Distribution Strategy: Channel Efficiency and Decisions

Posted on Apr 3, 2024 in Economy

Distribution Strategy

1 Channel Efficiency

When making channel decisions, companies must consider efficiency factors, including:

  • Perceived value of product sold: This affects the distribution channel, as selling a bottle of water differs from selling a pair of shoes.
  • Price and margin obtained: High profits may allow for direct sales, while low profits may favor using an intermediate.
  • Distribution structure of the country or region: Different models exist for reaching final buyers.
  • Integration levels: Companies must consider horizontal or vertical integration levels, which impact distribution decisions.

2 Channel Decisions

Six basic channel decisions are:

  1. Direct vs. Indirect Distribution:

    • Direct: More control, less time in the channel, but difficult to obtain widespread distribution.
    • Indirect: Less control, more resources required, but easier to achieve wider distribution.

  2. Single vs. Multiple Channels:

    • Single: Minimum sales level, exclusivity, but limited sales.
    • Multiple: Increased sales, wider distribution, but higher investment and potential for competition.

  3. Channel Length:

    • Factors to consider: financial strength, product line size, average order size, customer concentration, distributor distance.

  4. Types of Intermediaries:

    • For consumer goods: supermarkets, cash and carry.
    • For industrial goods: franchised dealerships.

  5. Number of Distributors:

    • Factors to consider: unit value, stock quantity, purchase frequency, technological complexity, service requirement, inventory investment, geographic concentration, market potential, market share, competition.

  6. Specific Intermediaries:

    • Consider image, performance, and deals with distributors.
    • Category Management Projects (CatMan) can optimize categories and adapt innovation to market trends.