Factors Affecting Choice of Distribution Channel

There are a large number of factors which affect the choice of a suitable channel of distribution. There are various factors that put limitations on the ideal choice, hence every producer has to select a channel that is less than ideal.

Ideally every company wants to select the lowest cost channel, but the lowest cost channel is not necessarily be the best of the product.

Several factors affect the choice of a distribution channel. Companies must study buyer behaviour, type of product, intermediaries, and a host of other factors while choosing a distribution channel.

The choice must be carefully made because the channel would be permanent and it is not possible to change channels without the loss of goodwill, market share, and disruption in supplies.

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Some of the factors affecting the choice of distribution channel are as follows:-

1. Market Considerations 2. Product Considerations 3. Middlemen Considerations 4. Company Considerations 5. Environmental Factor. 6. General Considerations

7. Buyer Behaviour 8. Need for Information and Service 9. Willingness of Intermediaries 10. Resources of Intermediaries 11. Producer Issues 12. Product Factors 13. Distribution Intensity.

Factors Affecting Choice of Distribution Channel

Factors Affecting the Choice of Distribution Channel – 5 Major Factors

For the sake of convenient study, these factors can be classified in five heads as under:

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1. Market considerations,

2. Product considerations,

3. Middlemen considerations,

4. Company considerations,

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5. Environmental factor.

Factor # 1. Market Considerations:

Following factors affect the choice of the channel of distribution:

(i) Number of buyers – If the market of commodity is small, the manufacturer himself can sell his commodities. However, if there are a large number of buyers but middlemen are very few, the commodities shall be sold through wholesaler and retail salesmen.

(ii) Geographical Concentration of the Market – If the buyers of product are spread out in a large geographical area, the manufacturers will have to obtain assistance from middlemen. However, if the buyers of a commodity are confined to a particular area, the manufacturer either can sell himself or appoint any agent for this purpose.

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(iii) Size of Order – If the manufacturer materializes bulk sale to a few stores, he can materialize the sale directly. If on the contrary, supply is being made to small stores in lesser quantum, he may ask for assistance from the wholesalers.

(iv) Need of Commodity – If the commodity is required for industrial institutions, wholesalers will be required for this purpose. However, if the commodity is required for consumers, it will be issued to the retail traders.

(v) Habits of Buyers – The distribution channels also have a major impact on habits of buyers. For example, if the buyers pay cash price for the commodity, the producer himself can materialize the sale but service of middlemen is necessary if tendency of credit purchase is found among consumers.

Factor # 2. Product Consideration:

The nature of product impresses the distribution channel in the following ways:

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(i) Selling Price per Product – If selling price per product is low, a number of middlemen will be required for the sale. However, if the selling price per product is high, direct sale or least assistance from middlemen will be required. The commodities whose selling price per product is lower generally are cigarette, match box etc. While the commodities whose selling price product is high are fridge, television, Contessa car, diamond and gems etc.

(ii) Product Perishability – The distribution channel for the perishable product like vegetable, fruits, ice etc., can be lengthy.

(iii) Weight – More cost is sustained in physical transfer of heavy items. Hence, these items are sold directly by manufacturers. It means the distribution channel for such items is short. However, the distribution channel for light weight items is always lengthy.

(iv) Technical Nature of Product – If the product is of technical nature and it requires special technical knowledge for materializing the sale, the manufacturer handles such sale directly viz. its distribution channel is short.

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(v) Standardized Products – The commodities manufactured on the order of consumers are directly sold to them while the uniform, shape, colour, quality, weight commodities of standards are sold through a long-distribution channel.

Factor # 3. Middlemen Consideration:

The middlemen consideration which influence the distribution channel can be described as under:

(i) Services of Middlemen – The manufacturer calls for the middlemen only when he feels himself unable to render special type of services which can be obtained from the middlemen. The manufacturer should therefore, select the middlemen who are ready to provide these services.

(ii) Sales Possibility – The manufacturer should select the distribution channel which can promote the maximum sale.

(iii) Cost Factor – Cost factor is also worth consideration while selecting the distribution channel i.e., a channel causing minimum cost should be selected.

(iv) Attitude of Middlemen towards Manufacturer’s Policies – Sometimes, the policies of sale and supply as formulated by the manufacturers are rejected by the middlemen thereby less participation of middlemen on the sale of commodity.

Factor # 4. Company Considerations:

(i) Goodwill of Company – If the goodwill of company is on high side, it can select the distribution channel voluntarily because the demand for the commodities manufactured by these companies always remains less than their supplies. For example, Chetak Scooter or Bajaj Scooter Company etc.

(ii) Financial Resources – If there is enough financial resources are lying with a company, it requires minimum middlemen.

