If the distribution channel is large, price of the product will be high and if the distribution channel is short, the price of the product will be low. Thus, these are the major factors that influence the pricing decisions. How does the channel of distribution affect setting prices?
What factors influence the selection of a proper channel of distribution?
The selection of a proper channel of distribution is very important. A number of factors influence this decision. The nature and type of product helps in determining a decision about channel of distribution. A high priced product will have less middlemen because the number of buyers will be limited.
What is the channel of distribution of a product?
The channel of distribution will be short for such products. The nature and type of market and customers influence a decision for selecting channels of distribution. If the product is to be sold in a large area then it will require long channel of distribution. A product to be marketed in a limited area will not require more middlemen.
How does the cost of marketing influence the choice of distribution channel?
The cost of marketing may be said to exert the greatest influence on the decision of the producer in regard to the choice of the distribution channel. He will always desire to keep the cost of marketing to the minimum, for his profits are directly related to the cost of selling.
How to choose a channel of distribution for your business?
Each channel has its own advantages and limitations and every company has to make difficult choice about channels of distribution. This decision about choice of a channel of distribution depends on several factors. A company has to consider all these factors and make an appropriate choice. The following are the factors: 1. Market Related Factors:
What is distribution channel pricing strategy?
Distribution pricing is the price point you as the business owner chooses to extend to vendors who will then distribute your products. The price is commonly a percentage discount off of your retail price. The discount gives the distributor room to make a profit from sales of the product.
What are influences on distribution decision?
Factors Affecting Choice of Distribution Channel – 5 Important Factors: Market, Product, Company, Channel and Environment Related Factors. There are several channels available for the purpose of distribution of goods.
What affects the channel distribution decision?
A company's past experience can also affect channel decision. When a company has favourable and satisfactory experience to work with middlemen, it may continue working with them. In case, if it is not satisfied with terms and services of middlemen, it would shorten its channel of distribution.
How does the distribution channel affect marketing decisions in an organization?
Manufacturers who choose this distribution channel often deliver higher priced products with lower sales volume. The use of wholesalers and distributors is less cost effective in this scenario as lower volume products carry higher holding costs, so intermediaries can be more costly.
What is the importance of distribution channel?
Distribution channels are important to businesses as they allow for the smooth delivery of goods or services to a customer. If a business does not source the best collection of businesses for this purpose, it can lead to unhappy customers and an inadequate provision of services.
What are the 4 channels of distribution?
There are four types of distribution channels that exist: direct selling, selling through intermediaries, dual distribution, and reverse logistics channels. Each of these channels consist of institutions whose goal is to manage the transaction and physical exchange of products.
What is distribution channel decision?
Page 1. DISTRIBUTION DECISIONS. Distribution is the physical flow of products through distribution channels. A channel of distribution is defined as a chain of market intermediaries or middlemen used by a producer or marketer to make products and services available when and where consumers or users want them.
What are distribution channels?
A distribution channel is a chain of businesses or intermediaries through which a good or service passes until it reaches the final buyer or the end consumer. Distribution channels can include wholesalers, retailers, distributors, and even the internet.
What is an example of distribution decision?
Goods are delivered directly to the customers, without intermediaries. Some examples include selling in brand stores and taking orders through the hotline or the company's website. This strategy works well for perishable goods or expensive goods where the consumer point is close to the manufacturers.
Does distribution channel affects our sale?
In short, distribution channels determine the path goods will take from the manufacturer to the final consumer. Thus, they have direct impact over sales.
How do channels of distribution provide benefits for consumers?
Channels of distribution benefit consumers by making a variety of products available to them. Without these channels, consumers could only buy products directly from producers, which would be impractical. Channels may lower some but not all consumer product prices.
Why the selection of distribution channels is essential to a successful marketing strategy?
Marketing Strategy Distribution Channels The distribution channel or channels selected can dictate what the rest of the marketing strategy would be, as they influence the buyer directly. Advertising and other marketing methods would then appeal to the buyer's demographic.
