Channel of Distribution: 6 Factors to Consider While Selecting a Channel of Distribution (2024)

Some of the factors to consider while selecting a channel of distribution are: (1) The Nature of the Product (2) The Nature of the market (3) The Nature of Middlemen (4) The nature and size of the manufacturing unit (5) Government Regulations and Policies and (6) Competition.

Distribution of goods is as important as production. Existence of an organisation largely depends upon a proper and well organised system of distribution. It is therefore, necessary than utmost attention should be paid in selecting a channel of distribution.

Various constituents of the marketing mix like promotion etc., are closely related to the channels of distribution. A wrong choice of distribution channel ultimately increases the price of the product. Deciding a proper channel of distribution is not an easy task. It involves a careful study and consideration of many factors stated below.

(1) The Nature of the Product:

These factors include physical characteristics of a product and their impact on the selection of a particular channel of distribution.

Various factors under this category are:

(a) Perishability:

Products which are perishable in nature are distributed by employing a shorter channel of distribution so that goods could be delivered to the consumers without delay. Delay in distribution of these products will deteriorate their quality.

(b) Size and weight of product:

Bulky and heavy products like coal and food grains etc. are directly distributed to the users involve heavy transportation costs. In order to minimise these costs a short and direct distribution channel is suitable.

(c) Unit value of a product:

Products with lesser unit value and high turnover are distributed by employing longer channels of distribution. Household products like utensils, cloth, cosmetics etc. take longer time in reaching the consumers.. On the other hand, products like jewellery having high product value are directly sold to the consumers by the jewellers.

(c) Standardisation:

Products of standard size and quality usually take longer time by adopting longer channel of distribution. For example, machine tools and automobile products which are of standard size reach the consumer through the wholesalers and retailers. Un-standardised articles take lesser time and pass through shorter channels of distribution.

(e) Technical Nature of Products:

Industrial products which are highly technical in nature are usually distributed directly to the industrial users and take lesser time and adopt shorter channel of distribution. In this case after sales service and technical advice is provided by the manufacturer to the consumers.

On the other hand, consumer products of technical nature are usually sold through wholesalers and retailers. In this manner longer channel of distribution is employed for their sales. After sales services are provided by the wholesalers and retailers. Examples of such products are televisions, scooters, refrigerators, etc.

(f) Product Lines:

A manufacturer producing different products in the same lines sells directly or through retailers and lesser time is consumed in their distribution. For example, in case automobile rubber products this practice is followed. On the other hand, a manufacturer dealing only in one item appoints sole selling agents, wholesalers and retailers for selling the product. For example, in case of ‘Vanaspati Ghee’ longer distribution channel in undertaken.

(2) The Nature of the market:

This is another factor influencing the choice of a proper channel of distribution. In the words of Lazo and Corbin “Marketing managements select channels on the basis of customer wants-how, where and under what circ*mstances. The number of buyers of the product affects the choice of a _f channel of distribution.

Following factors are considered in this regard:

(a)Consumer of industrial market:

In case of industrial markets, number of buyers is less; a shorter channel of distribution can be adopted. These buyers usually directly purchase from the manufacturers. Marketing intermediaries are not needed in this case.

But in case of consumer markets, where there are a large number of buyers, a longer channel of distribution is employed. Distribution process cannot be effectively carried out without the services of wholesalers and retailers.

(b) Number of prospective buyers:

If the number of buyers is likely to be more, the distribution channel will be long. On the other hand, if the number of consumers is expected to be less, the manufacturer can effectively sell directly to the consumers by appointing salesmen.

(c)Size of the order:

If the size of the order placed by the customers is big, direct selling can be undertaken by the manufacturer as in case of industrial goods. But where the size of the order is small, middlemen are appointed to distribute the products.

(d) Geographic concentration of market:

Where the customers are concentrated at one particular place or market, distribution channel will be short and the manufacturer can directly supply the goods in that area by opening his own shops or sales depot. In case where buyers are widely scattered, it is very difficult for the manufacturer to establish a direct link with the consumers, services of wholesalers and retailers will be used.

