Factors to Consider When Choosing a Distribution Channel

Such factors may be classified as factors relating to: 1. Product Characteristics 2. Markets Factors/Consumer Factors 3. Company Characteristics 4. Middlemen Consideration 5. Environment.

Factor # 1. Product Characteristics:

The product characteristic plays an important role in influencing the channel selection. The marketing executive must study the uses of a product, its frequency of purchase; perish ability, rapidity of fashion change, the service required, and its bulkiness.

(a) Purchase Frequency:

The more frequently purchases are made, more feasible it is for the manufacturer to use direct distribution. This requires extensive distribution which involves a financial consideration.

(b) Perish Ability:

Perishable products like, bakery products, fruits and vegetables, sea food must be placed in the hands of the final consumer as soon as possible after production. These require more of direct marketing because of the risk associated with repeated handling and delays.

(c) Weight and Technicality of the Product:

Products that are bulky, large in size and technically complicated are usually sold directly by the company to the consumers because of the difficulty of finding middlemen for these lines.

More over these products which are of technical in nature require more of after sale service to the consumers and these must be supplied either directly or through the shortest possible route.

(d) Selling Price per Unit:

It selling price per unit is low, the channel distribution may be long as in case of cigarette and watches. If selling price is more the channel is more direct as in case of radio and television.

(e) Standardized Products or Ordered Products:

Standardized products each unit of which is similar in color, weight, size, quality etc., have an indirect or lengthy channel of distribution. If products are not standardized and are produced on order, they have direct selling.

Factor # 2. Markets Factors/Consumer Factors:

The following market or supply characteristics influence the channel decision:

(a) Consumer or Industrial Market:

The producer of consumer product may choose a long channel involving wholesalers and retailers depending upon the nature of product. In case industrial of product the channel is comparatively short because retailer’s services are required in such cases.

(b) Number of Purchasers:

Where number of consumers is large, the channel may be indirect and services of wholesalers and retailers become necessary. But, if customers are few, direct sale can be entertained through representatives.

(c) Geographical Distribution:

If customers are geographically dispersed, the channel may be long. In contrast, if they are concentrated, the direct selling may be done.

(d) Size of Orders:

Where customers purchase small quantities frequently and regularly, lengthier marketing channels are indicated. If the size of order from the consumer is large, the channel may be shorter.

(e) Policies of Competitors:

The channels of distribution are also affected by the policies of the competitors in this regard. If most of the competitors are distributing their products through middlemen, the enterprise must also decide to do so.

(f) Customer Buying Habits:

Customer’s buying habits also affect channels of distribution decision. If the consumer expects credit facilities, desires to purchase all necessaries at one place one desire for the personal services of the salesman, the channel may be lengthier or shorter depends upon the capacity of providing those facilities and meeting out the needs of the customers.

Factor # 3. Company Characteristics:

This choice of channel is also influenced by company characteristic such as its financial position, size and product mix, morale, of its employees, past channel experience and executive prejudices and overall marketing policies:

(a) Financial Resources:

The financial strength of the company determines which marketing tasks, it can handle efficiently and which ones are to delegate to the middlemen. A company having good financial resources may engage itself in direct marketing in a profitable manner. A Weak financial position may force a company to use financially strong intermediaries even if this is not profitable.

(b) Size of the Company:

A large company already handling a wide line of products may be in good position to take an additional product of the same line and handle it in the same way, usually directly. But a smaller firm or one with narrow lines would find middle men practical.

(c) Product Mix:

A fresh expansion of plant capacity may require more aggressive channels. If the product mix of a company is wider, it can deal with its customers directly. Similarly consistency in the company’s product mix ensures heterogeneity of its marketing channels.

(d) Attitude of Company Executives:

The attitude of the company executives may also influence the channel selection. Their experience of working with certain type of middlemen may tend to develop channel preferences or prejudices.

(e) Marketing Policies:

The Company marketing policies such as speedy delivery, after-sales- services, heavy ad, and uniform retail price can provide the services to customers according to company marketing policies, it can delegate its selling activity to middlemen, and otherwise, it may engage itself in direct selling.

(f) Goodwill of the Company:

If the producer is of repute, he can select any channel of his choice because every middleman is ready to work for such a reputed producer and popular products. If the producer is new or doesn’t enjoy such reputation, he should take the advantage of the reputation of the middlemen; and should select the channel which enjoys high reputation.

Factor # 4. Middlemen Consideration:

The choice of channel also depends upon the strengths and weakness of various types of middlemen performing various functions. Their behavioral differences, product lines, the number, location, size differ and affect the design of the channel.

(a) Attitude of the Middlemen:

The attitude of the middlemen towards the company’s policies may affect the channel decision. For example, some middlemen desire to fix their own price for the product the company agrees to allow them to do so, they can very happily agree to sell the products of the company. On the other hand if the company likes to follow the Resale Price Maintenance Policy, the choice is limited.

(b) Service Provided by Middlemen:

Services provided by the middlemen may affect the choice of the channel. If the middlemen can provide the services to the customers who the company requires to provide, the middlemen can be appointed; otherwise company will sell the product directly to the consumer.

(c) Availability of the Middlemen:

The kinds of specialists, the marketing manager would like to use middlemen may not be available or willing to cooperate, especially, if the company is a late entrant in the field and his competitors already have tied up the middlemen perhaps as a part of a selective or exclusive distribution policy. In such case a manufacturer has to make use of the services of the middlemen whoever available in the market or it has to manage its own channel.

Factor # 5. Environment:

The environmental factors such as economic, ethical, and social conditions and law of the land also influence the channel decision.

(a) Economic Conditions:

When economic conditions are depressed the producers prefer shorter channels to cut costs.

(b) Legal Restrictions:

If there is any legal restriction on the selling activity, the producer will be restricted to do so, for example, under MRTP Act, any practice which may have the effect of unreasonably preventing or lessening competition in the supply of goods or services is not permissible.

(c) Social and Ethical Considerations:

Social and ethical considerations such as distribution through black marketing involves question of ethics and injurious to society.

Thus above are the factors that influence the channel decision of the product and the producer doesn’t always enjoy complete freedom in selecting the marketing channels.