Factors contributing to channel decision.

Types of channel structure with suitable

 examples.

Channel choice involves understanding the ultimate user and how they prefer to purchase merchandise. The selection of the suitable channel of distribution is one of the important factors of the distribution decisions.

The following factors affect the selection of the channel of distribution:

A. Factors pertaining to the product: 

Keeping in view the nature, qualities and peculiarities of the product, could only the channel for distribution be properly made. The following factors concerning the product, affect the selection of the channel of distribution:

1. Price of the Product: The products of a lower price have a long chain of distributors. As against it, the products having higher price have a smaller chain. Very often, the producer himself has to sell the products to the consumers directly.

2. Perishability: The products which are of a perishable nature need lesser number of the intermediaries or agents for their sale. Under this very rule, most of the eatables (food items), and the bakery items are distributed only by the retail sellers.

3. Size and Weight: The size and weight of the products too affect the selection of the middlemen. Generally, heavy industrial goods are distributed by the producers themselves to the industrial consumers.

4. Technical Nature: Some products are of the nature that prior to their selling, the consumer is required to be given proper instructions with regard to its consumption. In such a case less of the middlemen arc) required to be used.

5. Goods Made to Order: The products that are manufactured as per the orders of the customers could be sold directly and the standardized items could be sold off only by the middlemen.

6. After-Sales Service: The products regarding which the after-sales service is to be provided could be sold off either personally or through the authorized agents.

 

 

B. Factors pertaining to the consumer or market: 

1. Number of Customers: If the number of customers is large, definitely the services of the middlemen will have to be sought for. As against it, the products whose customers are less in number are distributed by the manufacturer himself.

2. Expansion of the Consumers: The span over which are the customers of any commodity spread over, also affects the selection of the channel of distribution. When the consumers are spread through a small or limited sphere, the product is distributed by the producer himself or his agent. As against it, the goods whose distributors are spread throughout the whole country, for such distributors, services of wholesaler and the retailer are sought.

3. Size of the Order: When bulk supply orders are received from the consumers, the producer himself takes up the responsibility for the supply of these goods. If the orders are received piece-meal or in smaller quantities, for it the services of the wholesaler could be sought. In this way, the size of the order also influences the selection of the channel of the distribution.

4. Objective of Purchase: If the product is being purchased for the industrial use; its direct sale is proper or justified. As against it, if the products are being purchased for the general consumption, the products reach the consumers after passing innumerable hands.

5. Need of the Credit Facilities: If, for the sale of any product, it becomes necessary to grant credit to any customer, it shall be helpful for the producer that for its distribution, the services of the wholesaler and retailer businessmen be sought. In this way, the need of the credit facilities too influences the selection of the channel of distribution.

 

C. Factors pertaining to the middlemen: 

1. Services Provided by Middlemen: The selection of the middlemen is made keeping in view their services. If some product is quite new and there is the need of its publicity and promotion of sales, then instead of adopting the agency system, the work must be entrusted to the representatives.

2. Scope or Possibilities of Quantity of Sales: The same channel should be selected by means of which there is the possibility of more sales.

3. Attitude of Agents towards the Producers' Policies: The producers generally prefer to select such middlemen who go by their policies. Very often when the distribution and supply policies of the producers being disliked by the middlemen, the selection of middlemen becomes quite limited.

4. Cost of Channel of Distribution: While selecting the channel of distribution, the cost of distribution and the services provided by the middlemen or agents too must be kept into consideration. The producers generally select the most economical channel.

 

D. Factors pertaining to the producer or company: 

1. Level of Production: The manufacturers who are financially sound and are of a larger category, are able to appoint the sales representatives in a larger number and thug could distribute the commodities (products) in larger quantities. As against it, for the smaller manufacturers, it becomes necessary to procure the services of the wholesalers and the retail traders.

2. Financial Resources of the Company: From the financial point of view, the stronger company needs less middlemen.

3. Managerial Competence and Experience: If some producer lacks in the necessary managerial experience or proficiency, he will depend more upon the middlemen. The new manufacturers in the beginning remain more dependent upon the middlemen.

Channel structure:

To establish a distribution plan, a company needs to decide on a channel structure.

The types of channel structures are of two types:

THE CONSUMER CHANNEL STRUCTURE

The consumer channel structure is generally used in FMCG markets or consumer durable markets. This channel structure is known for the various kinds of elements it has in its distribution network.

The players in this marketing structure are: Manufacturers, retailers, wholesalers, jobbers and consumers.

1. Zero Level Channel (Manufacturer – Customer):

It is also called a direct marketing channel consisting of four manufacturer selling directly to the final customer. This is the simplest and shortest channel in which no middlemen are involved and producers directly sell their products to the consumers. It is fast and economical channel of distribution.

Eg: Tupperware, Amway, mail order

2. One Level Channel (Manufacturer – Retailer – Customer):

This channel of distribution contains one selling intermediary such as a retailer. Under it, the producer sells his product to big retailers (or retailers who buy goods in large quantities) who in turn sell to the ultimate consumers.

Eg: All automobile companies, Walmart discount stores.

3. Two Level Channel (Manufacturer – Wholesaler – Retailer – Customer):

The 2-level channel contains 2 intermediaries typically a wholesaler and retailer. This is the most common and traditional channel of distribution. Under it, two middlemen i.e. wholesalers and retailers are involved. Here, the producer sells his product to wholesalers, who in turn sell it to retailers. And retailers finally sell the product to the ultimate consumers.

Eg: FMCG products and selected consumer durables.

4. Three Level Channel (Manufacturer – Agent – Wholesaler – Retailer – Customer):

The 3 level channel contains three intermediaries. In Meatpacking industry wholesalers sell to jobbers, essentially small scale holders who sell to small retailers. This is the longest channel of distribution in which three middlemen are involved. 

Eg: FMCG products and selected consumer durables.

 

 

 

THE INDUSTRIAL CHANNEL STRUCTURE

Almost the same players as the consumer channel structure exist in the industrial channel. Here the manufacturer is producing industrial goods and is dealing in B2B sales.

The players in this marketing structure are: Manufacturer, manufacturer’s representative, industrial distributors and industrial customers.

1) Zero level channel (Manufacturer – Industrial customer)

An industrial goods manufacture can use its sales force to sell directly towards industrial customers.

2) One level channel (Manufacturer – Industrial distributor – Industrial customer)

An industrial goods manufacture can sell to industrial distributors who in turn will sell to industrial consumers.

3) Two level channel (Manufacturer – Manufacturer’s representative – Industrial distributor – Industrial customer)

An industrial goods manufacture can sell through manufacturer’s representatives who will sell to industrial distributors who will finally sell it to the industrial customer.

4)Three level channel (Manufacturer – Manufacturer’s sales branch – Industrial distributor – Industrial customer)

An industrial goods manufacture can use its own sales branches directly to industrial customers or indirectly to industrial customers through industrial distributors.

Examples in B2B markets are cement, oil, steel, industrial chemicals, wires/cables, automobile tyres, trucks etc.