(iii) Marketing Experience and Ability of Management – Participation of middlemen will only require to a company which have no marketing experience while a company enriched with marketing experience can materialize the sale itself.

(iv) Desire for Control on Channel Distribution – If a producer wants to keep control on distribution channel, it will definitely short while in contrary position, the channel will be lengthy.

(v) Size of the Company – The distribution channel will short if the company is found in financial view and maintained a large scale productions.

Factor # 5. Environmental Factor:

In course of selecting the distribution sources, me external factors like economy, social, legal and political should also be kept in mind. A channel requiring minimum expenses at the time of recession and a channel requiring more expenses at the time of buoyancy can be selected.

If the middlemen do not sublime to the society, the channel can be made soft. Similarly, the legal restrictions also have a major impact on the distribution channels. For example, controlled commodities, distribution of liquor etc., is materialized in compliance with the governmental policies.

Procedure of Selecting Particular Channel:

A producer or manufacturer can follow the following method at the time of selecting a suitable distribution channel:

1. A study on factors influencing the distribution channel

2. A study on optional distribution channels

3. To recognize the possible distribution channel

4. To understand the optional distribution channel

5. The objectives and limitations of distribution channel

Factors Affecting the Choice of Distribution Channel – 5 Important Factors

There are a large number of factors which affect the choice of a suitable channel of distribution.

They may be divided into the following five groups:

1. Product Considerations:

i. Unit value – If a unit of product has very low value there is strong argument for using a large channel. If its value is very high, there is strong argument for using a short direct sales type of channel.

ii. Perishability – Perishability products must be sold through relatively short channels or directly to the customer in order to avoid losses. Durable goods can be distributed by a long channel of distribution.

iii. Bulk and weight – Bulky item must be sold directly by the manufacturers.

iv. Technical nature – Highly technical products requiring specialised selling ability or service should normally be sold through the shortest channel available or directly by the manufacturer.

v. Extent of Product line and alternate goods – The next factor is the extent of product line. It also affects channel decisions. General goods having many alternatives or substitutes should adopt popular channels. They must be sold through the local intermediaries. A limited product line always prefers direct sales link.

vi. Ordered or standardised products – The name of the products also affects these decisions. Highly standardised products often should be marketed through long and complex channels. It is usually better to distribute ordered goods directly by the manufacturers.

2. Consumers or Market Considerations:

i. Scatter of consumers – When customers are widely dispersed geographically, it is generally easier to reach them through one or more layers of middleman.

ii. Number of consumers – When there are a very large number of consumers, producer is likely to need at least one layer of middle mess.

iii. Need for created and other facilities – The terms of sale also affect this decision. If goods are to be sold on credit and other facilities are to be provided to the customers, it is better to use intermediaries. Wholesalers and retailers being in direct touch with the customers can make better assessment of their credit worthiness.

iv. Order size – A manufacturer may sell to a large size organization because of bulk purchase. But he will have to use wholesalers to satisfy the demand of retailers.

3. Company Considerations:

i. Scale of promotion – Large scale manufacturers manufacturing one or two items at a large scale can distribute their products directly. On the contrary, a small manufacturer can not afford the heavy expenses of sales force.

ii. Custom of the business – In most cases the channel of distribution is decided by the custom of the industry also a new entrain cannot afford to ignore them. He will have to follow the prevailing channels of distribution.

iii. Financial resources – If a company’s financial position is strong, it may choose a short direct sale type of channels. A financially weak company will have to depend upon intermediaries to a large extent.

4. Middlemen Considerations:

i. Service of Middlemen – Middlemen provide certain important services to the customer and to the producer as well. In order to avail these services these manufacturers may decide to go for them.

ii. Attitude of middlemen towards manufacturer policies – The attitude of intermediaries towards the policy of manufacturers may be liberal or rigid. A liberal and co- operative attitude promotes their use while a rigid attitude restricts.

iii. Sales volume possibilities – Manufacturers like those channel of distribution which assure them maximum sale.

iv. Cost consideration – Producers like those channels of distribution which have minimum cost.

5. General Considerations:

i. Suitability – The channel of distribution under consideration should be appropriate and according to marketing policies and marketing programme of the manufacturer.

ii. Efficiency – The efficiency of a channel of distribution also affects the selection of a suitable channel.

iii. Flexibility – The selected channel of distribution should be flexible and capable of being changed.

iv. Competitors – The channel of distribution being followed by competitors should also be kept in mind.

v. Social considerations – The attitude of the society towards the possible channel of distribution should also be examined.

Factors Affecting the Choice of Distribution Channel – Top 5 Factors: Explained!

The best channel decision is one that works best in the marketing strategy selected by the company. The channel should be an ideal one that could meet the customers’ needs and preference. In choosing the channel, the producer always have to struggle with what is ideal and what is available. What is available cannot be said ideal or what seems ideal cannot be engaged.

