediaries in the Distribution Channel

A distribution channel is made up of marketing intermediaries, or organizations that

assist in moving goods and services from producers to end users and consumers. Marketing
intermediaries are in the middle of the distribution process, between the producer and the end
user. The following marketing intermediaries most often appear in the distribution channel:

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Agents and brokers: Agents are sales representatives of manufacturers and wholesalers, and
brokers are entities that bring buyers and sellers together. Both agents and brokers are usually
hired on commission basis by either a buyer or a seller. Agents and brokers are go-betweens
whose job is to make deals. They do not own or take possession of goods.

Industrial distributors: Industrial distributors are independent wholesalers that buy related
product lines from many manufacturers and sell them to industrial users. They often have a
sales force to call on purchasing agents, make deliveries, extend credit, and provide
information. Industrial distributors are used in such industries as aircraft manufacturing,
mining, and petroleum.

Wholesalers: Wholesalers are firms that sell finished goods to retailers, manufacturers, and
institutions (such as schools and hospitals). Historically, their function has been to buy from
manufacturers and sell to retailers.

Retailers: Retailers are firms that sell goods to consumers and to industrial users for their own
consumption.

Figure 1. A Typical Supply Chain.

Sources: https://tinyurl.com/882nt6vx

At the end of the distribution channel are final consumers and industrial users. Industrial
users are firms that buy products for internal use or for producing other products or services.
They include manufacturers, utilities, airlines, railroads, and service institutions such as hotels,
hospitals, and schools.

Figure 1 shows various ways marketing intermediaries can be linked. For instance, a
manufacturer may sell to a wholesaler that sells to a retailer that in turn sells to a customer. In
any of these distribution systems, goods and services are physically transferred from one

4 NegOr_Q4_Principles of Marketing12_Module3_v2
organization to the next. As each takes possession of the products, it may take legal ownership
of them. As the exhibit indicates, distribution channels can handle either consumer products or
industrial products.

Figure 2. Channels of Distribution for B2B and Consumer Products.

Sources: https://tinyurl.com/mpb9wy85

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Non-traditional Channels

Often nontraditional channel arrangements help differentiate a firm’s product from the
competition. For example, manufacturers may decide to use nontraditional channels such as
the internet, mail-order channels, or infomercials to sell products instead of going through
traditional retailer channels. Although nontraditional channels may limit a brand’s coverage,
they can give a producer serving a niche market a way to gain market access and customer
attention without having to establish channel intermediaries. Nontraditional channels can also
provide another avenue of sales for larger firms. For example, a London publisher sells short
stories through vending machines in the London Underground. Instead of the traditional book
format, the stories are printed like folded maps, making them an easy-to-read alternative for
commuters.

Kiosks, long a popular method for ordering and registering for wedding gifts, dispersing
cash through ATMs, and facilitating airline check-in, are finding new uses. Company A stores
use kiosks as a product locator tool for consumers and salespeople. Kiosks on the campuses
of a University allow students to register for classes, see their class schedule and grades, check
account balances, and even print transcripts. The general public, when it has access to the
kiosks, can use them to gather information about the university.

The Functions of Distribution Channels

Why do distribution channels exist? Why can’t every firm sell its products directly to
the end user or consumer? Why are go-betweens needed? Channels serve a number of
functions.

Channels Reduce the Number of Transactions

Channels make distribution simpler by reducing the number of transactions required to

get a product from the manufacturer to the consumer. For example, if there are four students
in a course and a professor requires five textbooks (each from a different publisher), a total of
20 transactions would be necessary to accomplish the sale of the books. If the bookstore serves
as a go-between, the number of transactions is reduced to nine. Each publisher sells to one
bookstore rather than to four students. Each student buys from one bookstore instead of from
five publishers (see Figure 3).

6 NegOr_Q4_Principles of Marketing12_Module3_v2
 Figure 3. How Distribution
Channels Reduce the Number of Transactions
Sources: https://tinyurl.com/mpb9wy85

Dealing with channel intermediaries frees producers from many of the details of
distribution activity. Producers are traditionally not as efficient or as enthusiastic about selling
products directly to end users as channel members are. First, producers may wish to focus on
production. They may feel that they cannot both produce and distribute in a competitive way.
On the other hand, manufacturers are eager to deal directly with giant retailers, such as
Walmart, which offer huge sales opportunities to producers.

Channels Ease the Flow of Goods

Channels make distribution easier in several ways. The first is by sorting, which
consists of the following:

• Sorting out: Breaking many different items into separate stocks that are similar. Eggs, for
instance, are sorted by grade and size. Another example would be different lines of women’s
dresses—designer, moderate, and economy lines.
• Accumulating: Bringing similar stocks together into a larger quantity. Twelve large Grade A
eggs could be placed in some cartons and 12 medium Grade B eggs in other cartons. Another
example would be to merge several lines of women’s dresses from different designers together.
• Allocating: Breaking similar products into smaller and smaller lots. (Allocating at the
wholesale level is called breaking bulk.) For instance, a tank-car load of milk could be broken
down into gallon jugs. The process of allocating generally is done when the goods are dispersed
by region and as ownership of the goods changes.

