Factors to consider when choosing a distribution channel

• As pointed out elsewhere business have to choose from a number of distribution channels
• In instance the business has to consider several factors when deciding on the most appropriate channel to use
• These factors include:

The nature of the product

• for example industrial products are sold directly to other business from their producer
• Bulk products are likely to have a short distribution channel
• The selling price of the product- very expensive products such as ships and airplanes are likely to have a short production channel
• Highly technical products that require training for example fighter jets require a lot of support thus have a short channel from the producer to the consumer
• Perishable products such as bananas and newspapers have a short channel for them to reach the market quickly as they can go bad

Market

• In a business market for example a market where the buyers are predominantly businesses a direct channel can be used
• For a large market that is spread geographically indirect channels are more appropriate while for a small market where buyers are concentrated in a local area direct channels can be used
• Where products are bought in large quantities and/or infrequently indirect channels would be more appropriate

The business itself

• A large business with resources at its disposal and branches in other areas can choose to distribute directly
• A large retailer might prefer to skip the wholesaler as they can provide the services for themselves in house e.g OK and Pick n’Pay
• A smaller business may choose instead to employ the services of agents and middlemen instead

Competitors:

• Businesses often imitate each other for example if a rival is offering direct sales via the internet a competitor will have to consider doing the same
• Where price is important a business may have to choose the least expensive channel so as to gain an advantage over its competitors

Channel compensation:

• This refers to the Cost Benefit Analysis of using each given channel
• The business will choose the most beneficial channel in terms of cost

Business Environment:

• In times of recession or depression it becomes beneficial to use shorter channels
• For example direct marketing results in financial savings for the consumer which can increase sales since demand tends to be elastic in times of recession

Middlemen:

• The availability of the middlemen is also an important factor
• If no middlemen exist in a given industry/country then the business has no choice but to sell directly
• Tradition is also important as traditionally some business sectors have always employed a given channel

To access more topics go to the O Level Business Notes