What are the 5 factors that influence distribution management?
6 Top Factors Influencing Distribution ManagementCustomer Perspective. ... Distributor Perspective. ... Communication. ... Planning & Measuring: Creating a Culture. ... Training & Commitment. ... Implementing the Right Tools: Warehousing and Distribution.
What are the factors influencing distribution network design?
These include: Response time: Response time is the total time between when a customer places an order and receives delivery. Product variety: Product variety is the number of different products / configurations that a customer desires from the distribution network.
What are some factors that affect the distribution of supply?
5 Important Factors Affecting the Choice of Channels of Distribution by the ManufacturerUnit Value of the Product: ... Standardised or Customised Product: ... Perishability: ... Technical Nature: ... Number of Buyers: ... Types of Buyers: ... Buying Habits: ... Buying Quantity:More items...
What are the factors that must be considered in planning a distribution system?
ADVERTISEMENTS: Some of the factors to consider while selecting a channel of distribution are: (1) The Nature of the Product (2) The Nature of the market (3) The Nature of Middlemen (4) The nature and size of the manufacturing unit (5) Government Regulations and Policies and (6) Competition.
Why do businesses use pricing strategies?
It can be used to defend an existing market from new entrants, to increase market share within a market or to enter a new market. 7.
Why is discount pricing important?
Businesses use discount pricing to sell low-priced products in high quantities. With this strategy, it is important to cut costs and stay competitive. 10. Penetration Pricing: set products prices low for a specific time period to gain market share early for company.
What is the meaning of "prices"?
2. The price of products have to attract consumers attention . Price is the quantity of payment or compensation given by one party to another in return for goods or services. Consumers feel comfortable purchasing the products.
What is price skimming?
7. Price skimming or creaming: ”Goods are sold at higher prices commonly used in electronic markets.” Find the optimum price point for a product, usually a unique item with unknown consumer demand. To maximize the potential price layer by layer until the optimum price is reach. Example: Electronic devices.
What influences a decision for selecting channels of distribution?
The nature and type of market and customers influence a decision for selecting channels of distribution.
What influences the channel of distribution?
The objective, size and financial position of the manufacturer also influences the channel of distribution.
What happens when a low priced product has a large number of buyers?
On the other hand, a low priced product with large number of buyers will require more channels of middlemen to reach the customers. A manufacturer will not be able to deal directly with large number of buyers.
How does the number of customers affect the channel of distribution?
The number of customers also influences the channel of distribution. When the number of customers is small and they are located at central places then direct selling will be easy and economical. If the number of customers is large and they are scattered over different areas then middlemen will be helpful in marketing.
Why should distribution channels not be selected in haste or carelessly?
The distribution channel should not be selected in haste or carelessly because it has long term effect on the sales of the product and the reputation of the manufacturer.
How does the financial position of a manufacturer help him?
The financial position of the manufacturer helps him is selecting the channel of distribution. If the manufacturer is financially sound then he can give credit to big consumers by avoiding middlemen. In case he cannot afford to block money for some time then he may have to rely on wholesalers.
Why can't a product of perishable nature have more middlemen?
A product of perishable nature cannot have more middlemen because it will have to reach the consumer at the earliest. Bread manufacturers normally have a direct contact with retailers.
When is it economical to choose direct or indirect channel of distribution?
When the unit value of a product is high, it is usually economical to choose direct channel of distribution such as company’s own sales force than middlemen. On the contrary, if the unit value is low and the amount involved in each transaction is generally small, it is desirable to choose indirect channel of distribution, i.e. through middlemen.
Why is direct channel of distribution important?
When the product being manufactured and sold is industrial in nature, direct channel of distribution is useful because of the relatively small number of customers, need for personal attention, salesman’s technical qualifications and after-sale servicing etc.
What is indirect channel?
