Factors Determining Choice of Channels of Distribution
It is essential to make the product or service available to the customer at the right place and at the right time, then only the customer would be able to purchase the product or service. Place is an element of marketing and is a process of transferring goods from the place of production to the place of consumption. Therefore, Place Mix is an important decision and is related to the physical distribution of the goods and services to the customers. The decisions under place mix include deciding the market for distribution, the channel of distribution, etc. Hence, the place mix consists of Channels of Distribution and Physical Movement of Goods. The two different channels of distribution are direct channel and indirect channel. There are different factors which help in determining the choice of channels of distribution.
Factors Determining Choice of Channels
The factors which determine the choice of channels of distribution are as follows:
1. Product Related Factors: The selection of distribution channel is affected by the products manufactured by a company. Some of the related factors are as follows:
- Industrial/ Consumer Product: As industrial products are usually technical, expensive, bulky and purchased by few buyers, direct or short channels should be used. In the case of consumer goods, long or indirect channels are used because such goods are standardised, less expensive, less bulky, non-technical and frequently bought products.
- Perishability: Perishable products like fruits, vegetables, milk, etc., must be sold through short channels, whereas for non-perishable items like toothpaste, soap, etc., long channels are preferred.
- Unit value of Product: When the unit value is high for a product as in the case of expensive products, direct or short channels should be used, whereas, for products with low unit value, long channels should be used.
- Degree of Complexity: Products which are complex and require technical advice or guidance, direct channels should be used, but for simple and non-technical products, long channels should be used.
2. Company Characteristics: Some of the most important factors which influence the choice of channels are:
- Financial Strength: If a company is financially strong, then it can easily opt for direct channels. But if a company is not financially strong, then indirect channels should be used.
- Degree of Control Desired: Short or direct channels are used if a company wants to exercise full control over distribution. But, if a company does not want to exercise control over the distribution, then indirect channels should be preferred.
3. Competitive Factors: The choice of channel also depends on the channel selected by the competitors. A company can select the same channel as selected by its competitors. For example, Most e-commerce shopping apps opt for similar distribution channels. Sometimes, companies adopt entirely different channels than their competitors. For example, Urban Company provides customised services which are available at the doorstep of the customers, unlike usual salons in which customers have to go to avail services.
4. Market Factors: The choice of the channel also depends upon the market. Some of the prominent factors are:
- Size of Market: It is economical to use more intermediaries if the size of the market is large with numerous customers. Direct or short channels are preferred if the market size is small with a limited number of customers.
- Geographical Concentration: It is better to go with direct or short channels of distribution if buyers are concentrated in a small geographical area. But if buyers are scattered over a wide geographical area, then companies should opt for indirect channels.
- Quantity Purchased: If the average size of the order is small, then longer channels should be preferred, but if the size of the order is large, then direct channels should be used.
5. Environmental Factors: The choice of channel is also affected by environmental factors, like economic condition, government policy, statutory provisions, technological development, etc. For example, shorter channel is used during depression to achieve economy in the distribution of goods.
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