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Factors Affecting Choice of Distribution Channel

Factors Affecting Choice of Distribution Channel

Distribution is an activity that involves effecting the flow of goods and services from the point of production to the end users or consumers. It is the means or process whereby goods and services moves from the production point to the consuming point. The main importance of distribution is to help overcome the timeframe and place difference that separate goods and services from those who are in need of them.

Channel of distribution is the means by which goods and services are made available to consumers in the market. It is an organized system of agencies and institutions, which in combination performs all the activities required to link producers with consumers in order to accomplish the desired marketing task.


There are two main types of channel system which are;

1) Conventional Marketing System – This comprises of an independent producer, wholesaler, and retailer. Each is a separate business entity seeking to maximize its own profit. It is more or less a highly fragmented network in which loosely aligned manufacturers, wholesalers, and retailers have bargained and negotiated over terms of sale

2) Vertical Marketing System – This is a type of distribution channel where coordination is achieved because the producer, wholesaler and retailer act as a unified system. Anyone member owns the others, and no single member can dominate the system. It is also efficient in controlling channel behaviour and eliminating the conflicts that result when independent channel members pursue their own objectives.


Either of the above types mentioned above can take any of these form.

There are three forms of distribution channel which are;

I. Direct Channel – This is when producers decide to sell directly to consumers. It is mostly common in sale of industrial and perishable consumer goods. It is a zero level method. That is, Manufacturer – Consumer. This form is mainly based on services. E.g Haidresser, Doctor etc. There is no intervention of middlemen in this form of distribution channel.

II. Indirect Channel – This involves the intervention of the middlemen to effect the movement of goods to the final consumers. It is a one level method. That is, Manufacturer – Retailer – Consumer.

III. Multi-Channel – This is using one or more channel system to reach the market. It is a two level method. That is, Manufacturer – Wholesaler – Retailer – Consumer.

Factors Affecting Choice of Distribution Channel

The choice of channel is based on the analysis of the consumer, the type of firm, characteristics of the product, and consideration of the environment of the firm.

1. Market Consideration: These following analysis should be done at the market level:

I. Consumer or industrial market
II. Number of potential consumers
III. Geographical concentration of the market
IV. Order size

2. Product Consideration: A thorough analysis of the product features should be done as this affects the choice of channel. These includes:

I. Unit Volume
II. Bulk and weights
III. Perish ability
IV. Extent of the product line

3. Company Consideration: Company’s reputation, resources, experience and desire for control of channel are important factors that can affect the choice of channel. For example, companies with adequate financial and non-financial resources will be less compelled to utilize middlemen.

4. Middlemen Consideration: Under this, we consider the type of service rendered by middlemen, availability of desired middlemen, and sales volume opportunities.

5. Environmental Consideration: The environmental factors to consider include economy, technology, legal, competition etc. In most cases, when economic conditions are depressed, producers turn to the shortest and cheapest channel.