Thursday, December 23, 2010

Factors Affecting the Selection of the Channel of Distribution

Every producer, in order to pass on the product to the consumer, is required to select a channel for distribution. The selection of the suitable channel of distribution is one of the important factors of the distribution decisions. The following factors affect the selection of the channel of distribution:
       I.            Factors Pertaining to the Product
Keeping in view the nature, qualities and peculiarities of the product, could only the channel for distribution be properly made. The following factors concerning the product, affect the selection of the channel of distribution:
(1)   Price of the Product. The products of a lower price have a long chain of distributors. As against it, the products having higher price have a smaller chain. Very often, the producer himself has to sell the products to the consumers directly.
(2)   Perishability. The products which are of a perishable nature need lesser number of the intermediaries or agents for their sale. Under this very rule, most of the eatables (food items), and the bakery items are distributed only by the retail sellers.
(3)   Size and Weight. The size and weight of the products too affect the selection of the middlemen. Generally, heavy industrial goods are distributed by the producers themselves to the industrial consumers.
(4)   Technical Nature. Some products are of the nature that prior to their selling, the consumer is required to be given proper instructions with regard to its consumption. In such a case less of the middlemen arc) required to be used.
(5)   Goods Made to Order. The products that are manufactured as per the orders of the customers could be sold directly and the standardized items could be sold off only by the middlemen.
(6)   After-Sales Service. The products regarding which the after-sales service is to be provided could be sold off either personally or through the authorized agents.
    II.            Factors Pertaining to the Consumer or Market
The following are the main elements concerned with the consumer or the market:
(1)   Number of Customers. If the number of customers is large, definitely the services of the middlemen will have to be sought for. As against it, the products whose customers are less in number are distributed by the manufacturer himself.
(2)   Expansion of the Consumers. The span over which are the customers of any commodity spread over, also affects the selection of the channel of distribution. When the consumers are spread through a small or limited sphere, the product is distributed by the producer himself or his agent. As against it, the goods whose distributors are spread throughout the whole country, for such distributors, services of wholeseller and the retailer are sought.
(3)   Size of the Order. When bulk supply orders are received from the consumers, the producer himself takes up the responsibility for the supply of these goods. If the orders are received piece-meal or in smaller quantities, for it the services of the wholeseller could be sought. In this way, the size of the order also influences the selection of the channel of the distribution.
(4)   Objective of Purchase. If the product is being purchased for the industrial use; its direct sale is proper or justified. As against it, if the products are being purchased for the general consumption, the products reach the consumers after passing innumerable hands.
(5)   Need of the Credit Facilities. If, for the sale of any product, it becomes necessary to grant credit to any customer, it shall he helpful for the producer that for its distribution, the services of the wholeseller and retailer businessmen be sought. In this way, the need of the credit facilities too influences the selection of the channel of distribution.

 III.            Factors Pertaining to the Middlemen
The following are the main factors concerned with the middlemen:
(1)   Services Provided by Middlemen. The selection of the middlemen be made keeping in view their services. If some product is quite new and there is the need of its publicity and promotion of sales, then instead of adopting the agency system, the work must be entrusted to the representatives.
(2)   Scope or Possibilities of Quantity of Sales. The same channel should be selected by means of which there is the possibility of more sales.
(3)   Attitude of Agents towards the Producers' Policies. The producers generally prefer to select such middlemen who go by their policies. Very often when the distribution and supply policies of the producers being disliked by the middlemen, the selection of middlemen becomes quite limited.
(4)   Cost of Channel of Distribution. While selecting the channel of distribution, the cost of distribution and the services provided by the middlemen or agents too must be kept into consideration. The producers generally select the most economical channel.
  IV.            Factors Pertaining to the Producer or Company
The following factors, concerning the producer, affect the selection of the channel of distribution:
(1)   Level of Production. The manufacturers who are financially sound and are of a larger category, are able to appoint the sales representatives in a larger number and thug could distribute the commodities (products) in larger quantities. As against it, for the smaller manufacturers, it becomes necessary to procure the services of the wholesellers and the retail traders.
(2)   Financial Resources of the Company. From the financial point of view, the stronger company needs less middlemen.
(3)   Managerial Competence and Experience. If some producer lacks in the necessary managerial experience or proficiency, he will depend more upon the middlemen. The new manufacturers in the beginning remain more dependent upon the middlemen.
     V.            Other Factors
(1)   Distribution Channel of Competitors. While determining the channel of distribution, the channels of distribution of the competitors too must be borne in mind.
(2)   Social Viewpoint. What is the attitude of society towards the distribution, this fact too must be kept into consideration while selecting the middlemen. 
(3) Freedom of Altering. While selecting the agents, this fact too must be kept into mind that in case of need, there must be the liberty of changing or replacing the agents (middlemen).

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