Industrial companies get their products to end users through intermediaries. According to Michael Stanton, a distribution channel is made up of people and companies involved in the transfer of ownership of a product as it passes from the manufacturer to the user. In this article, we will look at the 5 keys you need to take into account in your channel strategy.
1. The interests of the members of the channel
Channel decisions directly affect the rest of the value proposal, from profit margins to product design. This value proposition can be optimized by creating positive relationships between channel participants and increasing revenues through the identification of new opportunities.
2. Conflicts in the channel
The axiom that "the whole is more than the sum of its parts" explains how an efficient channel should be. However, there may be conflicts in the channel that can be classified into two types:
Horizontal: Occur between companies at the same channel level. The most common are fights over territories, pricing or product mix between distributors or retailers.
Vertical: This type of disagreement occurs between members who are at different levels of the same channel is very common, the most common being when one of the members skips one of the links in the distribution chain (distributor selling to the workshop, manufacturer selling to the retailer) and breaks the agreed commercial policy. This is also the case when profit margins are not respected or new commercial conditions are not accepted.
3. Disintermediation of the channel
Internet use and new technology change impact distribution channel designs, as people are starting to use digital channels for all their purchases.
Kotler argues that disintermediation means that, increasingly, product manufacturers are bypassing intermediaries to approach end buyers directly; it also means that radically new types of channel intermediaries are emerging to displace traditional ones. This change in channel organization includes not only the elimination of tiers but also forward integration with new distribution formats.
4. Logistics
Logistics includes all the functions carried out from the production schedule by the manufacturer to its delivery to the end user. Its objective is to achieve maximum satisfaction at the lowest possible cost.
5. The design of a channel
The factors to consider when choosing the best distribution option are:
About the product: Customer service features of the products. Information and technical training are necessary for the sale of the product. Strength of product portfolio (need to complement with other brands for specialists, exclusivity). The logistical complexity of the product.
About the market: Geographical coverage needs. Type of specialization required. Market size (For a number of potential buyers and small orders you can sell direct). Quick delivery of orders (no perishable goods but purchases requiring immediate replacement).
About the company: Available capital to hold the necessary stock of products (a low unit price will require fewer funds available for distribution). Financial needs for profitability. Organizational structure to be developed. Need for control of intermediaries (concentration, acceptance of conditions, communication, pricing).
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