There may be many channels of distribution for a product and a manufacturer has to select any one or more of these channels. Selection of a particular channel is a decision upon which the success of all the marketing efforts of an enterprise depends. Therefore, a particular channel must be selected only after a careful study and consideration of all the relevant factors.
Factors affecting the selection of channels of distribution can be divided into following parts:
1. Market Considerations:
Following are the factors related to the market which affect the selection of a particular channel of distribution:
(i) Geographical Concentration of Market:
If the consumers of a product are scattered all over the county, it will not be possible for the manufacturer to distribute such product directly. Therefore, it becomes necessary that such a product must be distributed through a long channel of distribution. If, on the other hand, the consumers of a product are scattered over a particular region, it can be supplied by the manufacturer himself or it can be distributed through a direct channel of distribution.
(ii) Number of Buyers:
If the number of buyers of a product is very large, it must be distributed through an indirect channel of distribution so that it may be made available to all the segments of the market at all the times. If, on the other hand, number of consumers of a product is limited, it must be distributed through direct channel of distribution.
(iii) Size of Orders:
If a product is bought by the consumers in large quantity, the manufacturer may decide to distribute it direct to the consumers. If a product is bought by the consumers in small quantity, the manufacturer will have to arrange to supply the product at all the places and at all the times. Thus, such a product is distributed through an indirect channel of distribution.
(iv) Habits of Buyers:
Customers’ buying habits also affect the channel decision. For example, habit of credit facilities, desire to purchase the necessities at one place or desire for the personal services of the salesman.
(v) Utility of Products:
A very important consideration affecting the selection of a particular channel of distribution is the nature of market for the product. If the product is industrial, it can be distributed directly by the manufacturers to the industrial users. On the other hand, consumer goods are generally supplied to the consumers through middlemen.
2. Product Consideration:
The characteristics of a product affect the selection of channel in the following manner:
(i) Weight 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. Moreover, the products of technical nature require after sale service to the consumers, and these must be supplied either directly or through the shortest possible route.
(ii) Perishability:
Perishable and fashionable products such as dairy and bakery products, fruits and vegetables or sea foods must be placed in the hands of the final users as soon as possible after its production. These usually require more direct marketing because of the dangers associated with repeated handling and delays.
(iii) Selling Price per Unit:
If selling price per unit is low, the channel of distribution may be indirect as in the case of cigarettes and watches. If selling price is more, the channel is more direct as in the case of television and radio.
(iv) Standardised Products:
Products of standard size and quality are usually sold through middlemen, e.g. machine tools and automobile products, which are of standard make reach the consumer through wholesaler and retailers. Unstandardised products are sold through indirect channel of distribution.
(v) Number of Products:
If the product lines handled by the manufacturer have consistency, the producer can sell the products directly because such products are purchased by similar type of customers. But if there is less or no consistency in the product lines, the nature of the customers purchasing it varies widely. Hence it is difficult, rather impossible, for the producer to contact them directly. Then the channel of distribution will be indirect.
(vi) After Sales Service:
If it is necessary for the manufacturer to provide after sale services to the consumers, it becomes necessary that these products must be supplied direct by the manufacturer or through shortest possible channel of distribution.
3. Middlemen Consideration:
The choice of channel also depends upon the strengths and weaknesses of various types of middlemen. Their behavioural differences, product lines, number, location and size differ and affect the selection of the channel.
Following are the factors related to middlemen consideration:
(i) Service Provided by Middlemen:
Services provided by the middlemen may affect the choice of the channel. If middlemen can provide the services to the customers which the company requires to provide, the middlemen can be appointed, otherwise company will sell the product direct to the consumers.
(ii) Sales Possibilities:
If it is expected that the sales of a product can be increased through middlemen, the manufacturer may take the help of these middlemen for the distribution. If the increase in sales is not expected through middlemen, the manufacturer may decide to distribute his products directly.
(iii) Cost Factor:
If the cost of distribution of a product through a channel of distribution is within the range of enterprise, a decision may be taken to adopt it, otherwise, it is better to distribute the goods directly.
(iv) Attitude of Middlemen towards Manufacturer’s Policies:
Sometimes, a manufacturer adopts a channel of distribution for distributing his products because of his marketing policies and strategies require to do so. Main reason of such decision may be to get the advantage of goodwill of middlemen.
4. Company Consideration:
Following are the factors related to the manufacturer which affect the selection of a channel of distribution:
(i) Financial Resources:
The very first factor affecting the selection of a channel of distribution is the availability of financial resources with a manufacturer. If the manufacturer has sufficient financial resources, he may decide to sell his products direct to the consumers. If, on the other hand, a manufacturer does not have sufficient financial resources, he will have to opt for indirect channel.
(ii) Goodwill:
Selection of a particular channel of distribution depends upon the goodwill of manufacturer also. If a manufacturer enjoys high reputation in the market and his products are popular among consumers, he can select any channel of distribution according to his desire. If a manufacturer does not enjoy such reputation, he should take the advantage of goodwill of middlemen.
(iii) Marketing Experience and Managerial Ability:
Marketing of goods is an art. If the enterprise has sufficient marketing experience and managerial ability, the decision may be taken for distributing products direct to the consumers. If the enterprise lacks marketing experience and managerial ability, the enterprise must decide to distribute its products with the help of middlemen.
(iv) Size of the Enterprise:
If the size of an enterprise is large and it has sufficient financial resources, marketing experience and managerial ability, it may select any channel of distribution. It may also decide to distribute its products to the consumers directly. Otherwise, the manufacturer will have to depend upon the experience and ability of middlemen.
(v) Desire to Control:
If the manufacturer wants to have complete control over all the marketing activities, he should select a short channel of distribution or he should distribute his goods direct to the consumers. If, on the other hand, the manufacturer has no such desire, he may decide a long channel of distribution.
5. Government Rules:
Government rules and policies also affect the selection of a distribution channel.
If there is any legal restriction on any selling activity, the producer will be restricted to follow the same. In case of controlled items the channel should be strictly according to the government policy. For example, In India sale of wine can be made according to rules framed by the Government.
6. Other Factors:
Besides the above, there are many other factors such as financial resources, managerial ability, marketing experience, characteristics and product, situation of competition, policies of competitors, buying behaviour of consumers, social expectations and government policies.
A manufacturer must consider all the factors before taking final decision. He must study respective merits and demerits of all the channels of distribution available for a particular product. Final decision in this regard must be based on such study.
Therefore, we can conclude that a manufacturer must carefully consider all the relevant factors, before taking a final decision in this regard. The process of selection of a particular channel of distribution for a particular product does not end with the selection of a desired channel. Analytical study of the performance of the channel must also be made in order to evaluate the effectiveness of the channel. If it is felt at any stage that the channel is unable to achieve desired results, the decision may be taken to change it.