There are various factors that put limitations on the ideal choice, hence every producer has to select a channel that is less than ideal. Ideally every company wants to select the lowest cost channel, but the lowest cost channel is not necessarily be the best of the product. Thus, the producer is not free to select any channel, he likes but his decision is influenced by several factors.

The factors that influence the channel choice of a manufacturer, may be classified as factors relating to:

1. Product Characteristics:

The product characteristics are the most important in following channel decision. The marketing executive must study the attributes of the product in selection of channel.

(a) Perishability:

The more perishable the product, the shorter should be the channel. Dairy, bakery products, fruits and sea foods etc. must reach the consumers as soon as possible after their production. Therefore they require more direct marketing to consumers due to dangers associated with their repeated handling and delays.

(b) Weight and Bulk:

Bulky or large size products are usually sold directly by the company to the consumer due to transportation difficulty. The channel may be long if products can be handled and transported easily.

(c) Unit Value:

Products whose unit selling price is high as compared to its cost like cut-diamonds, are often sold directly through company’s sales force. A high unit cost and value is invariably associated with complexity. This can be done effectively by the company’s own sales force. On the other hand, if the unit value is low as in case of items of daily consumption, the channel of distribution may be long while their turnover is high, because they are frequently purchased by the consumers.

(d) Standardization:

Standardized products are those each unit of which is similar in colour, weight, size, quality etc. These should have indirect and lengthy channel of distribution because they are sold extensively and by brand. As against this, products which are not standardized and are produced on order, have direct selling.

(e) Complexity of Product:

Technologically complex and specialized products are usually sold direct as they need demonstration and explanation about it working. Examples of such products are Computers, industrial products etc. On the other hand, the products of non-technical nature may be distributed through a long channel.

2. Market Characteristics:

The following market or consumer or supply characteristics influence the channel decision:

(a) Number of Purchasers:

In general, it may be observed that the larger the number of customers, the greater the need for channel agents regardless of the stage of market development. For example, if a company sells an industrial machinery only to twenty leading firms in a given foreign market, there is hardly a need for the middlemen and the firm can undertake the supply of such machinery through its own salesman. But, on the other hand, if the company produces and sells mass consumption items like soap, garment etc., it should select the longer chain of middlemen to distribute the item more effectively and at lower cost.

(b) Geographical Distribution:

If customers of the product is widely dispersed geographically, long channels may be required to avoid delay in supplying the goods. Conversely, if customers are geographically concentrated, it is easy to approach them and a shorter channel or the direct selling may suffice.

(c) Size and Number of Orders:

Where customers make frequent and regular purchases in small quantity, lengthier marketing channels may be indicated. The producer may like to sell to wholesalers. If the size of orders from the customers is large and not frequently purchased such as durable consumer goods or high unit value products, the smaller channel may be required.

(d) Customer’s Buying Habits:

Customer’s buying habits also affect the channel decision. If customers in a particular market, expect credit facility, desire to purchase all necessaries at one place or desires for the personal services of the salesmen, the channel may be lengthier or shorter depends upon the capacity of providing those facilities for meeting out the needs of the customers. If producer can provide those facilities the channel will be shorter, otherwise lengthier.

(e) Buyer of the Product:

The channel decision also depends upon who buys the product? In some countries, Government departments buy commodities often in large quantities and on a long term basis for their use. It is direct selling. If goods are purchased by the central or state buying agencies such as State Trading Corporation and Export Promotion Councils etc. which may supply the imported goods to wholesalers or industrial users, the channel may employ wholesaler retailers or only retailers. Some large retailers or distributors in foreign countries prefer to purchases direct from the producers, the channel may include one or two middlemen.

3. Middlemen Factors:

The choice of channel also depend upon the strength and weaknesses of various types of middlemen performing various functions. Their behavioral differences, product lines they deal in, the number, location and size of the middlemen also affect the design of the channel.

The following are some considerable factors:

(a) Services Provided by Middlemen:

Services provided by the middlemen may affect the channel choice. The middlemen who agree to provide the services which the company requires to provide to customers, may be appointed otherwise company will made its own arrangement for the sale of the product.

(b) Cost of Channel Usage:

The cost of performing marketing functions at each level of distribution and the overall cost of performing total marketing task have an important bearing on the choice of channel. The relative cost of different marketing channels and the cash flow effectiveness of channel under consideration should be closely examined.

Here the firm should keep in mind the initial expenditure which are non-recurring in nature. It should also study the recurring elements like the cost of staffing and training personnel. The channels including direct channel which ensures efficient distribution at least expenses and which secures the desired volume of sales should be chosen.

