Question

Explain the important factors affecting the choice of channels of distribution by the manufacturer.

Answer 1

While selecting a distribution channel, the entrepreneur should take into account the following factors:

1. Considerations related to product: It includes the following:
   (a) Unit value of the product: When the product is very costly distribution channel is preferred. For example, industrial machinery or gold ornaments. On the other hand, for less costly products long distribution channel is used.
   (b) Standardised or customised product: Such products have pre-determined cost and there is no scope for alteration. For example: Utensils of MILTON, for these 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.
   (c) Perishability: Highly perishable goods should have short channel. On the contrary, a long distribution channel can be selected for durable goods.
   (d) Technical nature: If a product is of technical nature, direct channel should be preferred. This will help the user to know the necessary technicalities of the product.
2. Considerations related to market:
   (a) Number of buyers: If the number of buyers is large then it is better to take indirect and long channel of distribution. On the contrary, the distribution should be done by the manufacturer directly if the number of buyers is less.
   (b) Types of buyers: If the more buyers belong to general category then there can be more middlemen. But in case of industrial buyers there should be fewer middlemen.
   (c) Buying habits: Manufacturer can take the services of middlemen if financial position does not permit to sell goods on credit to those consumers who are in the habit of purchasing goods on credit.
   (d) Buying quantity: If the goods are bought in smaller quantity then middlemen can be employed.
   (e) Size of market: If the market area of the product is scattered then the producer must take the help of middlemen, i.e., long channel.
3. Considerations related to manufacturer/company:
   (a) Goodwill: Good reputation need not depend on the middlemen as the firm can open his own branches easily.
   (b) 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.
   (c) Financial strength: A strong financial base of a company can have its own channels. On the other hand, financially weak companies would have to depend upon middlemen.
4. Considerations related to government: Only a license holder can sell medicines in the market according to the law of the government. In this situation, the manufacturer should take sell through middlemen who have the relevant license.
5. Others:
   (a) Cost: A manufacturer should select such a channel of distribution which is less costly and also useful from other angles.
   (b) Availability: Other channel of distribution can be selected if the desired channel is not available.
   (c) Possibilities of sales: Such a channel which has a possibility of large sale should be given weight age.