Hence indirect channels may be used by appointing wholesalers and retailers as sole agents. This may ensure channel loyalty and aggressive selling by intermediaries.
What is the choice of the channel to use?
The choice of the channel to use is a fundamental decision for the manufacturer where a number of factors and objectives have to be considered as a basis for such decision. The international marketer needs a clear understanding of market characteristics and must have established operating policies before beginning the selection of channel middlemen. The following points should be addressed prior to the selection process:
What factors influence channel decisions?
Some of the factors influencing channel decisions in international market are as follows: International marketing channels deal with channels within which goods and services pass to reach their foreign consumers.
How to identify target markets?
1) Identify specific target markets within and across countries. 2) Specify marketing goals in terms of volume, market share, and profit margin requirements. ADVERTISEMENTS: 3) Specify financial and personnel commitments to the development of international distribution. 4) Identify control, length of channels, terms of sale, and channel ownership. ...
Why does a company have greater ability to deal directly with customers?
When the company is manufacturing a large number of product items, it has greater ability to deal directly with customers because the breadth of the product line enhances its ability to clinch the sale.
Why is choosing a distribution channel important?
The choice of suitable distribution channel is one of the most important decisions to be taken while marketing products because at the end of the day it will be the channel that will have an impact on the time and costs of distribution and the volume of the sales generated by the company.
What are the factors that determine the distribution channel?
Environmental Factors 2. Financial Factors 3. External Factors C. Criteria for Selection of Distribution Channel 1. Nature of the Market 2. Nature of the Product 3. Degree of Competition 4. Size of the Organisation 5. Degree of Control 6. Financial Strength 7.
Why are intermediaries important?
But because intermediaries carry a wide range of competitive products, it is often not possible to achieve any special treatment for such products. In such cases, the indirect channel may be used and exclusive franchise may be offered by appointing wholesalers as distributors and retailers as dealers (where intensive distribution is desired). This may ensure channel loyalty and aggressive selling by intermediaries.
What is the difference between perishable and FMCG?
In the context of type of products, it is generally understood that perishable products should have shorter distribution channel while the FMCG items need to have a wide reaching, intensive distribution channel. The distribution of consumer and industrial products requires different sets of channel structures.
How does marketing products depend on middlemen?
The success of marketing products depends on the attitudes of the middlemen. When middlemen believe in the policies of the company and are interested to carry on the mission of the company, they work as extensions of the company but then when such attitudes are absent and they rather pose hurdles for the company, firms need to have their own method of distribution.
How can a company build its own distribution network?
A company may build its own distribution network if its activities are on a national scale, if it has a large product mix, and if its financial position is strong and sound. If the financial strength of the company is satisfactory, it can finance its own distribution network for the marketing of its products. It can build its own marketing organisation. But if the firm is small and its financial structure is weak, it will have to depend upon middlemen for the distribution of its products.
What are the factors that affect distribution?
Factors Pertaining to the Product 2. Factors Pertaining to the Consumer or Market 3. Factors Pertaining to the Middlemen 4. Factors Pertaining to the Producer or Company B. Factors to Consider When Choosing a Distribution Channel 1. Environmental Factors 2. Financial Factors 3. External Factors C. Criteria for Selection of Distribution Channel 1. Nature of the Market 2. Nature of the Product 3. Degree of Competition 4. Size of the Organisation 5. Degree of Control 6. Financial Strength 7. Cost of Marketing 8. Environmental Factors.
How does advertising affect pricing decisions?
ADVERTISEMENTS: Affect the pricing decisions to a great extent. The marketers should set the prices as per the organizational goals. For instance , an organization has set a goal to produce quality products, thus, the prices will be set according to the quality of products.
How does an organization affect prices?
Affects prices significantly. The organization matches the prices with the competitors and adjusts the prices more or less than the competitors. The organization also assesses that how the competitors respond to changes in the prices.
Why do organizations need to set prices less than competitors?