(c) Attitude of Middlemen:

The middlemen’s attitude towards company’s policies affect the channel decision. The middlemen are notoriously known for maximizing their profits rather than that of the manufacturer. If the company allows them to fix the prices of the product, they will happily agree to sell the product of the company.

If the company wants to follow the Resale Price Maintenance Policy, the choice is limited. Moreover; if the middlemen trust on the higher profits, they will select the product line and brand which sells most. A new entrant in the field will find it difficult to sell his product unless he shares the marketing expenses.

(d) Sale Volume Potential:

In selecting a channel, the middlemen’s potentiality to reach the maximum number of buyers should be probed into through special marketing surveys or other channels suitable adjustments for the strengths and weaknesses of competition should also be made. If the channel can reach the targeted sale volume, it may be selected. Keeping in mind that no single channel will be capable of realizing targeted sales potential, a combined potential of two or three possible channel should be estimated.

(e) Availability of Middlemen:

The kind of specialists, the marketing manager would like to use may not even be available or willing to cooperate, especially if the company is a late entrant in the field and his competitors have already tied up the middlemen perhaps as part of a selective or exclusive distribution policy.

Thus, in a foreign market, if the desired channel does not exist or it may belong to a competitor, it is then imperative for the firm to collect all the necessary information on the distribution pattern in a given foreign market. Only then should a decision be taken on the channel choice.

(f) Contract with Middlemen:

The international marketer must apply his legal brains to chalk out the contract with middlemen in the given foreign market. The reason for doing so is that if any aspect of agreement is overlooked by the firm, it may cause not only embarrassment and harassment to the firm but may also lead to the hostility of the distributors against the firm. It may also lead to a loss of face in the market.

Sometimes, the host Government also adopt a hostile attitude towards such firms. To avoid a legal fight, the agency regulations should be studied in details. If the regulations do not coincide with the firm’s objectives, the firm should take up the distribution task.

4. Company or Enterprise Factors:

The choice of channel is also influenced by company’s characteristics such as its financial position, size, etc.

The following factors are important:

(a) Financial Resources of Company:

The financial strength of the company determines which marketing tasks, it can handle efficiently and which ones are to be delegated to the middlemen. A financially weak company may engage a financially strong intermediary so that it may push its sales well. Though it is not in the interest of the company in the long run. A company having good financial position, on the other hand, will establish its own selling and distribution set up on overseas market to avoid overdependence on middlemen taking all other factors into consideration.

(b) Size of the Company:

A large company already marketing a wide range of products may be in a good position to take up an additional product of the same time and handle it the same way, usually directly. It need not think again on the choice of the channel. A smaller firm, on the other hand, will find it difficult to engage the same channels because of the attitude of the middlemen and its own financial constraints.

(c) Product-Mix:

If the product-mix of a company is wide enough, it can deal with it customers directly by establishing its branch offices in overseas markets. A fresh expansion of plant capacity may require more aggressive channel to find a place in the market. A well-established product of mass consumption require a long channel. Similarly, consistency in the company’s product mix ensures homogeneity of its marketing channel.

(d) Marketing Policies:

The company’s marketing policies such as speedy delivery, after sale services, heavy advertising, uniform retail pricing also influence the channel decision. If company is of the view that the intermediaries can provide the services to customers according to company’s marketing policies, it can delegate its selling activity to middlemen otherwise, it may engage itself indirect selling.

(e) Attitude of Company Executives:

The attitude of company executives may have preferences or prejudices for a particular channel in a particular overseas market. Their attitude may be the result of their experience of working with certain types of middlemen.

5. Environmental Factors:

Another major constraints in the channel design is the general characteristics of the total environment of the foreign market. This factor includes the economic social and political environment of the country and varies from country to country. The foreign marketer should try to establish similarities in the foreign markets.

These includes:

(a) Economic Conditions:

When economic conditions in a country are depressed, the producer prefer a shorter channel to cut costs. If there is multipoint tax on sales, the line should be shorter to avoid the tax-burden on the consumers and they prefer to sell direct to retailers or consumers. If there are no such economic constraints, the channel may be longer.

(b) Social and Ethical Considerations:

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

(c) Legal Restrictions:

If there is any legal restriction of any selling activity in the host country, the producer must have to adhere such provisions. For example, any activity not allowed under MRTP Act (Any activity which may have the effect of unreasonably preventing or lessening competition is not permissible) cannot be permitted to be undertaken. In case of controlled items, the channel should be strictly according to government policy of the host country.

Thus, the above factors influence the channel decision of the company and the manufacturer not always enjoys a complete freedom in selecting an ideal channel. He is to consider various financial, ethical, legal, marketing and product considerations before reaching a final decision.

In taking decision, he must think over the cost and control aspect of the channel. This means what would be the level of control of the firm over the functioning of channel? Would it be able to satisfy the customers and the company’s objectives in the minimum cost? The choice will be best if the answer of the above questions is in positive.

