Business blog

Q&A - What factors determine the type of distribution channel used by a business?

A wide variety of factors need to be considered when deciding on the most appropriate distribution channel for a product. These are summarised below:

Nature of the product
- Technical/complex? Complex products are often sold by specialist distributors or agents
- Customised? A direct distribution approach often works best for a product that the end consumer wants providing to a distinct specification
- Type of product – e.g. convenience, shopping, speciality
- Desired image for the product – if intermediaries are to be used, then it is essential that those chosen are suitable and relevant for the product.

The market
- Are there traditional channels set for the market in which it is essential to participate?
- Are customers geographically spread?
- Does it involve selling overseas?
- The extent and nature of the competition – which distribution channels and intermediaries do competitors use?
- Profit margin on the product?  Is there sufficient profit margin to provide adequate returns for each intermediary?

The business
- Its size and scope – e.g. can it afford an in-house sales force?
- Its marketing objectives – revenue or profit maximisation?
- Does it have established distribution network or does it need to extend its distribution option
- How much control does it want over distribution?  The longer the channel, the less control is available

Legal issues
- Are there limitations on sale?
- What are the risks if an intermediary sells the product to an inappropriate customer?
- Who retains legal title to the product as it passes through distribution?

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