Group 8
Designing Channels of Distribution
In marketing, distribution is the process of getting goods from the producer to the ultimate
consumer.
Distribution occurs through channels, agents that facilitate and encourage consumer purchase,
the number and nature of which are determined by the producers.
Effective sales require that producers determine and then manage a channel or array of channels
to assemble products, personnel, advertising message, and downstream selling partners that,
combined, maximize competitive advantage.
Producers may change channels in response to changes in market conditions, technology, or
other factors, but ill-advised or poorly implemented changes in channels invariably result in loss
of reseller support, disappointing sales, and lower profits.
The strategic implications of the adding-or deleting-a channel of distribution is quite complex.
Defining a Channel of Distribution, A channel of distribution is a set of interdependent firms that
collaborate to make a product or service available for end-use consumption.
The objective of channel management is to identify the combination of channel members that
best supports the business strategy, balancing responsiveness to customers with total incurred
channel cost while retaining enough control to ensure adequate network cooperation.
Channel Types There are many different channel types, each serving a function in the more
extensive distribution system.
Similar to managing an in-house sales force, the manufacturer can work with the channel to
establish sales targets and goals; to support the introduction of new products; and to develop
plans for acquiring new segments and customers.
Designing a Channel of Distribution, Channel design consists of a series of steps and can be
compared to fundamental principles in marketing-segmentation, positioning, and targeting, then
establishing the channel.
Conceptually, these two channels could peacefully co-exist if we could isolate the channel so
that one segment shopped only in its channel and the other segment shopped only in its channel.
Channel structure: Structure encompasses the elements of the members of the channel and the
intensity of distribution.
As an extension of targeting, the manager will establish the actual channel; where none exists,
one must be developed, and where a viable channel does exist, it must be refined.
Group 8
Channel conflict occurs when one channel member's actions prevent another from achieving its
goals.
Three types of channel conflict may affect distribution design and implementation: vertical, or
conflict between supplier and reseller within a given channel; horizontal, or conflict among
members of a given channel; and multichannel, or conflict among supplier, members, and
resellers comprising a different channel.
Much vertical channel conflict arises because of the inherently opposed incentives discussed
above: manufacturers generally want the most intensive or vigorous distribution they can get,
while resellers prefer less intense distribution because competition at the reseller level leads to
lower resale margins, so they often redirect their selling efforts away from a product with higher
competition and lower margins toward products with lower competition and higher margins.
Not only do firms outsource non-core activities, but they also configure channels with experts
who meet customers' needs more cheaply through effective execution of vital channel tasks.
As customers look to logistics firms to provide these services, wholesale distribution stands to
lose its longstanding share of channel sales.
We ought to consider some distributor-level activities as candidates for functional discounts: to
compensate the channel for participating in flows previously performed by the manufacturer,
where the discount bears a relationship to the cost savings achieved by the supplier-paying the
channel for performance, in other words, and not for the position it plays in the value stream.
As important as a brand image is in the eyes of consumers, a corporate reputation for expertise
and trustworthiness in the eyes of distribution channel members is crucial.
Aligning distribution channels with customer needs requires an in-depth appreciation of the
behaviors and attitudes of key segments, the actions of competitors, and the unique skills and
capabilities that channel partners bring to the value equation.
Designing a channel of distribution that fulfils a firm's strategic vision is not to be taken lightly,
nor does it come quickly: independent actors must come to share a common purpose and develop
a collaborative approach.