Without the sorting, accumulating, and allocating processes, modern society would not
exist. Instead, there would be home-based industries providing custom or semicustom products
to local markets. In short, society would return to a much lower level of consumption.

A second way channels ease the flow of goods is by locating buyers for merchandise.
A wholesaler must find the right retailers to sell a profitable volume of merchandise. A
sporting-goods wholesaler, for instance, must find the retailers who are most likely to reach

7 NegOr_Q4_Principles of Marketing12_Module3_v2
sporting-goods consumers. Retailers have to understand the buying habits of consumers and
put stores where consumers want and expect to find the merchandise. Every member of a
distribution channel must locate buyers for the products it is trying to sell.

Channel members also store merchandise so that goods are available when consumers
want to buy them. The high cost of retail space often means many goods are stored by the
wholesaler or manufacturer.

Distribution (place) includes the efficient managing of the acquisition of raw materials
by the factory and the movement of products from the producer or manufacturer to business-
to-business users and consumers. Place includes such activities as location selection, store
layout, atmosphere and image-building for the location, inventory, transportation, and logistics.
Logistics activities are usually the responsibility of the marketing department and are part of
the large series of activities included in the supply chain.

Distribution channels are the series of marketing entities through which goods and
services pass on their way from producers to end users. Distribution systems focus on the
physical transfer of goods and services and on their legal ownership at each stage of the
distribution process. Channels reduce the number of transactions and ease the flow of goods.

The Nature of a Supply Chain

Figure 4. The Nature of a Supply Chain.

Sources: https://tinyurl.com/27j6e7v5

An economic activity is linked to a complex system of suppliers and customers, which

must be supported by a transport system. The system as a whole is known as a supply chain. A
supplier can be another’s customer, depending upon its position along the chain. Thus, a supply
chain is a relative concept, but it is commonly applied to the whole sequence as an activity.
Often retailing eventually acts as the final customer. Actors such as manufacturers, distributors,
or retailers are placing orders, and the fulfillment of these orders results in their transportation.

8 NegOr_Q4_Principles of Marketing12_Module3_v2
A supplier maintains outbound inventory (parts or raw materials ready to be distributed) while
a customer maintains inbound inventory (parts or finished goods ready to be transformed or
consumed). A manufacturer also has an in-process inventory, which implies all the parts
currently used in the fabrication process.

’s More

Task 1
Direction: Create your own distribution channel of household chores in a week. Illustration
can be in table or diagram form.

Rubrics
The rubrics below will be used to identify your score for this performance.
Level of Accuracy of Graphics - Labels Data
Achieve Content Effectiveness
ment and Relevance
Excellent At least 100- Graphics are of All important It is complete,
90% of the excellent quality, items on the organized and
(4) content easy to read, and diagram are clear
included in the relevant to the clearly labeled.
diagram is content.
accurate and
relevant.
Good At least 75% Graphics are Almost all It is complete
of the content adequate, easy to important items and organized
(3) included in the read, and on the diagram
diagram is relevant to the are clearly
accurate and content. labeled.
relevant.
Satisfact At least 60% Graphics are Many important It is complete but
ory of the content somewhat items on the disorganized
included in the effective but diagram are
(2) diagram is may include clearly labeled.
accurate and vocabulary or
relevant. spelling errors.
Needs Less than 50% Graphics lack Important items Its is incomplete
Improve of the content effectiveness and on the diagram and disorganized
ment included in the relevance. are not labeled or
(1) diagram is Images include are labeled in a
accurate and multiple way that isn’t
relevant. vocabulary or clear.
spelling errors

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 I Have Learned

Directions: Complete the following statements. Write your statements in your

activity notebook.
1. As an ABM student, I have learned that the structure of distribution channels helps both
enterprise and customer because _______________________.
2. As an ABM student, it is very important for us to learn the structure of distribution channels
understand its functions, and the nature of supply chain management because
_______________________.
3. Using the knowledge I have learned in this lesson, I will be able
to_______________________.

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 I Can Do

Task 2
Direction: Examine the given sample diagram below, think of an imaginary product then create
your own distribution channel in a creative approach:

Sources: https://tinyurl.com/5n7u5we8

Requirement:
1. Create an imaginary product and make a distribution channel following the sample
diagram. Use the distribution channels possibly available in your locality.
2. Examine the importance of your distribution channels to your product and its functions.

11 NegOr_Q4_Principles of Marketing12_Module3_v2
 Rubrics
Description: These rubrics are designed to identify your score for this performance. It is
focused in identifying knowledge about distribution channels and its functions.

