The influence of distribution channels

As we have seen, channels are the means by which a manufacturer reaches the market with his products. What channel he chooses will influence the price at which he offers his product. The consumer knows, as a rule, only the retail or ultimate price. But there may be functional and marketing middlemen between the manufacturer and the customer. Each has to be compensated for services rendered. This compensation must be included in the ultimate price the consumer pays.
As we previously pointed out, channels have changed considerably in the past few years. They are expected to change more in the next decade. The use of conventional channels has been seriously challenged in recent years. New types of distribution channels, lower- cost retailers, direct manufacturer branches, distribution centers, all have changed the cost picture. No manufacturer can afford to disregard these changes, which sometimes have cut the cost of distribution by 5 to 10 per cent.
But aside from changes occurring in the channels themselves, manufacturers often change the type of relationship previously maintained. For example, a manu¬facturer may have an exclusive arrangement with a distributor. As we have seen, such arrangements have mutual benefits and advantages. One of these advan¬tages is price stability. There is much less likelihood of price cutting under exclusive distributor contracts. Non-exclusive contracts may call for a more flexible price policy to meet price-cutting tactics either of competitors, who may be other manufacturers, or of distributors, who may be warring among themselves. In price wars of any kind, the manufacturer is almost always forced to participate directly or indirectly.
Similarly, prices may be influenced by whether the important channels carry the manufacturer's full line or only part of it. Also, trade-in practices affect prices. The final price for a new car, for example, may be the same, but the amount of money the buyer parts with will differ according to the trade-in allowance, financing charges, or terms of payment. Finally, many distributors demand concessions from manufacturers, such as promotional allowances. These may not appear on the price list but, in actuality, they become reductions in price.