Factors Influencing the Choice of a Distribution Channel

A manufacturer does not pick a distribution channel at random; the choice between a direct channel and one of the several indirect channels — and, among the indirect channels, between a shorter or a longer one — depends on a set of practical business factors.

The nature of the product is usually the starting point. Highly perishable goods (fresh produce, dairy, certain baked goods) need to reach the consumer quickly, so they generally travel through short, direct, or one-level channels to avoid spoilage in transit and storage. Bulky or fragile goods may also favour shorter channels to reduce handling and transport damage. On the other hand, durable, standardised, low-value goods that are bought frequently by a very large number of consumers (soap, biscuits, stationery) are well suited to longer, two- or three-level channels, since these channels can spread the goods widely and efficiently through many retail outlets.

The size and geographical spread of the market matters just as much. A manufacturer whose customers are few in number and concentrated in one city or region can reasonably reach them through a direct or short channel. A manufacturer whose market is very large and spread across many towns, districts, or an entire country generally needs a longer channel — bringing in wholesalers, and sometimes agents — simply because it would be impractical and costly for the manufacturer to build a sales presence in every one of those places itself.

The cost of using a particular channel is a direct commercial consideration. Every layer of middlemen must be paid its own margin or commission, so a longer channel usually raises the final price to the consumer, while a direct channel keeps more of the margin with the manufacturer but requires the manufacturer to bear the full cost of building and running its own sales network. A manufacturer weighs which arrangement gives it the better balance of cost, reach, and profit for its particular product and market.

The degree of control the manufacturer wants to retain over how its product is displayed, priced, and sold is another real factor. A manufacturer that cares deeply about brand image, technical explanation at the point of sale, or strict price control tends to prefer a direct or short channel, where it can supervise these things closely. A manufacturer more interested in maximum reach, and less concerned with controlling every detail of the final sale, is generally comfortable using a longer channel with independent middlemen. …