The factors that need to be kept in mind while selecting the distribution channel and channel partners
The channel strategy drives the marketing mix and marketing strategy of a business. It comprises of various members' partners and members for the ultimate success of the marketing plan and mix. The channel partners and various distribution channels are majorly involved in the task of distribution of business products and services. The hierarchy goes on like manufacturers, developers or producers, wholesale dealers, retailers and agents or brokers.
Their key role and importance is to make the most benefit out of the distribution network of a product or service right from the stage of production to consumption by the end user. They act as the intermediaries and possess the expertise and efficiency by quoting as they have the hold over the market, possess wider exposure, intelligence, economies of scale, required and necessary resources and knowledge of operations and administration of the same.
Factors that should be kept in mind while choosing the distribution channel and channel partners are:
- Type of customer
The nature of the customers the business has intended to target plays a very vital role in the selection of the distribution channel or the type of alliance with specific channel partner. Is the customer base chosen is of developed nations, or commercial capitals of the countries, or the developing nations, or richer class or low paying middle earning group, educated or rural background consumers, etc. These will enable to choose the type of channel mix i.e. bulk dealers for big towns, retail stores and outlets for the classy and rich class segment, agents or brokers in the middle earning or developing nations, etc.
- Type of product
The product type will definitely influence the choice of channel for distribution. The durable goods that can be stored for a longer span of time can be stored in bulk like preservative food stuff, metal or wood related work, cosmetics, textile, etc. for which whole sellers can be appointed, whereas for the perishable goods like sugarcane, fruits & vegetables, etc. A faster mode has to chosen and retailers who have an outlet to sell them in a short time may be a day or two. The trendy textile, accessories, furnishings, artwork, etc., which can become obsolete over the passage of sometime can be chosen to be sold via an agent or broker taking orders or via use of technology like online stores or e-bookings.
- Channel partners abilities
The capabilities of the channel partners like their market exposure, market share, customer base, business statistics and reputation of past years, expertise and knowledge, viability with recent changes etc. will directly affect the choice of the business. For example a top rated luxury model of the car to be sold using a franchisee partner or a non-store retailing through advertising or internet presence, etc. will totally depend on the nature of strengths and weaknesses of the channel partners in the market segment targeted.
- Business environment
The type of economic boons or recession period or the downfall in the economy or rise in the value of currency in the international market, etc. are the factors that influence the business decisions, growth strategies and financial stability. These then help the business to choose the most profitable, stable, and most suited channel partner or mode of distribution of the company. If the industry is not performing very well then the business can choose to save on the agent commission or wholesaler margins by opening its own stores at the same cost which further will help to cut down product price.
Technology has become a trend and choice of customers these days. The good technological development not just reduces cost, but also adds lots of features and benefits to the product. The world has shrunk into a small internet zone where everything and anything is available online. The online stores, e-shopping, etc. has become part of day to day life of the people, which influences business to have their own strong online presence, deals, stores and offers on the internet. The technology helps to work with more ease, accuracy, timeliness and speed at the end of business as well.
- Competitors channel strategy
The distribution channel adopted by the competitors for its products has to be taken into consideration before deciding and finalizing own mix. The more widespread and viable the distribution network of the rivals, the same has to be engrossed in the strategy of own business rather additional channels have to be added and more ease to be provided to the customers. Like if the rival adopts both wholesalers and retailer chains for its product distribution the company should go for not just these, but in addition to this appoint agents that serve the wider network and liasioning of the products to the customers as well as the B-2-B segment. To serve better than the competitor will provide more opportunities and benefits to the business.
- Government regulations and intervention
The more strict laws and regulation of the government the tougher it becomes for the business to operate freely. In addition, there is always a eye of the authorities over the activities and policies of the organization. This will restrict the use of more channels and reduce the coverage of the market and customer segment. Also, these enhance the financial expenses in terms of statutory fees, penalty charges, etc. on the end of the business.
- Price of the product
The price plays a vital role in the sales of the business in comparison to its competitors. The more expensive and luxurious nature of the product that cuts down on the more number of distribution channels as that enhances the pricing. And more affordable rates or the lower the cost of the product the more it can be floated using the distribution channels suitable to the needs, targets and goals of the business. As in the later case stocking can be suggested as well as the small stores can be advised to attract more customer coverage, etc. involving lesser financial intervention at the channel end.
- Burden of additional cost on the consumer
The more the distribution intermediaries more is the additional cost added to the price of the product. The cost that is added to the intermediaries is commission, incentives, discounts, etc. These get added to the cost of the product and then is sold to the consumer at a higher rate. This cuts down the margins of the company as well as makes the product less attractive and affordable at the end of the customers. Thus the channels should be chosen keeping in mind the affordability of the product and purchasing capacity of customers targeted.
- Domestic economy and Purchasing power of customer
The economy of the country as well as the other nations' business is operational in, influence the business by directly affecting the policies, financial statements and the future growth strategies. The global economies all together also pose an impact on the performance of business based on the positive and negative impacts in forms of supports and criticism. The more growth oriented and developing the economy’s the higher the business flourishes and vice versa.
- Area of market coverage and ease of reach
The wider the coverage of the market segment targeted by the business attracts indulgence of more intermediaries and channel partners to facilitate the same. The business has to have more agents and representative to deal with the product and services offered to reach out to the more and more of the customers. The restricted segment can be dealt by one or two intermediaries as it involves fewer complications, operational issues and administrative management.
- Companies' financial viability and resources
The more financially sound the business is it can think of getting associated with that many options of the distribution network and alliances with the channel partners. Because the association involves expenses, capital investment, and workmen recruitment in order to take care of the same. Thereafter the network starts generating profits for the business by adding to the sales figures and turnover rise. If the business is not financially stable then it has to make compromises on the basis of choice of the distribution channels to be included in order to maintain its budgets and cost structure in order to gain benefits rather than losing on expenses.
- Geographic diversification of spread of customer base
The wider the customer base of the business the more networks are required by the company in order to reach those targeted customers. More intermediaries will have to be chosen to help them sell their products and services to the widely spread customers over various geographical locations. Like certain segments has to be made that will act as wholesalers and then they supply the products and services to the far away situated retail segments which further are assisted by the agents and brokers to maintain the flow of demand and supply statistics. If the coverage is to a limited section, then the number of channels gets reduced.