Criteria Advanced Proficient Needs Poor No

Improvement Submission
(5 points) (4 points) (3 points) (2 points) (1 point)
General • Addresses • Addresses • Addresses • Addresses • Answer
Approach the the the objectives the given was
objectives of objectives of of the task objectives irrelevant
the task the task • Stated of the task
• States a • States a relevant • Did not
relevant, relevant, answer, but state
justifiable justifiable lacking relevant
answer. answer. justification. answer and
• Presents • Did not justification.
arguments in present • Did not
a logical arguments in present
order a logical arguments
order in a logical
order
Creativity The layout The layout The layout The layout The layout
are neatly are neatly are neatly are of the
presented, presented, presented. presented, distribution
well well but lacks channels
prepared prepared. information. are not
and very sufficient.
creative.
Mastery of The idea The idea The idea The idea The idea is
knowledge being being being being not
discussed is discussed is discussed is discussed relevant.
based on a based on a based on a lacks
depth depth depth relevancy
analysis with analysis but analysis, and on the task
complete lacks not theories and mostly
back up of theories and and strategies did not
relevant strategies were given answer the
theories and questions
strategies
Completion All task are Several task Not all task Few task Only one
proficiently are are are task were
answered. proficiently proficiently proficiently answered.
answered. answered. answered.

12 NegOr_Q4_Principles of Marketing12_Module3_v2
 Multiple Choice: Choose the letter of the correct answer for each item.
1. Eggs, for instance, are sorted by grade and size. Breaking many different items into separate
stocks that are similar?
A. Accumulating
B. Sorting Out
C. Allocating
D. Distributing

2. Twelve large Grade A eggs could be placed in some cartons and 12 medium Grade B eggs
in other cartons. Which of the following bringing similar stocks together into a larger
quantity?
A. Distributing
B. Sorting Out
C. Allocating
D. Accumulating

3. For instance, a tank-car load of milk could be broken down into gallon jugs. Which of the
following breaking similar products into smaller and smaller lots?
A. Allocating
B. Sorting Out
C. Distributing
D. Accumulating

4. These are firms that sell finished goods to retailers, manufacturers, and institutions
(such as schools and hospitals)?
A. Consumer
B. Industrial
C. Wholesalers
D. Retailers

5. These are firms that sell goods to consumers and to industrial users for their own
consumption?
A. Consumers
B. Retailers
C. Wholesalers
D. Buyers

6. It is made up of marketing intermediaries, or organizations that assist in moving goods and

services from producers to end users and consumers.
A. Distribution pattern
B. Distribution Channel
C. Market
D. Product

7. What system known as an economic activity is linked to a complex system of suppliers

13 NegOr_Q4_Principles of Marketing12_Module3_v2
 and customers, which must be supported by a transport system?
A. Supply Chain
B. Distribution Channel
C. Allocating
D. Accumulating

8. These distribution channels arrangements help differentiate a firm’s product from the
competition.
A. Distribution Channel
B. Traditional channel
C. Nontraditional channel
D. Supply Chain

9. These are the series of marketing entities through which goods and services
pass on their way from producers to end users?
A. Distribution pattern
B. Wholesalers
C. Distribution Channel
D. Product

10. Its is the system through which an organization acquires raw material, produces products,
and delivers the products and services to its customers?
A. Supply Chain
B. Wholesalers
C. Distribution Channel
D. Product

14 NegOr_Q4_Principles of Marketing12_Module3_v2
NegOr_Q4_Principles of Marketing12_Module3_v2 15
Answer Key
What I Know Assessment
1. c 1. b
2. a 2. d
3. b
3. a
4. d
5. d 4. c
6. b 5. b
7. a 6. d
8. b 7. a
9. c 8. c
10. a 9. c
10. a
What’s In
1. Distribution Channel
2. Sari-sari Store Additional Activities (Answers may vary)
3. Retailing
4. Hyper Market What’s New
5. Department Store Answers may vary
Rubrics for Grading the Essay:
5- If the answer consists of 4 or more sentences with
correct and complete Information.
4- If the answer consists of 3 sentences with correct
information.
3- If the answer consists of 2 sentences with correct
information.
2- If the paragraph consists of 1 sentence with correct
information
References

Book
Zarate, C. 2017, Principles of Marketing. Quezon City: C&E Publishing, Inc

Online Sources

Dawn Iacobucci, 2019. Marketing Manangement, Fifth Edition Canada

Deiss, R. & Henneberry, R., 2017. Digital Marketing for Dummies, Seventh Edition New
Jersey
n.d. https://courses.lumenlearning.com/wm-introductiontobusiness/chapter/supply-chains-
and-distribution-channels/.
n.d. https://opentextbc.ca/businessopenstax/chapter/the-nature-and-functions-of-distribution-
place/.
n.d. https://transportgeography.org/contents/chapter1/transportation-and-commercial-
geography/supply-chain-nature/.
n.d. https://surabhiudas91.files.wordpress.com/2014/08/capture2.png .

Saunder, L & Cornett, MM, 2019. Financial Markets and Institutions, Seventh Edition New
York

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