Choice Of Distribution Channel By An Organization

Distribution ChannelDistribution is one of the components of 4P’s marketing mix (product, price, promotion and placement). In simple terms, distribution can be defined as the path through which goods or services flow from manufacturer to the end user.

Distribution can be either—

a) Short and direct, where goods reach directly from manufacturer to the consumer. That is, it does not include any intermediaries in between. So, this type of distribution system is called direct channel.

b) It may include one or more than one type of intermediaries to sell its products or services to its consumers. These intermediaries can be whole sellers, retailers, distributors, agents etc.So, in, this type of distribution system is called indirect channel.

Since, distribution involves chain of intermediaries to sell its products or services to its end consumers; they are also termed as channel of distribution or marketing channel.

All organizations whether big or small ,include distribution channel in its marketing strategy.It not only provides services to the organization in making its products reach its end users in an optimum way but it also provides options, information and alternatives about different chains through which goods and services can be delivered to the end users. In other words, it helps in expanding the business and growing its revenues.

Some of the common distribution channels used by organizations to generate leads and sell their products to end users are –

  • Direct sales – here goods are directly sold by the manufacturer to the end -consumer
  • Through distributors, dealers and retailers – here bulk goods are bought by the distributor from the manufacturer who sells them to dealer’s .These dealers then sell, smaller quantity of these products to retailers who in return sell these products to the end users directly through store, website or catalogue.
  • Online/Internet is selling products or services through its website.
  • Mail order
  • By conducting events
  • Through sales agents by door to door selling.
  • Telephonic sales

Thus, we see that there are number of distribution channels which help in the flow of goods and services. Amongst them organization choose either one or more than one appropriate channel .So, depending upon the benefits derived from the channel, they choose an appropriate channel.

Consumers form the base of every business.Therefore,its very important for organizations to identify their target consumers, their communication method, sales terms, nature of the product or services offered, location of the consumers etc.Therefore, while choosing distribution network for their products or services, organizations must take into account factors like –

  • Consumer’s buying preference –how and where .This means whether the consumer wishes to buy the product directly from manufacturer or through channels like retailers, Internet , mail, telephone etc.
  • Buyer needs — sometimes consumers want their products or services to be specially customized as per their needs.
  • Some consumers always prefer training or instructions before using the new product. Like product information, installation ,technical assistance ,etc
  • Servicing facility is needed for the product,
  • Need additional product or services along with the product bought

Selecting a channel intermediaries is a two way process. Besides, organization willingness to market its product through a particular channel, the respective marketing channel should also be ready to accept the offer. Sometimes, channel like retailers due to cost or other factor does not wish to be part of the marketing channel for few products. Therefore, willingness of channel intermediaries to market a product is also an important factor.

While selling the products through intermediaries, price of the product rises. That is, larger will the number of channels higher will be the price of the product. This is because every channel keeps a mark up value (commission) for themselves. Finally, by the time the product reaches the end user, there is a substantial increase in the price of the product or service. This substantial increase in the price of product can be unacceptable to the manufacturer. So, intermediary cost is another influential factor.

All manufactures do not have the facility of keeping a well trained employees or imparting training or servicing facility to its end consumers. So, in such cases, manufacturers opt for selling their products or services through other distribution channels.

Besides this, many channels have their special way of catering to the needs of their end consumers. This thus helps to boost their sales and increase revenue. So, marketing situations where manufacturer lack these selling skills, chose certain intermediaries to sell their products or services to reach their end consumers.

When a manufacturer sells a product directly to its consumers, it has all the control over its product. This hold true especially in case of pricing. However, when the same product reaches the end consumers through retailers, distributors etc, there is a reasonable amount of increase in its price. The manufacturer does not have any control over its product. Beside this, it also looses its control over other issues like how the product will be sold, to whom it will be sold and product promotion or schemes etc.So, in, a manufacturer should choose a channel, depending upon the extent to which the manufacturer wants to keep a control over its product.

Nature of the product is also an important factor while choosing distribution channel. Like in case of perishable goods, short distribution system should be chosen.

Distribution Intensity is another factor on the basis of which distribution channel is selected. Some products like cigarettes, cold drinks etc need maximum coverage. That is, more the number of outlets more are the chances of increasing its sales. In such cases, intensive distribution is needed. Here, the consumers have a range of acceptable brands to choose from. So; manufacturer’s of such products aim at flooding the market with their products and hence chooses number of outlets to sell their products.

Selective distribution is the one where a manufacturer selects very limited number of outlets in a geographical area to sell its products. Here, the manufacturer selects the best outlet to sell its products. So, in such cases, the end users are ought to have brand preference for these products or services.

Exclusive distribution is an extreme form of selective distribution in which only one wholesaler, retailer or distributor is used in a specific geographical area.

Different distribution channels helps to increase the consumer base of the organization. Through them, organizations are able to cater more number of market segments. Therefore, every organization must understand and evaluate the entire distribution network and select the one which helps them to increase their sales. The distribution strategy should be such that it is able to deliver all the essential information and service required. This becomes all the more important when organization is undergoing expansion and wants to grow its business (business development).

Photo Credit: Guardian.co.uk

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