Factors Affecting the Choice of Distribution Channel – 7 Major Factors

While selecting a channel, we have to keep in mind the three ‘Cs’ – channel control, channel cost and market coverage. A channel is generally selected on the basis of the customers’ buying pattern. Some more considerations like the product, the intermediaries and the company itself also affect our channel decisions.

i. Market Considerations – It is obviously to be seen whether ours is a consumer-product or an industrial product. In industrial marketing, there are no retailers.

ii. Number of Potential Customers – If there are a few customers, the product can be sold directly to the customers by personal selling. The larger the number of customers, the greater are the chances of using the middlemen.

iii. Geographic Concentration – When customers are concentrated in a few geographic centre’s, we can think of direct sale, e.g., ready-to-wear garments or textiles. For a nationally marketed product also, there may be some segments that have a high density, and it is in such densely populated areas that the sales branches are set.

iv. Order Size – A pickle manufacturer may sell directly to a retailer like Apna Bazaar as it places a large order. However, it may use wholesalers to reach a large number of small retailers.

v. Product Considerations –

(a) Unit Value – Lower unit value of the product means longer channels. However, if a large quantity of low unit value products are sold, the channels can be shortened.

(b) Perishability – Short channels are recommended for highly perishable products or fashion products.

(c) Technical Nature – A complex technical product can be sold directly to the user. Such a product requires pre-selling and after-selling services, which wholesalers are not able to provide.

vi. Middlemen Considerations – Each producer selects the middlemen who provide services which the producer himself cannot provide or cannot provide economically. The availability of the middlemen and the attitude of the middlemen towards the producer are also important considerations.

vii. Company Considerations – A sound firm is less dependent on middlemen. Experience of the trade makes a firm less dependent on middlemen. A new firm may hand over the distribution to middlemen. The desire to control the distribution affects the choice.

Factors Affecting the Choice of Distribution Channel – Factors that Influence the Channel Choice of a Manufacturer

The best channel decision is one that works best in the marketing strategy selected by the company. The channel should be an ideal one that could meet the customers’ needs and preference. In choosing the channel, the producers always have to struggle with what is ideal and what is available. What is available cannot be said ideal or what seems ideal cannot be engaged.

There are various factors that put limitations on the ideal choice; hence every producer has to select a channel that is less than ideal. Ideally every company wants to select the lowest cost channel, but the lowest cost channel is not necessarily be the best of the product. Thus, the producer is not free to select any channel, he likes but his decision is influenced by several factors.

The factors that influence the channel choice of a manufacturer may be classified as factors relating to:

Factor # 1. Product Characteristics:

The product characteristics are the most important in following channel decision. The marketing executive must study the attributes of the product in selection of channel.

(a) Perishability:

The more perishable the product, the shorter should be the channel. Dairy, bakery products, fruits and sea foods etc., must reach the consumers as soon as possible after their production. Therefore they require more direct marketing to consumers due to dangers associated with their repeated handling and delays.

(b) Unit Value:

Products, whose unit selling price is high as compared to its cost like cut-diamonds, are often sold directly through company’s sales force. A high unit cost and value is invariably associated with complexity. This can be done effectively by the company’s own sales force. On the other hand, if the unit value is low as in case of items of daily consumption, the channel of distribution may be long while their turnover is high, because they are frequently purchased by the consumers.

(c) Weight and Bulk:

Bulky or large size products are usually sold directly by the company to the consumer due to transportation difficulty. The channel may be long if products can be handled and transported easily.

(d) Complexity of Product:

Technologically complex and specialised products are usually sold direct as they need demonstration and explanation about it working. Examples of such products are Computers, industrial products etc. On the other hand, the products of non-technical nature may be distributed through a long channel.

(e) Standardisation:

Standardised products are those each unit of which is similar in colour, weight, size, quality etc. These should have indirect and lengthy channel of distribution because they are sold extensively and by brand. As against this, products which are not standardised and are produced on order, have direct selling.

Factor # 2. Market Characteristics:

The following market or consumer or supply characteristics influence the channel decision:

(a) Number of Purchasers:

(b) Size and Number of Orders:

Where customers make frequent and regular purchases in small quantity, lengthier marketing channels may be indicated. The producer may like to sell to wholesalers. If the size of orders from the customers is large and not frequently purchased such as – durable consumer goods or high unit value products, the smaller channel may be required.

(c) Geographical Distribution:

(d) Customer’s Buying Habits:

Customer’s buying habits also affect the channel decision. If customers in a particular market expect credit facility, desire to purchase all necessaries at one place or desires for the personal services of the salesmen, the channel may be lengthier or shorter depends upon the capacity of providing those facilities for meeting out the needs of the customers. If producer can provide those facilities the channel will be shorter, otherwise lengthier.

