In selecting channels of distribution, manufacturers are concerned with twin decisions – what channel to opt for and which particular trader to be selected?
The producers have to keep Market factors, Producer factors, Product factors, Industry factors, Market Environment factors, Intermediary factor in consideration to select the channel members.
Buyer Behaviour is an important market factor. How do buyers want to purchase the product? Do they prefer to buy from retailers, locally, via mail order or perhaps over the Internet? Then, the buyer needs for product information, installation and servicing are equally important.
Which channels are best so as to provide the customer with the information they need before buying? Does the product require any specific technical assistance either to install or service a product? Intermediaries are often best placed to provide servicing rather than the original producer-for example, in the case of Maruti Suzuki, most of its service centres are owned by others. Buying behavior may influence a channel decision. For example, an increasing number of service firms are satisfying consumers’ desire for convenience by providing home delivery. If the product can be marketed to more than one segment, multiple distribution channels may be required.
Do the producers have the resources to perform the functions of the channel? For example, a small producer may not have the resources to recruit, train and equip a sales team. In such a case, the only option may be to use agents and/or other distributors. Manufacturers may also feel short of customer-based skills for distribution of goods.
Another related factor is that how much control the producers want to exercise about how, to whom and at what price a product is sold. If goods are sold through intermediaries then they decide the price and discount and promotional offers. The producer may not be assured of the goods socked by the retailer. Direct distribution gives a producer much more control over these issues.
The willingness of channel intermediaries to market product is also a factor. Retailers in particular invest heavily in properties, shop fitting etc. They may decide not to support a particular product if it requires too much investment (e.g. training, display equipment, warehousing). Retailers are more interested in popularity of the existing products.
In general, products that are complex, expensive (cars), custom-made (jewellery), and perishable (milk, curd, etc.) move through shorter distribution channels. Boeing sells its 747 jet aircraft directly to all the airlines. However, for Coca Cola and Pepsi which are highly standardised and less expensive, a longer channel arrangement is preferred. In case of brands where exclusivity is being maintained a short channel is preferred. If the product is bulky or difficult to handle the producer, itself, will have to go in for distribution.
If an intermediary is not properly working, the producer may decide to change or do away with the intermediary itself.
The biggest industry factor relates to competition. In case of high competition, normally same channels are adopted as the competitors have. It is necessary to have the same cost of distribution.
Marketing Environmental Factors:
The cost of intermediary is an important factor. If the economy is booming even a costlier channel will be okay, bust during recession it will not be practical to continue with such a channel. Any technological development may force the company to change the channel strategy. To illustrate, emergence of internet has led many companies to opt e-marketing. The manufacturers have been able to pass on mark-up or commission payable to intermediaries to the customers.
In selecting a channel of distribution, legal dictates must be followed. To illustrate no chemist shop can be started without being its owner a bachelor of pharmacy. Day after day the government is prescribing educational qualifications to run a store.