Different channels are used for different types of products. When there are alternative channels available, the selection of an appropriate channel becomes a very important decision for the producers. The choice of a channel for distribution of any product should be such that it should effectively meet the needs of customers in different markets at reasonable cost. The factors which generally influence the choice of the channel of distribution may be categorised under four groups as follows:
1) Market considerations
2) Product considerations
3) Middlemen considerations
4) Company considerations
1. Market Considerations
1. Size of the customers: It is possible in the case of fewer customers purchasing large quantities at regular intervals and if they are concentrated in a small area.
2. Potential volume of sales: The choice of channel depends upon the target volume of business. The ability to reach target customers and the volume of sales varies between different channels. If one outlet is not adequate for achieving the target, more channels need to be used. Of course, the competitive situation must be taken into account while examining the potential volume of sale through different channels.
3. Concentration of buyers: If the buyers are concentrated in a few areas, it is possible for the manufacturer to establish sales divisions in such areas and sell directly to the buyers. Thus, shod channels may be feasible when buyers are concentrated in fewer locations. On the other hand, if buyers are spread over a large geographic area, short channels may become uneconomical and the manufacturer may have to go for long and multiple channels.
4. Size of the purchase order: Manufacturer can distribute directly or through a short channel in the case of large scale buyers. Normally long channels are effective and economical in the case of buyers whose purchase orders are usually too small to justify direct sale.
2. Product Considerations
1. Perishability: The nature of the product influences the choice of channel. Perishable products like eggs, milk, etc., are supplied either directly or through the short channels. If long channels are opted for perishable goods, they may get spoiled by the time they reach the consumer. So products which are perishable must be speeded through the short channels.
2. Bulkiness: In the case of heavy and bulky products (e.g., cement, steel, heavy machinery, etc.) where distribution and handling costs are more, short channels are preferred. On the other hand, long channels are found in the case of lightweight and small-size items like dress material, readymade garments, pocket calculators, stationery, toothpaste, toothbrush, etc.
3. Technical nature of the product: Sophisticated electrical and electronics equipment which require careful handling are also generally distributed directly or through short channels. In the case of sophisticated equipment like computers and Xerox machines, considerable amount of presale and postsale service is required, Wholesalers and retailers may not be able to provide such services. So manufacturers often distribute them directly. However, simple mechanical products like electronic toys, time-clocks, etc., are supplied through long channels for intensive distribution.
4. Product value: Unit value of the product is also an important consideration while deciding the channel of distribution. Normally larger channels are preferred for products whose unit value is low. However, short channels may be equally economical when such products are sold in bulk or are combined with other products. .
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3. Middlemen Considerations
1. Types of middlemen: Availability of suitable middlemen in the channel of distribution is another factor in the selection of the channel. This is because different functions like standardisation, grading, packing, branding, storage, aftersale servicing, etc., are expected to be performed by middlemen. Efficiency of distribution depends upon the size, location and financial position of middlemen. If the middlemen in a specific channel are dependable and efficient, that channel may be preferred by producers.
2. Channel competition: There are different situations in which manufacturers compete with each other for availing the services of particular wholesalers. Similarly, wholesalers often compete with each other to deal with particular retailers or carrying particular brands of products. Sometimes producers use the same channel which is used by their competing producers. If any producer arranges exclusive distribution through a particular wholesaler, the other producers also do the same. Thus selection of a channel may depend on the competition prevailing in the distribution system.
3. Availability of middlemen: The producer may wish to make use of the services of specific category of middlemen, but such middlemen may not be available in the market. They may be carrying the competitors’ products and may not wish to add another product line.
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4. Company Considerations
1. Cost of distribution: The various functions carried out in the channel of distribution add to the cost of distribution. While choosing a channel, the distribution costs of each channel should be calculated and its impact on the consumer price should be analysed. A channel which is less expensive is normally preferred. Sometimes, a channel which is convenient to the customers is preferred even if it is more expensive. In such cases the choice is based on the convenience of the customers rather than the cost of distribution.
2. Long-run effect on profit: Direct distribution, short channels, and long channels have different implications with regard to the profits in the short-run and long-run. If demand for a product is high, reaching the maximum number of customers through more than one’ channel may be profitable. But the demand may decline in course of time as competing products appear in the market. It may not be economical than to use long channels. So while choosing a channel one should keep in mind the future market implications as well.
3. Experience and ability: A manufacturer who has reasonable experience and expertise in marketing the products may prefer to distribute his products on his own. But the manufacturers who do not have marketing know-how prefer to make use of the services of middlemen.
4. Financial strength: Lots of financial resources are required to establish distribution system. So only a financially strong manufacturer can establish his own distribution system and a financially weak firm may have to depend on middlemen.
5. Extent of channel control: Producers who want good control over the distribution of their products prefer short channels. Controlling of the channels is necessary to undertake aggressive promotion, to maintain fresh stocks and retail.
Thus, in making a choice, the manufacturer has to consider his objectives, resources and the channels available to him, nature of the product and characteristics of the buyers. He would like to use the channel of distribution which will produce the combination of sales volume and cost that yields him the maximum amount of profit. There are no set guidelines for channel selection and the manufacturer will have to make his own decision in the light of his own judgment and experience. However, most companies do use multiple channels of distribution to ensure that their products reach the maximum number of people.
The task of manufacturer does not end after the channels have been selected. He has to review the services performed by the agencies involved at fairly frequent intervals, keep in close touch with the developments related to the distribution of his product and seek to improve his marketing methods constantly. He may also realise that the best channel when the product was introduced, may not be the most effective one when the product is established. The following criteria may be used for the evaluation of channel members:
(i) their sales performance,
(ii) their marketing capabilities,
(iii) their motivation to increase the volume of sales,
(iv) competition faced by them, and
(v) their growth prospects.
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