10 FACTORS AFFECTING THE CHOICE OF CHANNEL OF DISTRIBUTION

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Channel of distribution may be defined as the way and manner through which goods are distributed from the producer to the consumer.

Many factors affect the choice of channel of distribution including the nature of the  goods, price of the goods, technicality of the goods, financial strength of the producer, geographical concentration of the buyer, and numbers of buyers.

1. Nature of the goods: This has to do with whether or not the good is durable or perishable.

Perishable goods are goods that do not like for a long period.

On the other hand, durable goods are goods which last for a long period.

In the distribution of perishable goods, a producer should choose few or no middlemen as the products may spoil if there is any delay in the process or if there are numerous middlemen.

However, because durable goods last for a long time, the producer can use a long distribution channel

2. Price of goods: Middlemen add to the price of goods to make a profit. That is, they buy at a small price and sell at a price larger than they paid to buy them to make a profit.

A smaller distribution channel is typically preferable for commodities with high costs because using many middlemen would greatly increase the cost of the goods.

This explains why cars companies typically sell their products directly to consumers

However, goods with lower prices may require a larger channel of distribution because choosing many middlemen would not necessarily have much impact on their price.

3. Technicality of the goods: To properly use goods with a high level of technicality, the manufacturer must explain the nature of the goods to the consumer

Therefore, if a product is of a technical nature, a direct channel of distribution may be preferred so that the producer may explain the technical intricacy of the product to the consumer

4. Newness of product: Goods that are new to the market require large promotion as compared to old products in the market.

Because they require large promotion, the producer may opt for the indirect channel of distribution to employ the services of middlemen.

Middlemen are typically good at promoting and selling a product since they have selling experience.

Therefore, the producer may choose an indirect distribution channel to benefit from the middlemen's aggressive selling efforts.

5. Producer capabilities: This relates to the financial strength of the producer.

If the producer has strong financial standing, he may choose to sell directly to consumers rather than through middlemen by opening his store nearby.

In this case, the channel of distribution would be direct.

On the other hand, if the producer is financially weak, it may not be able to open stores and will have to rely on intermediaries.

In this case, the channel of distribution will be indirect.

6. Producer's desire to control channel of distribution: Sometimes, the producer may prefer to control the channel of distribution for his goods, thereby, choosing a direct channel of distribution.

In a bid to control the channel of distribution of their goods, some producers may go as far as building their distribution facility dispersed across various cities.

7. Geographical concentration of consumers: If the consumers of the goods that a producer is selling are spread over a large city, the producer may decide to engage the services of middlemen to reach the consumers effectively.

If the consumers are located far away from the producer, the use of middlemen may also be preferred to reach the customer effectively.

8. Number of customers: This is yet another important determinant of the channel of distribution.

The producer may not be able to effectively sell without the services of middlemen if the number of customers is very large. Hence, the indirect channel of distribution is preferred.

On the other hand, selling directly to the consumer is more cost-effective for the producer when the number of customers is relatively small.

9. Cost of distribution: When faced with a lot of channels of distribution, the producer should select the channel of distribution that is less costly.

This lowers the price of the goods for the buyer.

READ ALSO: 8 CONDITIONS THAT MAY WARRANT BYPASSING THE MIDDLEMEN

10. Ability to provide after-sale services: Manufacturers of goods like electronics that need after-sale services can choose indirect channels of distribution, but only if the available middlemen can deliver the necessary after-sales services.

If the available middlemen cannot provide after-sale services, then the manufacturer may decide to distribute goods directly by himself so that he can provide the essential after-sales services. 

As a reminder, the ten factors that determine the choice of channel of distribution are the nature of the goods, price of the goods, the technicality of the goods, newness of the products, producer capabilities, producer desire to control the chain of distribution, geographical concentration of consumers, numbers of customers, cost of distribution, and ability to provide after-sales services.

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