In this article we will discuss about:- 1. Definitions of Channels of Distribution 2. Characteristics of Channels of Distribution 3. Factors Determining the Choice of Distribution Channels.
Definitions of Channels of Distribution:
According to McCarthy- “Any sequence of institutions from the producer to the consumer including one or any number of middlemen is called the channel of distribution.”
According to Philip Kotler- “Every producer seeks to link together the set of marketing intermediaries that best fulfill the firm’s objectives. This set of marketing intermediaries is called the marketing channel, also trade channel or channel of distribution.”
W.J. Stanton defines the channel of distribution as “the route taken by the title to the goods as they move from the producer to the ultimate consumer or industrial users.”
From the above definitions, we can state that the channels of distribution are the means employed by the manufacturers and the sellers to get their products to the market and into the hands of the consumers or users. These are the tools of the distribution management used to move goods from the place of production to the place of consumption.
Characteristics of Channels of Distribution:
The channels of distribution, thus, add the following characteristics in marketing:
1. Place utility, as they help in moving the goods from one place to another;
2. Time utility, as they bring goods to the consumers when needed;
3. Convenience value, as they bring goods to the consumers in convenient shape, unit, size, style and package;
4. Possession value, as they make it possible for the consumers to obtain goods with ownership title;
5. Marketing tools, as they serve as vehicles for viewing the marketing organisation in its external aspects and for bridging the physical and non-physical gaps which exist in moving goods from the producers to the consumers; and
6. Supply-demand linkage, as they bridge the gap between the producers and consumers by resolving spatial (geographical distance) and temporal (relating to time) discrepancies in supply and demand.
Factors Determining the Choice of Distribution Channels:
The selection of the channels of distribution depends first and foremost on the requirements of the market: what the consumer wants, and how much is wanted.
The individual producer or seller, while making a choice of how he will get his goods most economically and efficiently into the hand of the potential consumers, has to take into account several factors as discussed below:
1. Customer/Consumer Characteristics:
These are determined by their number, geographical location, buying capacity, buying habits and tastes, frequency of purchase, etc. Mail-order business or direct channel is suitable for customers with high standard of living but living in remote areas for service or profession. For customers in foreign markets, the services of middlemen like agents are required.
In the case of customers being geographically dispersed, the services of wholesalers and retailers are necessary. The buying habits of the customers also affect the choice of a channel. If customers expect credit facilities, desire to buy all necessaries at one place, and need salesmen’s services, then direct channel of selling is the most suitable.
2. Product Characteristics:
They depend upon their design, weight, perishability, utility, service requirements, standardisation, etc. For perishable goods, sales should be effected through a large number of middlemen for quick disposal. For desirable consumer products, a long channel involving wholesalers and retailers will be suitable.
But the industrial products will require a shorter channel and the services of retailers are not necessary. Standardised products require an indirect long distribution channel with a network of wholesalers and retailers, but non-standard products which are made to customers’ orders and specifications should use the methods of direct selling.
3. Competition Characteristics:
Competitive products are preferred to be marketed through indirect channel or middlemen so that the goods can be displayed with the products of the competitors in the shops.
A monopolistic firm will prefer direct channel. It is argued that even middlemen’s characteristics are important. The price, margins and mark-ups necessary to induce the middlemen or distributors to handle the goods are needed to be considered.
4. Company Characteristics:
They comprise the factors like company’s financial resources, size, product mix, marketing policies and programmes, marketing personnel’s experience and capabilities, etc. They have great influence on the choice of a distribution channel.
Apart from the above factors, the environmental aspects such as economies, social, and legal conditions have influence on the decision of a distribution channel. In case of multi-point tax on the sales of products, the producers should use a shorter channel to reach the customers.
On social considerations, a firm has ‘to guard against the middlemen’s malpractices like black-marketing and hoarding, etc. A firm has also to consider the MRTP Act and its provisions in order to ensure uninterrupted supply of goods. In the case of controlled items, the government’s policy dictates the distribution system.
Last but not the least, the selection of a channel of distribution should be made by a firm keeping in view the likely costs, and sales volume potentialities.