Question

What criteria should a firm consider before choosing a channel alternative?

Answer 1

A channel acts as a means that enables the flow of goods & services from manufacturer to end user. Selecting the best channel for distribution enables a firm to boost its profitability by lowering the cost. The selected channel should be so that it serves the customers efficiently & effectively. A firm can choose a single channel or number of channels for distribution of its goods & services. Before choosing an alternative channel a firm should consider the following things:

1) Nature of goods offered: The selection of alternative channel depends on the nature of the product offered. If the firms find the alternative channel suitable as per the product they are offering, then only they should go for it. For example: If you are a car seller, you can sell it more efficiently through a store than over the internet whereas if you are a bookseller then selling books through store as well over the internet is a suitable option. People will like to buy expensive products through personal selling then through online channels.

2) Investment Required: If you are selling a product through intermediary then it will be less costly for you. But it will be profitable for you in the long run if you build your own channel, but you need to make an investment initially in order to build your own channel. Building your own channel of distribution may be costly initially but it will be profitable in the long run. So, you can choose between the alternatives depending upon your capability to invest funds.

3) Control over channel: A firm should choose the alternative channel only when it feels that it will be able to control the new channel in the same way as it is able to control the existing one. Alternative channel selected should be able to serve the customers efficiently & effectively. Then only the alternative channel selected will prove to be profitable for the firm.  

4) Adaptability of channel: Product markets are changing rapidly & are uncertain, so, the alternative channel selected should be so that its structure & policies provide high degree of adaptability.

Choosing channel alternative is an important decision as it will impact the overall strategy of the firm. So, there is a need to take this decision deliberately.