One of the important decisions of marketing involves the choice regarding which channel of distribution to opt for. The following factors determine the choice of channels:
(i) Product type: The choice of channel of distribution is based on the type of product produced. Type of product is important whether it is perishable or non-perishable, whether it is an industrial or a consumer product and whether its price is high or low. It is also required to know the level of complexity of the product. For example, for perishable goods short channel is advisable in place of long channel. Similarly, for low price products long channels are preferred. Similarly, consumer products are distributed by long channels, and industrial products are distributed by short channels.
(ii) Characteristics of the company: The characteristics of a company that affect the channel of distribution are its financial strength and the control that the company wishes to hold on the intermediaries. Shorter channels need high resources with respect to longer channels and high control over the intermediaries. That's why, companies that are financially strong or have strong control over intermediaries opt for shorter channels of distribution.
(iii) Competitive factors: The level of competition and the channels of distribution opted by other competitors affect the choice of distribution channels. On the basis of its policies, a company can select similar or different channel selected by its competitor. For example, if competitors of a company opt for sale through retail stores, it may also do the same or can go for a different channel such as direct selling.
(iv) Environmental factors: Financial problems and legal policies play a vital role in the selection of channel of distribution. For example, complex legal formalities at each step of distribution force the companies to opt for shorter channels.
(v) Market factors: Other factors such as the size of the market, geographical distribution, behavior of buyers, quantity demanded, competition present in market etc. also affect the choice of channels. For instance, if potential buyers are concentrated in a small geographical area, then short distribution channel are used and if they are dispersed in a larger area, then long distribution channel are used.