Question

Explain the factors that determine the choice of channels of distribution.

Answer 1

Factors determining the choice of channels of distribution:

1) Product Type: The choice of a channel of distribution depends on the type of product, i.e. perishable or non-perishable, industrial or consumer product. For example, in case of perishable goods, short channels of distribution would be more suitable. Similarly, for consumer products, long channels are used, while for industrial products, short channels are used.

2) Characteristics of the Company: There are financial strength and the degree of control which the company wishes to command over intermediaries. Shorter channels of distribution require larger funds but offer greater control over intermediaries. Accordingly, a financially strong company or a company which wishes to command greater control over intermediaries would opt for shorter channels of distribution.

3) Competitive Factors: The channel of distribution opted by a company also depends on the channels opted by its competitors. For instance, a company may opt for a similar channel as used by its competitors.

4) Business Environment Factors: Economic factors and legal policies are important factors in determining the choice of a channel of distribution. For example, if there are complex legal formalities at various steps of distribution, then a company would prefer shorter channels of distribution.

5) Market Factors: There are various market factors such as the size of the market, geographical concentration of potential buyers and volume of demand which determine the choice of channels of distribution which the company opts. For instance, if potential buyers are concentrated in only a small geographical area, then shorter channels of distribution would be more suitable.