Page 55 - DMGT550_RETAIL_MANAGEMENT

Retail Management

Notes 3. Industrial products requiring demonstration, installation and after-sales service are often
sold directly to the consumers. While the consumer products of technical nature are
generally sold through retailers.
4. An entrepreneur producing a wide range of products may find it economical to set up his
own retail outlets and sell directly to the consumers. On the other hand, firms producing
a narrow range of products may their products distribute through wholesalers and retailers.
5. A new product needs greater promotional efforts in the initial stages and hence few
middlemen may be required.
Market Consideration:- Another important factor influencing the choice of distribution channel
is the nature of the target market. Some of the important features in this respect are:

1. If the market for the product is meant for industrial users, the channel of distribution will
not need any middlemen because they buy the product in large quantities. Short one and
may as they buy in a large quantity. While in the case of the goods meant for domestic
consumers, middlemen may have to be involved.
2. If the number of prospective customers is small or the market for the product is
geographically located in a limited area, direct selling is more suitable. While in case of a
large number of potential customers, use of middlemen becomes necessary.

3. If the customers place order for the product in big lots, direct selling is preferred. But, if the
product is sold in small quantities, middlemen are used to distribute such products.

Other Considerations

There are several other factors that an entrepreneur must take into account while choosing a
distribution channel. Some of these are as follows:
1. A new business firm may need to involve one or more middlemen in order to promote its
product, while a well established firm with a good market standing may sell its product
directly to the consumers.
2. A small firm which cannot invest in setting up its own distribution network has to depend
on middlemen for selling its product. On the other hand, a large firm can establish its own
retail outlets.
3. The distribution costs of each channel is also an important factor because it affects the price
of the final product. Generally, a less expensive channel is preferred. But sometimes, a
channel which is more convenient to the customers is preferred even if it is more expensive.

4. If the demand for the product is high, more number of channels may be used to profitably
distribute the product to maximum number of customers. But, if the demand is low only
a few channels would be sufficient.
5. The nature and the type of the middlemen required by the firm and its availability also
affects the choice of the distribution channel. A company prefers a middlemen who can
maximise the volume of sales of their product and also offers other services like storage,
promotion as well as after-sales services. When the desired type of middlemen are not
available, the manufacturer will have to establish his own distribution network.
All these factors or considerations affecting the choice of a distribution channel are interrelated
and interdependent. Hence, an entrepreneur must choose the most efficient and cost effective
channel of distribution by taking into account all these factors as a whole in the light of the
prevailing economic conditions. Such a decision is very important for a business to sustain long
term profitability.

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