Question

Explain the factors determining the choice of channel of distribution.

Answer 1

One of the important decisions of marketing involves the choice of which channel of distribution to opt for. The following factors determine the choice of channels.

1. Product Type

The choice of channel of distribution is based on the type of product that is produced. It is important to check whether the product is perishable or non-perishable, whether it is an industrial or a consumer product, whether its unit value is high or low, and also, the degree of complexity of the product. For instance, if a good is perishable then short channels should be used rather than long ones. Similarly, if a product has a low unit value then longer channels are preferred. Similarly, consumer products are distributed through long channels while industrial products are distributed through short channels.

2. Characteristics of the Company

The two important characteristics of a company that affects the choice of the channel are its financial strength and the degree of control that the company wishes to hold on the intermediaries. Shorter channels require greater funds than longer channels and also offer greater control over the members of the channel (intermediaries). Thus, companies that are financially strong or wish to command greater control over the channel of distribution opt for shorter channels of distribution.

3. Competitive Factors

The degree of competition and the channels opted by other competitors affect the choice of distribution channel. Depending on its policies a company can adopt a similar channel as adopted by its competitors or opt for a different channel. For example, if competitors of a company opt for sale through a retail store, it may also do the same or it can opt for a different channel such as direct selling.

4. Environmental Factors

Environmental factors such as economic constraints and legal policies play an important role in the choice of channel of distribution. For example, the requirement of complex legal formalities at each step of distribution induces the companies to opt for shorter channels.

5. Market Factors

Various other factors such as the size of the market, geographical concentration of buyers, quantity demanded, etc. also affect the choice between the channels. For instance, if potential buyers are concentrated in a small geographical area then, shorter channels are used. As against this, if the buyers are dispersed in a larger area then longer channels of distribution may be used.