(e) Buyer of the Product:

If goods are purchased by the central or state buying agencies such as – State Trading Corporation and Export Promotion Councils etc., which may supply the imported goods to wholesalers or industrial users, the channel may employ wholesaler retailers or only retailers. Some large retailers or distributors in foreign countries prefer to purchases direct from the producers, the channel may include one or two middlemen.

Factor # 3. Middlemen Factors:

The choice of channel also depends upon the strength and weaknesses of various types of middlemen performing various functions. Their behavioural differences, product lines they deal in, the number, location and size of the middlemen also affect the design of the channel.

The following are some considerable factors:

(a) Services Provided by Middlemen:

(b) Attitude of Middlemen:

The middlemen’s attitudes towards company’s policies affect the channel decision. The middlemen are notoriously known for maximising their profits rather than that of the manufacturer. If the company allows them to fix the prices of the product, they will happily agree to sell the product of the company.

(c) Availability of Middlemen:

(d) Cost of Channel Usage:

(e) Sale Volume Potential:

In selecting a channel, the middlemen’s potentiality to reach the maximum number of buyers should be probed into through special marketing surveys or other channels suitable adjustments for the strengths and weaknesses of competition should also be made. If the channel can reach the targeted sale volume, it may be selected. Keeping in mind that no single channel will be capable of realising targeted sales potential, a combined potential of two or three possible channel should be estimated.

(f) Contract with Middlemen:

Sometimes, the host Government also adopts a hostile attitude towards such firms. To avoid a legal fight, the agency regulations should be studied in details. If the regulations do not coincide with the firm’s objectives, the firm should take up the distribution task.

Factor # 4. Company or Enterprise Factors:

The choice of channel is also influenced by company’s characteristics such as – its financial position, size, etc.

The following factors are important:

(a) Financial Resources of Company:

(b) Product-Mix:

If the product-mix of a company is wide enough, it can deal with it customers directly by establishing its branch offices in overseas markets. A fresh expansion of plant capacity may require more aggressive channel to find a place in the market. A well-established product of mass consumption requires a long channel. Similarly, consistency in the company’s product mix ensures homogeneity of its marketing channel.

(c) Size of the Company:

(d) Marketing Policies:

The company’s marketing policies such as – speedy delivery, after sale services, heavy advertising, uniform retail pricing also influence the channel decision. If company is of the view that the intermediaries can provide the services to customers according to company’s marketing policies, it can delegate its selling activity to middlemen otherwise, it may engage itself indirect selling.

(e) Attitude of Company Executives:

Factor # 5. Environmental Factors:

Another major constraint in the channel design is the general characteristics of the total environment of the foreign market. This factor includes the economic social and political environment of the country and varies from country to country. The foreign marketer should try to establish similarities in the foreign markets.

These include:

(a) Economic Conditions:

When economic conditions in a country are depressed, the producer prefers a shorter channel to cut costs. If there is multipoint tax on sales, the line should be shorter to avoid the tax-burden on the consumers and they prefer to sell direct to retailers or consumers. If there are no such economic constraints, the channel may be longer.

(b) Legal Restrictions:

(c) Social and Ethical Considerations:

Social and ethical considerations such as – distribution of goods through black marketing involves questions of ethics and are injurious to society.

This means what would be the level of control of the firm over the functioning of channel would it be able to satisfy the customers and the company’s objectives in the minimum cost? The choice will be best if the answer of the above questions is in positive.

Factors Affecting the Choice of Distribution Channel – 7 Important Factors

Several factors affect the choice of a distribution channel. Companies must study buyer behaviour, type of product, intermediaries, and a host of other factors while choosing a distribution channel. The choice must be carefully made because the channel would be permanent and it is not possible to change channels without the loss of goodwill, market share, and disruption in supplies.

Companies would do well to consider the following factors, while deciding on a channel of distribution:

1. Buyer Behaviour:

Channel format depends first and foremost on buyer behaviour or how and where customers want to buy the products from. Do they prefer to buy from the local retailer, who knows them well and offers advice or credit? Or, do they want to buy from larger showrooms located in a distant upmarket area? For instance, people may buy their daily needs from the neighbourhood corner shop, which is convenient for them.

But it is unlikely that they will end up buying readymade garments from that shop. The reason is that the buying of garments is a less-frequent activity and they would like to do so with their family, at a shop where they feels comfortable looking at and trying-out the garments. Thus, companies have to see where customers like to shop for their goods while designing distribution channels.

