Strategic Considerations in Channel Selection

Products can be supplied to different target markets through different distribution channels. Proper channels should be selected at minimum cost considering the nature and size and condition of the products. While selecting channel, different factors may affect. So, strategy should be made paying attention to
such factors. The task of selecting proper distribution channel is also very difficult.

Due to distribution channel, there may appear difficult situation and needs to be faced, cost and risk may increase and profit decrease. So, distribution channel should be selected considering mainly the following strategic factors/elements.
  • Product Considerations
    • Unit price
    • Nature of product
  • Market considerations
    • Types of market
    • Target customers
    • Concentration of market
    • Order size
    • Competition
  • Objective considerations
    • Control
    • Cost
  • Middlemen considerations
    • Availability of middleman
    • Capacity of middleman
    • Interest of middleman
  • Company considerations
    • Financial position
    • Company's ability
    • Company's goodwill
    • Company's policy
  • Environmental Considerations
    • Legal environment
    • Social environment
    • Economic environment

I. Product Considerations

The task of selection of distribution channel is very challenging. Mostly the following factors should be considered for the selection of distribution channel.
  1. Unit price: The produced goods may be of different quality and features. Their price also may be different. Generally, if the price of the goods is high, such goods are sent to target markets through direct and short channels. But, if their price is low, they may be sent through long and indirect channels.
  2. Nature of product: Channel can be taken on the basis of the nature of goods. For perishable goods, direct and short channel should be selected. But for the long lasting goods, indirect and long channel can be selected. If any goods are of technical nature, direct and short channel may be appropriate. So, proper channel should be selected according to the nature of goods.

II. Market consideration

While selecting distribution channel, market related factors should also be given special consideration. The main factors are given as follows:
  1. Types of market: Target markets may be of different types. Market of industrial goods and consumers goods are the usual markets. The structure of industrial market channel becomes limited in comparison with the structure of consumer market channel, because at least some middlemen are needed in this channel structure. Therefore short channel for industrial goods and long for the consumer goods should be selected.
  2. Target customers: Channel can be selected on the basis of the number of customers. If the number of target customers is very small, direct and short channel becomes suitable. If their number is big, indirect and long channel may be suitable. So, proper channel should be selected on the basis of the number of target customers.
  3. Concentration of market: Customers live in different geographical regions. They may be living scattered in some regions while in some other may be living concentrated or densely. In both of these two conditions, use of same channel does not become suitable. If the customers are living centered or concentrated in any geographical region, direct or short channel should be selected. But if, they are living scattered, indirect and long channel becomes suitable. So, distribution channel should be selected according to the situation/condition of the target markets.
  4. Order size: Channel can be selected on the basis of the quantity of goods ordered by the purchaser. If the order is for large quantity of goods, direct and short channel should be used. Just opposite to this, if the order is for small quantity, indirect and long channel can be used.
  5. Competition: Competitors’ channel selection and their strategy also affect channel selection. Distribution channel should never be selected weaker than those of competitors. So, distribution channel should be selected only after carefully studying and analyzing the channels and strategies being used by competitors. Only then the selection of channel becomes favorable.

III. Objective considerations

Every producer wants/wishes to distribute his products through proper channel. The channel objective also directly affects channel selection. The main factors/elements affecting channel selection have been mentioned as follows:
  1. Control: Sale department of company may determine the objectives of channel. If the channel objective is to keep under control, short and direct channel becomes suitable, because indirect and long channel becomes difficult to control.
  2. Cost: Cost is also an effective factor to channel selection. Distribution cost may be different according to channel structure. Channel cost becomes low in short channel whereas cost for physical distribution becomes high. But, in long channel, both the channel cost and physical distribution cost become high. So, channel should be selected only after carefully analyzing cost.

IV. The middlemen consideration

The middlemen who distribute goods also strongly affect channel selection. The factors/elements related to middlemen affecting channel selections are mentioned as follows:
  1. Availability of middlemen: Availability of middlemen also should be considered while selecting distribution channel. Whether the middlemen become available or not, at the time whenever needed, it also affects channel selection. If there is lack of middlemen, in such situation the producers cannot appoint the middlemen even wanted. But, they are available, the producers can appoint as middlemen or representatives.
  2. Capacity of middlemen: Capacity of middlemen also should be considered while selecting any channel. The producers should study and analyze what types of middlemen are needed and what type is available. Only then proper suitable middlemen should be selected studying and considering their financial capacity, physical capacity and technical capacity.
  3. Interest of middlemen: A lots of middlemen may be available in markets. But whether the goods intended to sell in the markets are interesting for the middlemen or not, it also should be considered. If the middlemen have no interest in any goods, they should not be given pressure to work as middlemen. Instead of this, the producers should select direct or short channel.

V. Company considerations

There are different types of companies. They have differences in quality, nature, capacity, features etc. from each other. So, the size, market and sales knowledge, financial position, etc. also should be considered and suitable ones should be selected for middlemen.
  1. Financial position: Generally company’s financial position should be better. But sometimes the position may be different. Good or bad financial position also affects distribution channel. If the company is financially strong, it can do all the distribution related functions by itself. Otherwise it should take help of middlemen due to which distribution channel becomes long.
  2. Company’s ability: A company may have various abilities. Among them the management of company should be efficient and effective in distribution, functions. If the company is efficient and skilled in distribution indirect channel is not needed. Otherwise, the company should involve middlemen.
  3. Company’s goodwill: A company can earn goodwill from long experiences, functional style, quality services etc. It needs long time and hard labor to earn such goodwill. If the company has earned goodwill, products can be distributed without any middlemen. But, if the company is new and has not earned goodwill, middlemen should be compulsorily involved.
  4. Company’s policy: A company may have its own rules and regulations. The company’s predetermined policy may or may not be to involve middle men. If its policy is to involve middlemen, long channel should be used. If the policy is not to involve middlemen, direct channel should be used.

VI. Environmental considerations

Environmental factors also affect channel selection for distribution. They are mentioned as follows:
  1. Legal environment: Company of nay country should not disobey legal provisions of the country. Every company should exactly obey legal provisions. In other word, any activity of the company should not be against the law. So, every company should pay attention to government law, rules and regulations while selecting distribution channel.
  2. Social environment: While selecting distribution channel, social environment also should be equally considered. Distribution function should not be negative. In other word, any activity of distribution should not be against the social norms and conditions.
  3. Economic environment: Economic environment can influence the channel selection. If the financial resources or economic condition is strong, the firm can use long distribution channel. But the economic position is opposite of it, the firm can select short and cheaper channel. In this way, economic environment also affects selection of distribution channel.

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