Important factors influencing channel choice are as follows:
i. Product characteristics:
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Product characteristics have an influence on the choice of the channel of distribution. They refer to the unit value of goods, product features like volume, weight, perishability, technical features, and product standardisation and so on. The manufacturer or the producer has to consider the product characteristics while selecting the channel of distribution.
Products that are frequently purchased need direct distribution to reduce the cost and burden of distribution of such products. Similarly, goods of perishable nature (ice cream, bread) also need direct marketing in order to reach the market and the ultimate user quickly. Direct marketing is required in case of bulky products, non-standardised goods and technical products which require specialised selling and servicing facilities.
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Products of high unit value are directly sold by the company’s sales force rather than through middlemen. Similarly, industrial goods need direct distribution. In case of new products which need higher selling efforts, direct selling or selling through retailers may be adopted.
Thus, direct marketing is suitable in cases of perishable goods, bulky products and products having technical complexities, whereas, long channel of distribution is preferable in cases of durable standardised products, light-weight goods, small sized goods and products without technical complexities.
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ii. Consumer characteristics:
While selecting a channel of distribution, consumer characteristics are also taken into account. Consumer characteristics refer to the buying habits, size and location of markets and order size. The chain of distribution whether it should be short or long depends on the number of customers, their geographical dispersion, frequency and regularity of purchase and the way it responds to the different selling methods.
Long channels may be necessary when customers are large in number and spread over a wide geographical area. Besides, products which are small in size and frequently purchased need longer chains of distribution. Buyer’s responses to different selling methods are to be considered while selecting a channel.
Short channels of distribution are preferred in cases where small number of buyers concentrate in selected geographical areas and in cases of not so frequently purchased goods. Similarly, direct distribution has to be adopted when the nature of the goods requires direct marketing. These goods must be marketed through such channels where the customers expect them to be sold.
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iii. Middlemen considerations:
Intermediary factor assumes considerable importance. While selecting the channel of distribution, a manufacturer has to take into account the services rendered by” the middlemen. Generally, middlemen are appointed to get all types of marketing services which the manufacturer cannot perform economically.
If the product needs aggressive selling efforts or special storage facilities which cannot be ordinarily provided by the manufacturers, the services of the middlemen such as wholesalers or dealers will have to be utilised. However, due care must be taken to ensure that the selected middlemen offer maximum cooperation in implementing promotional activities and help in increasing the sales volume.
The choice of channel of distribution is also influenced by the availability of suitable middlemen, cost of maintaining intermediaries, distribution policy of the firm, firm’s sales targets and profit margins in the sale of goods. Channel design must look into the strength and weakness of different types of intermediaries performing various marketing functions.
Differences in the behavioural functions of middlemen, their number and locations affect the channel choice. The number of intermediaries needed for distribution of a firm’s products depends on the degree of market exposure sought by the firm for its products.
Similarly, the firm’s decision on whether it should use intensive or extensive distribution methods leads to channel choice. The choice of channel should always correspond to the laying down of channel objectives. In sum, the channel that gives the largest sales volume at lower unit cost should be preferred.
iv. Company characteristics:
The choice of the channel is also influenced by the characteristics of the organisation. Company characteristics refer to the organisation of the manufacturer, reputation of the firm and the marketing ability of the personnel in the firm.
The size of the company, its financial resources, past channel experience, current marketing policies and the company’s product mix basically influence the channel pattern. A firm which is financially sound can adopt direct marketing channel profitably, whereas a firm which is financially weak and is not in a position to sell directly, may have to depend on intermediaries.
A reputed company can establish its own branches, depots, showrooms and can also grant credit to customers. On the other hand, a new company has to depend on the middlemen for selling its products because of its lack of experience in marketing. Similarly, a company willing to its exercise greater control over channel will prefer a shorter channel as it will facilitate better coordination, communication and control.
A firm which likes to have a policy of speedy delivery of goods to ultimate consumers may prefer direct marketing and avoid intermediaries the wider the company’s product mix, the greater will be its strength to deal directly with its customers. Companies which follow consistency in product mix will have greater uniformity in its marketing channels.
Thus, the financial soundness of the enterprise, its age and experience, the nature of marketing services provided by the company influence the channel choice, to a considerable extent.
v. Market characteristics:
A market characteristic is another important factor which affects the choice of channel. Market factor includes the nature of the market, market size, dispersal of consumers, size of consumer order, etc. The nature of the market is regarded as one of the first and foremost factors affecting the choice of channel.
If the product is meant for consumer market, the services of the retailers will have to be utilised. If it is meant both for consumer and industrial markets, more than one channel will have to employ. Similarly, if the size of the market is small, it will be worthwhile to go for direct marketing whereas in case of larger markets multi channels may be preferred.
If the potential buyers are concentrated in a limited geographical area, direct selling may be more effective. But for widely scattered and diffused markets, a number of middlemen have to be employed Size and average frequency of customers’ orders also play a vital role in influencing the channel decision. If the volume of sales is large, direct selling may be economically feasible, whereas in case of small volume sales, services of middlemen have to be availed for selling goods.
vi. Environmental factors:
The overall marketing environment also influences the choice of a particular channel significantly. If the economy is passing through a recessionary phase, shorter as well as cheaper channel of distribution has to be preferred. On the other hand, in times of prosperity, the producer can adopt a longer channel of distribution.
Sometimes government restrictions may also force the selection of a particular channel. For example, essential commodities like infant food, sugar, petrol, are distributed through a particular channel only. Sometimes multipoint tax on sales may force a manufacturer to sell directly to retailers or consumers.
vii. Other factors:
In addition to the aforesaid factors, many other factors like competitor’s channel, market coverage, cost of channel, etc. may also exert their influence upon the choice of a particular channel of distribution.