Factors or Determinants of Choice of a Distribution Channel

Important factors affecting the choice of channels of distribution by the manufacturer are:

(A) Considerations Related to Product

When a manufacturer selects some channel of distribution he/she should take care of such factors which are related to the quality and nature of the product. They are as follows:

1. Unit Value of the Product: When the product is very costly it is best to use small distribution channel. For example, Industrial Machinery or Gold Ornaments are very costly products that are why for their distribution small distribution channel is used. On the other hand, for less costly products long distribution channel is used.

2. Standardized or Customized Product: Standardized products are those for which are pre-determined and there has no scope for alteration. For example: utensils of MILTON. To sell this long distribution channel is used.

On the other hand, customized 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.

3. Perishability: A manufacturer should choose minimum or no middlemen as channel of distribution for such an item or product which is of highly perishable nature. On the contrary, a long distribution channel can be selected for durable goods.

4. Technical Nature: If a product is of a technical nature, then it is better to supply it directly to the consumer. This will help the user to know the necessary technicalities of the product.

(B) Considerations Related to Market

Market considerations are given below:

1. Number of Buyers: If the number of buyer is large then it is better to take the services of middlemen for the distribution of the goods. On the contrary, the distribution should be done by the manufacturer directly if the number of buyers is less.

2. Types of Buyers: Buyers can be of two types: General Buyers and Industrial Buyers. If the more buyers of the product belong to general category then there can be more middlemen. But in case of industrial buyers there can be less middlemen.

3. Buying Habits: A manufacturer should take the services of middlemen if his financial position does not permit him to sell goods on credit to those consumers who are in the habit of purchasing goods on credit.

4. Buying Quantity: It is useful for the manufacturer to rely on the services of middlemen if the goods are bought in smaller quantity.

5. Size of Market: If the market area of the product is scattered fairly, then the producer must take the help of middlemen.

(C) Considerations Related to Manufacturer/Company

Considerations related to manufacturer are given below:

1. Goodwill: Manufacturer’s goodwill also affects the selection of channel of distribution. A manufacturer enjoying good reputation need not depend on the middlemen as he can open his own branches easily.

2. 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.

3. Financial Strength: A company which has a strong financial base can evolve its own channels. On the other hand, financially weak companies would have to depend upon middlemen.

(D) Considerations Related to Government

Considerations related to the government also affect the selection of channel of distribution. For example, only a license holder can sell medicines in the market according to the law of the government. In this situation, the manufacturer of medicines should take care that the distribution of his product takes place only through such middlemen who have the relevant license.