(e) Buying habits of customers:

This includes tastes, preferences, likes and dislikes of customers. Customers also expect certain services like credit and personal attention and after sales services etc. All these factors greatly influence the choice of distribution channel.

(3) The Nature of Middlemen:

Marketing intermediaries are vital components in the distribution of goods. They greatly influence the marketing of goods.

Important factors relating to the selection of a particular middleman are explained as under:

(a) Cost of distribution of goods:

Cost of distribution through middlemen is one of the main considerations to be taken into account by the manufacturer. Higher cost of distribution will result in the increased cost of product. The manufacturer should select the most economical distribution channel.

In finalising the channel of distribution, services provided by the intermediaries must be kept in mind. It may be pointed out that the manufacturer can select an expensive marketing intermediary because that may ensure various marketing services which cannot be offered by others.

(b) Availability of desired middlemen:

Sometimes desired middlemen may not be available for the distribution of goods. They may be busy in dealing with the competitive products. Under such circ*mstances the manufacturer has to make his own arrangements by opening his branches or sales depots to distribute the goods to the consumers.

(c) Unsuitable marketing policies for middlemen:

The marketing policies of the manufacturer may not be welcomed by the middlemen the terms and conditions may not favour the middlemen. For example, some wholesalers or retailers would like to act as sole selling agents for the product in a particular area or region.

(d) Services provided by middlemen:

The manufacturer should select those middlemen who provide various marketing services viz, storage, credit and packing etc. At the same time the middlemen should ensure various services to customers.

(e) Ensuring greater volume of sales:

A manufacturer would like to appoint that middlemen who assure greater sales volume over the long run.

(f) Reputation and financial soundness:

In appointing middleman, the manufacturer must take into consideration the financial stability and reputation of the middleman. A financially sound middleman can provide credit facilities to customers and make prompt payment to the manufacturer.

(4) The nature and size of the manufacturing unit:

The nature and size of manufacturing unit has a great impact on the selection of a distribution channel.

The various considerations in this regard are as follows:

(A) Manufacturer Reputation and Financial Stability:

Reputed and financially sound manufacturing concerns can easily engage middlemen as compared to lesser reputed and newly established units. Usually a manufacturing unit having a sound financial base can easily distribute the goods without appointing middlemen by opening their own sales depots and branches. A financially weaker unit cannot operate without the help of middlemen.

(B) Ability and Experience of the Undertaking:

Industrial undertakings having ample marketing ability and experience can effectively manage their distribution activities themselves. They have lesser dependence on undertaking intermediaries. On the other hand, marketing units possessing lesser marketing ability and experience depend more on middlemen for the distribution of goods.

(C) Desire for Control of Channel:

A manufacturer may resort to a shorter distribution channel in order to exercise effective control over distribution. This is suitable in case of perishable goods and is helpful in establishing direct link between the manufacturer and the consumer. The cost of distribution may be more by adopting such a channel of distribution.

(D) Industrial Conventions:

Industrial conventions followed influence the selection of distribution channel. If a particular mode of distribution is adopted in an industry, the same will be followed by every manufacturing unit in that industry in distribution their products.

(E) Services Provided By the Manufacturers:

The selection of marketing intermediaries is also influenced by various services provided by the manufacturer. These services include extensive advertisem*nt for the product, after sales services and facilities of credit. The manufacturers providing these services can easily avail the services of reputed retailers and wholesalers.

(5) Government Regulations and Policies:

Government policies and regulations also influence the choice of distribution channels. The Government may impose certain restrictions on the wholesale trade of a particular product arid takeover the distribution of certain products. All these restrictions have a direct impact in selecting the channel of distribution.

(6) Competition:

The nature and extent of competition prevalent in a industry is another deterimental consideration in selecting a distribution channel. Different manufacturers producing similar products may employ the same channels of distribution.