by (A) Considerations Related to Market
- Number of Buyers:
If the number of buyer is large then it is better to take the services of middlemen for the distribution of the goods. On the contrary, the distribution should be done by the manufacturer directly if the number of buyers is less.
- Types of Buyers:
Buyers can be of two types: General Buyers and Industrial Buyers. If the more buyers of the product belong to general category then there can be more middlemen. But in case of industrial buyers there can be less middlemen.
- Buying Habits:
A manufacturer should take the services of middlemen if his financial position does not permit him to sell goods on credit to those consumers who are in the habit of purchasing goods on credit.
- Buying Quantity:
It is useful for the manufacturer to rely on the services of middlemen if the goods are bought in smaller quantity.
- Size of Market:
If the market area of the product is scattered fairly, then the producer must take the help of middlemen.
(B) Considerations Related to Manufacturer/Company
- Goodwill:
Manufacturer’s goodwill also affects the selection of channel of distribution. A manufacturer enjoying good reputation need not depend on the middlemen as he can open his own branches easily.
- Desire to control the channel of Distribution:
A manufacturer’s ambition to control the channel of distribution affects its selection. Consumers should be approached directly by such type of manufacturer. For example, electronic goods sector with a motive to control the service levels provided to the customers at the point of sale are resorting to company owned retail counters.
- Financial Strength:
A company which has a strong financial base can evolve its own channels. On the other hand, financially weak companies would have to depend upon middlemen.
(C) Considerations Related to Government
Considerations related to the government also affect the selection of channel of distribution. For example, only a license holder can sell medicines in the market according to the law of the government.
In this situation, the manufacturer of medicines should take care that the distribution of his product takes place only through such middlemen who have the relevant license.
(D) Others
- Cost:
A manufacturer should select such a channel of distribution which is less costly and also useful from other angles.
- Availability:
Sometimes some other channel of distribution can be selected if the desired one is not available.
- Possibilities of Sales:
Such a channel which has a possibility of large sale should be given weight age.
(E) Considerations Related to Product
When a manufacturer selects some channel of distribution he/she should take care of such factors which are related to the quality and nature of the product. They are as follows:
- Unit Value of the Product:
When the product is very costly it is best to use small distribution channel. For example, Industrial Machinery or Gold Ornaments are very costly products that are why for their distribution small distribution channel is used. On the other hand, for less costly products long distribution channel is used.
- Standardised or Customised Product:
Standardised products are those for which are pre-determined and there has no scope for alteration. For example: utensils of MILTON. To sell this long distribution channel is used.
On the other hand, customised products are those which are made according to the discretion of the consumer and also there is a scope for alteration, for example; furniture. For such products face-to-face interaction between the manufacturer and the consumer is essential. So for these Direct Sales is a good option.
- Perishability:
A manufacturer should choose minimum or no middlemen as channel of distribution for such an item or product which is of highly perishable nature. On the contrary, a long distribution channel can be selected for durable goods.
- Technical Nature:
If a product is of a technical nature, then it is better to supply it directly to the consumer. This will help the user to know the necessary technicalities of the product.
Factors for the selection of channel of distribution:
(i) Product:
Perishable goods need speedy movement and shorter route of distribution. For durable and standardized goods, longer and diversified channel may be necessary. Whereas, for custom made product, direct distribution to consumer or industrial user may be desirable.
Also, for technical product requiring specialized selling and serving talent, we have the shortest channel. Products of high unit value are sold directly by travelling sales force and not through middlemen.
(ii) Market:
(a) For consumer market, retailer is essential whereas in business market we can eliminate retailing.
(b) For large market size, we have many channels, whereas, for small market size direct selling may be profitable.
(c) For highly concentrated market, direct selling is preferred whereas for widely scattered and diffused markets, we have many channels of distribution.
(d) Size and average frequency of customer’s orders also influence the channel decision. In the sale of food products, we need both wholesaler and retailer.
Customer and dealer analysis will provide information on the number, type, location, buying habits of consumers and dealers in this case can also influence the choice of channels. For example, desire for credit, demand for personal service, amount and time and efforts a customer is willing to spend-are all important factors in channels choice.
(iii) Middlemen:
(a) Middlemen who can provide wanted marketing services will be given first preference.
(b) The middlemen who can offer maximum co-operation in promotional services are also preferred.
(c) The channel generating the largest sales volume at lower unit cost is given top priority.
(iv) Company:
(a) The company’s size determines the size of the market, the size of its larger accounts and its ability to set middlemen’s co-operation. A large company may have shorter channel.
(b) The company’s product-mix influences the pattern of channels. The broader the product- line, the shorter will be the channel.
If the product-mix has greater specialization, the company can favor selective or exclusive dealership.
(c) A company with substantial financial resources may not rely on middlemen and can afford to reduce the levels of distribution. A financially weak company has to depend on middlemen.
(d) New companies rely heavily on middlemen due to lack of experience.
(e) A company desiring to exercise greater control over channel will prefer a shorter channel as it will facilitate better co-ordination, communication and control.
(f) Heavy advertising and sale promotion can motivate middlemen in the promotional campaign. In such cases, a longer chain of distribution is profitable.
Thus, quantity and quality of marketing services provided by the company can influence the channel choice directly.
(v) Marketing Environment:
During recession or depression, shorter and cheaper channel is preferred. During prosperity, we have a wider choice of channel alternatives. The distribution of perishable goods even in distant markets becomes a reality due to cold storage facilities in transport and warehousing. Hence, this leads to expanded role of intermediaries in the distribution of perishable goods.
(vi) Competitors:
Marketers closely watch the channels used by rivals. Many a time, similar channels may be desirables to bring about distribution of a company’s products. Sometimes, marketers deliberately avoid channels used by competitors. For example, company may by-pass retail store channel (used by rivals) and adopt door-to-door sales (where there is no competition).
(vii) Customer Characteristics:
This refers to geographical distribution, frequency of purchase, average quantity of purchase and numbers of prospective customers.
(viii) Channel Compensation:
This involves cost-benefit analysis. Major elements of distribution cost apart from channel compensation are transportation, warehousing, storage insurance, material handling distribution personnel’s compensation and interest on inventory carried at different selling points. Distribution Cost Analysis is a fast growing and perhaps the most rewarding area in marketing cost analysis and control.
