Explain the factors determining choice of channels of distribution.

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

(i) Product Type: The choice of channel of distribution is based on the type of the 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 the long ones. Similarly, if a product has a low unit value then longer channel are preferred. In a similar manner, consumer products are distributed through long channels while industrial products are distributed through short channels.

(ii) Characteristics of the Company: The two important characteristics of a company that affect the choice of 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.

(iii) 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 retail store, it may also do the same or it can opt a different channel such as direct selling.

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

(v) Market Factors: Various other factors such as 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.

The choice of channels depends on various factors, which are discussed as follows:

1. Product-Related Factors The important product-related considerations is deciding the channels. It includes whether the’ product is an industrial product or a consumer product. Industrial products require shorter channels and consumer products require longer channels.

2. Company Characteristics The important company characteristics affecting the choice of channels of distribution include the financial strength of the company and the degree of control it wants to hold on other channel members. Direct selling involves lot of foods to be invested in fixed assets say starting own retail outlets or engaging large numbers at salesforce. Similarly, if the management wants to have greater control over the channel number, short channels are used but if the management does not want more control over the middlemen, it can go in for longer channels or large number of intermediaries.

3. Competitive Factors The choice of channel is also affected by what the competitor has selected as its channel. Sometimes, firm may decide to go for the same channel and sometimes absolutely opposite.

4. Market Factors Important market factors affecting the choice of channel of distribution include size of market, geographical concentration of potential buyers and quantity purchased.

5. Environmental Factors Sometimes environmental factors also helps in deciding the channel of distribution, e.g., in a depressed economy, marketers use shorter channels to distribute their goods In an economical way.