The importance of channels of distribution is summarized below:
a) Channels of distribution are the most powerful among the marketing mix elements. Many products go into extinction at their early stages because they could not fund the right road to the markets.
b) Channels take care of the transaction aspects of marketing, including selling, financing, and the risk associated with strong products, in anticipation of future sales.
c) They perform the logical function of moving products from the point of production to the point of purchase.
d) They help producers promote goods and services.
Selecting an Appropriate Channel
Decisions on the channel are crucial, for several reasons; the hannelstance, the costs several the use of the channel determine the price that the consumer has to pay. 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 markets;
- Maximum promotional efforts and
- Minimum cost.
The following factors, usually, govern the selection of channels:
1) The Type of Product
For perishable products like bread and milk or vegetable, it is important to have a channel of distribution that facilitates quick movement from factories thate consumers.
Limited channels may also be employed where the movement of goods involves heavy freight and poses problems for transportation- for instance, in selling furniture, refrigerator, air conditioners, etc.
However, distribution of products having lower unit and high turnover involves a large number of middlemen as in the case of products as matchsticks, soap, and toothpaste.
When the product requires after-sale service as in the case of television, air conditioners, and automobiles, the choice of middlemen may be limited to only those who are in a position to provide this service.
Since not many middlemen may be capable of providing such service, again, their number may be limited.
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2) Nature and Extent of the Market
If the number of consumers is small as with the case of bulky expensiveness machinery, the manufacturer may approach the customer, directly, through a sales- force; so also, if the consumers are concentrated in a limited geographical area.
If the above conditions are not applicable, a longer choice of middlemen may have to be employed. 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 channels of distribution, particularly, those used by competitors. The design of channels is influenced by channel-designing 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 make use of customary channels. For example, for soaps and toothpastes grocery stores are commonly used.
4) Cost Distribution is Involved
Cost, no doubt, is a very important consideration. The longer the channel of distribution, the greater is its cost; and manufacturers look for ways to keep down cost and prefer distribution through middle men who have established sales force, as it is more economical and involves less financial commitment.
Wholesalers shoulder some of the responsibilities of cost of stocking and transporting goods; but the manufacturer has to allow them a mar, which will either reduce profit or increase that to the buyer.
However, in making a choice, the manufacturer has to consider its objectives, resources, and the channels available, after considering, the above factors.
It will like to use the channel of distribution which will produce the combination of sales volume and cost that yields the maximum amount of profit.
There is no set maximum for channel selection and manufacturers will have to make their own decision in the light of their judgments and experience.
However, 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 channels have been selected.
They have to review the services performed by the agencies involved, at fairly frequent intervals. Keep in close touch with the developments related to the distribution of their products and seek to improve marketing methods, constantly.
Physical Distribution Tasks
Producers/manufacturers must decide on the best way to store, handle and move their goods and services so that they are available to customers at the right time and place. Producers, typically, need to employ the services of firms; warehouses, and transportation companies to assist in this task.
Armstrong and Kotler (1994) observe that physical distribution involves planning, implementing, and controlling the physical flow of materials and final goods, from points of origin to points of use, to meet customer requirements at a profit. Physical distribution aims to manage supply chains, value-added d flows from suppliers to final users.
Several tasks have to be accomplished as part of physical distribution. These are listed below:
1) Location of Manufacturing Facilities
There are two interrelated issues- First, where to locate the manufacturing facility; and the second has to do with the number of facilities to be set up. The basic decisional parameters will be the availability of basic raw materials and the location of the market.
The decision may be to locate the manufacturing facility close to the source of supply and ship the finished outputs to the outlying markets; or on the other hand, the production facility can be sited near the geographical market to be served, and then, the shipment of the inputs can be arranged.
For example, sitting NNPC in Port-Harcourt was based on the availability of raw materials (crude oil). The basic consideration involved is the relative costs of transporting inputs and outputs, including the economics of different modes of transportation which may be used to transport raw materials and finished products.
2) Location of Warehouses
One important consideration, in this context, is the nature of the product being sold. If the product is a household item, such as a packet of tea, soaps, or toothpaste, the retail outlets will be at the bottom of the distribution channel.
A manufacturer of capital equipment, on the other hand, can have only one centralized warehouse for the main product but has to maintain several service centers to stock spare parts.
3) Mode and Method of Transportation
There are several key decisional points in this context, which for a long were considered the heart of distribution management. These are:
(i) Which mode of transportation will be optimal?
(ii) Mode of physical distribution.
4) Inventory Decisions
Inventory holding costs are always on the increase, due to all-round increases in prices, as well as the cost of capital very careful attention has to be paid to how much inventory (of what items and where) should be maintained.
Many of these decisions have to be taken, keeping in view the broader corporate objective of service reliability, i.e. the capacity of the firm to deliver on time.
5) Using External Distribution Agencies
Much of what has been discussed above refers to firms that want to distribute products on their own.
However, a firm may decide that because of resource constraints or lack of in-house expertise, it will like to concentrate on production and leave the task of distribution to an external agency such as “independent marketers”- in Nigeria for example.
Whether to contract out distribution or not, is a major decision and will require an in-depth analysis of relative cost and benefits, both tangible and intangible, of the alternative courses of action.
In conclusion, distribution is the all-important link between a manufacturer and his customer. The concern is for designing a distribution strategy to facilitate the smooth physical flow of products from the manufacturer to the place where the customers can buy them.
Channels of distribution refer to the alternative paths through which the goods can be routed. Direct selling and indirect selling through intermediaries such as wholesalers and retailers are the two alternative channels of distribution to choose from.
The final choice will depend on the type of product which you are dealing with, the number and location of customers, their buying habits, and the costs involved. The manufacturers should also consider the specific advantages of each type of intermediary before making a decision.
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