Below is the importance of channels of distribution and the procedures for selecting an appropriate channel:
The Importance of Channels of Distribution
The importance of channels of distribution is summarized below:
Channels of distribution are the strong element among marketing mix elements. Many intrinsically sound products died in their infancy because they never found the right road to the markets.
Channels take care of the transaction aspects of marketing, including the selling, the financing, and the risk-taking associated with powerful products in anticipation of future sales.
They perform the logical function of moving products from the point of production to purchase. They help producers promote goods and services.
Selecting an Appropriate Channel
The channel decisions are crucial (for two reasons). The costs involved in the use of a channel entail the price that the consumer has to pay. The channel decision also has a bearing on other marketing decisions like pricing and product line.
Through proper market feedback, an appropriate selection of channels can reduce fluctuations in production. A rational decision regarding the choice of channels of distribution should ensure:
· Maximum geographical coverage of the markets
· Maximum promotional efforts, and
· Minimum cost.
The following factors usually govern the selection of channels:
1. The Type of Product
For selling perishable products like bread and milk or vegetable, it is crucial to have a short channel of distribution that facilitates quick movement from the factory to the consumers.
Limited channels may also be employed where the movement of goods involves heavy freight and poses the issue of transportation for such goods as furniture, refrigerators, and air conditioners. But the distribution of products having lower units and high turnover involves a large number of mid-men in the case of product matches, soap, and toothpaste.
When the product requires after-sale service in the case of television, air conditioners, and automobiles, the choice of mid-men may be limited to only those who are in a position to provide these services. Since not many mid-men may be capable of providing such services, their number may be limited.
2. Nature and Extent of the Market
Read Also: Types of Marketing Channels
If consumers are less in number, in the case of bulky and expensive machinery, the manufacturer may approach the customer directly through his own sales force; so also, if the consumers are concentrated in a limited geographical area.
If the above conditions are not applicable, a lengthy channel may have to be selected. However, for industrial goods where such goods are bulky, manufacturers may adopt direct selling/marketing.
3. Competitive Characteristics
It is a wise policy to study the existing methods of distribution, particularly those used by competitors. Producers may want to compete in or near the same outlets carrying the competition channels.
However, where an established channel exists, the manufacturer may use customary methods. For example, for soap and toothpaste, grocery stores are commonly used.
4. Costs Involved in Distribution
Cost, no doubt, is crucial. The longer the channel of distribution, the greater its cost. Thus, manufacturers look for ways to keep down costs and prefer distribution through mid-men who have their own established sales force as it is more economical and involves less financial commitment.
Wholesalers shoulder some of the responsibilities of the cost of stocking and transporting goods. But the manufacturers may have to provide them with a margin that will either reduce their costs or increase the cost to the buyers.
However, in making a choice, the manufacturer has to consider his objectives, resources, and the channels available to him after considering the above factors. Consumers would like to use the method of distribution that will produce the combination of sales volume and cost that yields the maximum amount of profits.
There are no set guidelines for channel selection; therefore, manufacturers will manage their own decisions in the light of their judgments and experience. But most companies like to use multiple channels of distribution to ensure that their products reach the maximum number of people.
The task of manufacturers does not end after the channels have been selected. They have to review the services performed by these agencies involved at frequent intervals. They should keep in close touch with the changes related to the distribution of their products, and seek to improve their marketing methods constantly.
Read Also: Types of Marketing Channels
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