2. Need for Information and Service:

For some products, customers require knowledge, as in purchasing an electronics item. Such products may also require installation, support, and servicing. Which channels are best-suited to provide customers with the information they need before buying a product? Does the product need specific technical assistance during installation or service? In such cases, intermediaries are often better-placed to provide servicing rather than the original producer. For example, while buying a car, the service requirement of the vehicle will be looked after by an intermediary and not by the company.

3. Willingness of Intermediaries:

The willingness of channel intermediaries to market the product is also a factor. Retailers invest heavily in properties, rentals, shop fittings, staff, and so on. They may decide not to support a particular product if it requires too much investment or if it does not offer enough volumes or margins. Strong brands may be able to command displays and operate at smaller margins but weak brands have intermediary issues. Further, companies want to know whether the intermediary has the willingness and resources for local publicity.

4. Resources of Intermediaries:

Producers look for efficient servicing of local markets. A key question is whether the intermediary has the salesmen, vehicles, display space, or other specific requirements to promote the products. For example, an intermediary may not be willing to add costs by investing in facilities. Many consumer-product dealers do not service small markets because it requires employing salesmen to go to small retail outlets supplying small quantities and collecting payments. Distribution suffers as dealers do not wish to add to their costs by investing in vehicles and salaries of a large number of salesmen.

5. Producer Issues:

Sometimes producers may not wish to invest in transportation and distribution but require intermediaries to do so instead. Another factor is the extent to which producers want to maintain control over how products are sold and the prices that they are sold at. While selling through a retailer, they effectively lose control over the final consumer price, since the retailer is free to set the price and offer discounts or promotional offers.

Similarly, there is no guarantee for a producer that their product(s) are actually being stocked or displayed by the retailer. Such situations make producers seek greater control over handling these issues by way of direct distribution.

6. Product Factors:

Distribution channels also depend on the nature of the products being sold. Large, complex products or industrial products are often supplied direct to customers. For example, machine tools are usually supplied directly to factories and medical equipment directly to hospitals. In contrast, perishable products such as frozen foods, bread, and vegetables require relatively short distribution channels—making it ideally suited to using intermediaries such as retailers.

7. Distribution Intensity:

Intensity of distribution is described as the number of intermediaries that are included and the number of levels of a channel structure deployed for a particular product by a company. It affects the availability of the product in markets and is based on production capacity, size of the target market, pricing and promotion policies, and the amount of product service required by the consumer.

There are three types of distribution intensity:

i. Intensive distribution,

ii. Selective distribution, and

iii. Exclusive distribution.

i. Intensive Distribution:

It aims to provide coverage of the market by using all available outlets. Companies know that their total sales are directly linked to the number of outlets that the product is available in. Intensive distribution is usually required where customers have a range of acceptable brands to choose from; in other words, if one brand is not available, a customer will simply choose another. Consumer goods such as potato chips, sweets, mineral water bottles, and similar products follow an intensive distribution strategy. Such products are sold at every conceivable outlet.

ii. Selective Distribution:

This involves a producer using a limited number of outlets in a geographical area to sell products. Through this approach, the producer can choose the most appropriate or best-performing outlets and focus effort on them. Selective distribution works when consumers want to ‘shop around’, i.e., they have a preference for a particular brand or price and will search out the outlets that supply them. For instance, premium brands will be available only at high-end store in a city. One would not find such brands in down-market areas. Such brands follow a selective distribution.

iii. Exclusive Distribution:

Exclusive distribution happens when only one wholesaler, retailer, or distributor is used in a specific geographical area. Companies grant certain retail outlets exclusive territorial rights to sell the product. They can, thus, exercise greater control over how products are stored, displayed, and sold.

Exclusive distribution agreements are usually seen in the case of high-end and luxury products. In this way, high-end brands are able to maintain their image. Exclusive distribution is also done to protect unauthorized leakages from the system, as in the case of specialized goods, hazardous products, high technology products, or those products that require a high degree of after-sales service.

Factors Affecting the Choice of Distribution Channel – Top 4 Factors

Choice of a channel of distribution involves the selection of the best possible combination of middlemen or intermediaries. The objective is to secure the largest possible distribution at minimum costs. The channel must be flexible and efficient. It should be consistent with the declared marketing policies and programmes of the firm. Such a channel can be selected by evaluating alternative channels in terms of their costs, sales potential and suitability.

The factors affecting the choice of distribution channels may be classified as follows:

Factor # 1. Product Considerations:

The nature and type of the product have an important bearing on the choice of distribution channels.

The main characteristics of the product in this respect are given below:

(a) Unit value – Products of low unit value and common use are generally sold through middlemen as they cannot bear the costs of direct selling. Low priced and high turnover articles like cosmetics, hosiery goods, stationery and small accessory equipment usually flow through a long channel. On the other hand expensive consumer goods and industrial products, e.g., jewellery, machines are sold directly by the producers.

