1. Dolapo Omokanjuola – ABUMBA2017010058
2. Agbu Melvin, Chukwudi – ABUMBA2017011053
3. Dawari Ete Akobo – DP17MBA0967
4. Okafor Nnanyelu Ilechuckwu – ABUMBA02015006502
5. Samsu Aaron Gombwer – DP17MBA008381
Businesses develop products and services for consumers. As part of the product development, the firm must identify and define its target market and location. In defining target markets, companies do not take their products straight to their targeted market but utilize intermediaries or channels. Unless customers are buying a product directly from the company that makes it, sales are always facilitated by one or more marketing intermediaries, also known as middlemen. This is referred to as distribution channel. Distribution of goods is as important as production and the existence of a business firm largely depends upon a proper and well organized system of distribution. It is therefore, necessary that attention is paid in selecting a channel of distribution.
A distribution channel is defined as a chain of businesses or intermediaries through which a good or service passes to get to the end user and have significant roles in linking manufacturers and consumers (Investopedia). For example, if 1,000 customers were to buy a product directly from the producer in a single month, this would entail 1,000 separate shipments to 1,000 locations, and with a minimum of 1,000 customer interactions. If you added customer inquiries about the product, returns and after-sale support — and all the customers who initiate a purchase without following through — you would have several thousand interactions with customers for every 1,000 sales. Selling through three or four intermediaries with a weekly shipping schedule, the manufacturer would have only a dozen shipments to schedule each month with a fraction of the interactions.
Distribution channels can be by road, railways, electronic mails, online adverts etc. while intermediaries can be brokers, agents, retailers or wholesalers. While there are several factors for channeling products and services, the type of product, selling price, and technical knowledge required to sell the product all play a considerable role in selecting the proper sales or distribution channel. However, generally, the selection of the distribution channel and the intermediaries to use are influenced by:
1. The characteristics of the environment in which the firm operates
The environment could refer to economic conditions, legal institutions, and normative institutions. Sometimes, policies that hinder easy choice of distribution channel. For example, the Pharmaceutical Society of Nigeria has a law that prohibits a pharmacy to be set up within a radius of an existing one. This basically prevents or reduces the number of pharmacy shops or intermediaries that distribute products because of those environmental factors. Environmental elements in economic conditions and legal constraints may hamper the channel design. Take for example during a recession producers tend to want to reduce cost by distributing their goods in the most cost efficient manner applying short channels and discarding unwarranted services which add to the final cost.
Marketing managements select channels on the basis of customer wants; how, where and under what circumstances” The number of buyers of the product affects the choice of a channel of distribution (Lazo and Corbinxxx). The nature of the environment and the concentration of customers at a particular market, whether densely or sparsely concentrated influences the channel it uses for distribution. In a situation where the customers are densely concentrated or more concentrated, the manufacturer can eliminate the use of intermediaries by opening its own sales depot in that target market area or supplying directly to the customers as the case Coca-Cola has demonstrated. In a densely concentrated or scattered market, or if the size of the order is small, middlemen are appointed to distribute the products because the manufacturer needs intermediaries like wholesales, agents as has happened in the case of Longrich products).
2. Competitor’s approach to distribution
According to Porters analysis of his five forces, companies tend to adopt a strategy similar to their competitors. The analysis involves the role intermediaries play within the context of business strategy. When a company for economic reasons deals directly with the end users, other competing companies most times toe the same line. It is very important for a firm to observe its competitors approach to distribution. Sometimes it is desirable to follow your competitor’s channel of distribution. At some point, a channel that has less competition can be followed. A new firm should consider following a channel that has less competition so they can create a niche for their selves. The nature and extent of competition prevalent in an industry is another detrimental consideration in selecting a distribution channel. Different manufacturers producing similar products may employ the same channels of distribution.
3. Type of intermediaries that operate within a distribution channel
The type of intermediaries often determines the nature of channel used for distribution and affects channel design. Intermediaries that are able and willing to perform the needed task must be found by the company. The abilities of intermediaries differ based on credit, contact, customer and promotion. For example, when several clients share in costing the manufacturer’s representatives are able to communicate to potential customers at a lower per cost, however the selling effort per customer is less intensive compared to if the company’s sales unit handled such selling (MDU, 2004).
Whether wholesalers, retailers or franchisees. In most cases the financial strength of the intermediaries determines the channel of distribution. The points to be considered here are will include: (a) Intermediaries that have great sales potential should be considered- largest sales volume (b) Intermediaries and distribution channels that guarantee the highest volume sales at a lower unit cost should be considered (c) Intermediaries that are readily available at all times should be considered.
Channels of distribution: Six factors to consider while selecting a channel of distribution by Smiriti Chard accessed at http://www.yourarticlelibrary.com/stores/channel-of-distribution-6-factors-to-consider-while-selecting-a-channel-of-distribution/25909 and http://www.yourarticlelibrary.com/marketing/distribution-channels/8-factors-to-consider-while-selecting-distribution-channels/29924
Kotler, Philip (2006). Principles of Marketing. New- Delhi: Prentice Hall
Maharshi Dayanand University (2004). Marketing Management. Maharshi Dayanand University, Rohtak