Explain the factors determining the choice of channel of distribution.
The choice of channels depends on various factors which are categorized as:
1. Product related factors
- Nature of the product: While industrial goods are usually technical, made to order and expensive products purchased by few buyers, they require shorter channels, whereas, consumer goods which are standardized, non-expensive, less bulky and frequently demanded, require longer and indirect distribution channels.
- Perishability: Perishable and dairy products also use direct channels, while durable products require longer channels to reach widespread markets.
- Unit value of the product: At the same time, goods whose unit value is low, prefer longer channels, whereas, high value products are directly distributed.
- Product complexity: Similarly, complex products requiring technical details prefer direct channels, while non-complex products usually prefer longer channels.
2. Company related factors
- Financial strength of the firm: Direct selling involves a lot of funds to be invested in fixed assets for starting its own retail outlets. Therefore, if the financial position of the company is strong, it may use direct channels and vice-versa.
- Degree of control: If the management wants to have greater control over distribution, shorter or direct channels will be preferred, and vice-versa.
3. Competitive factors: Sometimes, a firm may choose such channel, which has been adopted by the competitors. In some case however, they may avoid the channel as adopted by the competing firm. Thus, it will depend upon the policy of the firm, whether it wants to go with the competitors or be different from them.
4. Market factors
- Number of buyers: When the number of buyers is small and concentrated in a small place, shorter channels may be used. But, if the number of buyers is large and market is widespread, longer channels should be preferred.
- Size of the order: Similarly, if the size of order is small, longer channels may be used, but if the size of order is large, shorter or direct channels must be used.
- Geographical concentration of buyers: If the buyers are concentrated in a small area shorted channels may be used, but if the consumers are widely spread over a large geographical area, longer channel may be used.
5. Environmental factors: Environmental factors such as economic condition and legal constraints also affect the choice of channels. E.g. in a depressed economy, marketers use shorter channels to distribute their goods in an economical way.
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