(b) Perishability – Perishable products like vegetables, fruits and bakery items have relatively short channels as they cannot withstand repeated handling. Same is true about articles of seasonal nature. Goods which are subject to frequent changes in fashion and style are generally distributed through short channels as the product has to maintain close and continuous touch with the market. Durable and non-fashion articles are sold through agents and merchants.

(c) Bulk and weight – Heavy and bulky products are distributed directly to minimize handling costs. Coal, bricks, stones, etc., are some examples.

(d) Standardization – Custom-made and non-standardized products usually pass through short channels due to the need for direct contact between the producer and the consumers. Standardized and branded goods can be distributed through middlemen.

(e) Technical nature – Products requiring demonstration, installation and after-sale service are often sold directly. The producer appoints sales engineers to sell and service industrial equipment and other products of technical nature. Consumer products like television, refrigerator, electric mixer-grinder, washing machines, etc., are sold through retailers but the after-sale service is generally provided by the manufacturer.

(f) Product line – A firm producing a wide range of products may find it economical to set up its own retail outlets. On the other hand, firms with one or two products find it profitable to distribute through wholesalers and retailers.

(g) Age of the product – A new product needs greater promotional effort and few middlemen may like to handle it. As the producer gains acceptance in the market, more middlemen may be employed for its distribution. Channels used for competitive products may also influence the choice of distribution channels.

Factor # 2. Market Considerations:

The nature and type of customers is an important consideration in the choice of a channel of distribution.

Following factors relating to the market are particularly significant:

(a) Consumer or Industrial Market – The purpose of buying has an important influence on channel. Goods purchased for industrial or commercial use are usually sold directly or through agents. This is because industrial users buy in a large quantity and the producer can easily establish a direct contact with them. To ultimate consumers, goods are sold normally through middlemen.

(b) Number and Location of Buyers – When the number of prospective buyers is small or the market is geographically located in a limited area, direct selling is easy and economical. In case of large and widely scattered markets, use of wholesalers and retailers becomes necessary.

(c) Size and Frequency of Order – Direct selling is convenient and economical in case of large and infrequent orders. When articles are purchased very frequently and each purchase order is small, middlemen may have to be used. A manufacturer may use different channels for different types of buyers. He may sell directly to departmental and chain stores and may depend upon wholesalers to sell to small retail stores.

(d) Buying Habits – The amount of time and effort which customers are willing to spend in shopping is an important consideration. Desire for one-stop shopping, need for personal attention, preference for self-service and desire for credit also influence the choice of a trade channel.

Factor # 3. Company Considerations:

The nature, size and objectives of the firm play an important role in channel decisions:

(a) Market Standing – Well-established companies with good reputation in the market are in a better position to eliminate middlemen than new and less known firms.

(b) Financial Resources – A large firm with sufficient funds can establish its own retail shops to sell directly to consumers. But a small or weak enterprise which cannot invest money in distribution has to depend on middlemen for the marketing of its products.

(c) Management – The competence and experience of management exercises influence on channel decision. If the management of a firm has sufficient knowledge and experience of distribution, it may prefer direct selling. Firms whose management lacks marketing know-how have to depend on middlemen.

(d) Volume of Production – A big firm with large output may find it profitable to set up its own retail outlets throughout the country. But a manufacturer producing a small quantity can distribute his output more economically through middlemen.

(e) Desire for Control of Channel – Firms which want to have close control over the distribution of their products use a short channel. Such firms can have more aggressive promotion and a thorough understanding of customers’ requirements. A firm not desirous of control over channel can freely employ middlemen.

(f) Services Provided by Manufacturers – A company that sells directly has itself to provide installation, credit, home delivery, after-sale service and other facilities to customers. Firms which do not or cannot provide such services have to depend upon middlemen.

Factor # 4. Middlemen Considerations:

The cost and efficiency of distribution depend largely upon the name and type of middlemen as reflected in the following factors:

(a) Availability – When desired types of middlemen are not available, a manufacturer may have to establish his own distribution network. Non-availability of middlemen may arise when they are handling competitive products or they do not like to handle more brands.

(b) Attitudes – Middlemen who do not like a firm’s marketing policies may refuse to handle its products. For instance, some wholesalers and retailers demand sole selling rights or a guarantee against fall in prices.

(d) Sales Potential – A manufacturer generally prefers a dealer who offers the greatest potential volume of sales.

(e) Costs – Choice of a channel should be made after comparing the costs of distribution through alternative channels.

(f) Customs and Competition – The channels traditionally used for a product are likely to influence the choice. For instance, locks are sold usually through hardware stores and their distribution through general stores may not be preferred. Channels used by competitors are also important.

(g) Legal Constraints – Government regulations regarding certain products may influence channel decision. For instance, liquor and drugs can be distributed only through licensed shops.