Help an organization in determining price decisions. For instance, an organization has a pricing objective to increase the market share through low pricing. Therefore, it needs to set the prices less than the competitor prices to gain the market share.
Why do marketers analyze costs before setting prices?
By following this strategy, the organization can increase sales volumes in the short run but cannot survive in the long run.Thus, the marketers analyze the costs before setting the prices to minimize losses.
What is the only element of marketing mix that helps in generating income?
Price is the only element of marketing mix that helps in generating income. Therefore, a marketer should adopt a well-planned approach for pri cing decisions. The marketer should know the factors that influence the pri cing decisions before setting the price of a product. ADVERTISEMENTS:
What does "change in demand" mean?
Refers to change in demand of a product due to change in price.
What are legal and regulatory issues?
Legal and Regulatory Issues: Persuade marketers to change price decisions. The legal and regulatory laws set prices on various products, such as insurance and dairy items. These laws may lead to the fixing, freezing, or controlling of prices at minimum or maximum levels. iv.
What is the decision of selecting distribution channels?
Deciding or selecting channels of distribution is a strategic decision for any manufacturing or trading concern. The choice of channels depends on various factors. Usually, manufacturers consider which distribution channel would be objective and efficient. The selected channels must have lowest cost with maximum overall profit.
What are the factors that determine the choice of channels of distribution?
The following are the factors: 1. Market Related Factors: ADVERTISEMENTS: Since the channels of distribution operate in the market. The market related factors are very important. There are several forces in the market which dictate the choice of channels of distribution.
How does marketing affect channel decision?
Marketing environment can also influence the channel decision. During recession or depression, shorter and cheaper channels are always preferable. In times of prosperity, there is a wider choice of channel alternatives. Technological innovations also have an impact on distribution. The distribution of perishable goods, even in distant markets, has become a reality due to cold storage facilities in transport and warehousing.
What is an important decision in regard to the choice of channels?
An important decision in regard to the choice of channels is the one relating to the number of middlemen to be used.
What does it mean to adopt channels of distribution?
One has to consider the channels of distribution arranged by the competitors. This choice represents the wisdom and experience of the competitors. It also means that the competitors have been successful in using such channels over the long run. A company can adopt such channels of distribution if found suitable to itself. Unless there are compelling reasons, a company should not try to change the pattern of distribution as compared with that of the competition.
Why is the structure of retail trade important?
One important aspect of this factor is the number of stores selling mainly the product in question. Generally, if there are many such stores, the manufacturer will like to make use of the available retail channels instead of selling direct to the consumers. Also, retailers will be used for marketing a product if the retail stores provide convenience of shopping to the potential consumers.
What is the difference between industrial buyers and consumers?
Industrial buyers prefer to deal directly with manufacturers while consumers prefer to buy from retailers. Direct selling is convenient where the purchase order is large and the number of orders is small. Customers’ requirements for credit, home delivery, etc. also influence choice of channel of distribution. 3.
What are distribution decisions?
Besides issues related to physical handling of products, distribution decisions are affected by the type of promotional activities needed to sell the product to customers. For products needing extensive salesperson-to-customer contact (e.g., automobile purchases), the distribution options are different than for products where customers typically require no sales assistance (i.e., bread purchases).
How effective is a distribution system?
A distribution system is only effective if customers can obtain the product. Consequently, a key decision in setting up a channel arrangement is for the marketer to choose the approach that reaches customers in the most effective way possible. The most important decision with regard to reaching the target market is to determine the level of distribution coverage needed to effectively meet customer’s needs. As we will see next section, distribution coverage is measured in terms of the intensity by which the product is made available.
What dictates the distribution options available especially if the product requires special handling?
The nature of the product often dictates the distribution options available especially if the product requires special handling. For instance, companies selling delicate or fragile products, such as flowers, look for shipping arrangements that are different than those sought for companies selling extremely tough or durable products, such as steel beams.
