Choosing a Channel of Distribution: 5 Things to Consider

Have you ever been assigned the task of building the channel of distribution for a new brand, or a new market?  Do you plan to grow your business by expanding the distribution beyond your traditional model? Is your current distribution system loosing market share to new, more modern methods?

If you answered “yes” to any of these questions continue reading.

Here are 5 things to take into account when deciding on a new channel of distribution:

Brand Positioning

Distributing a premium brand through Walmart is not a good idea. Brand positioning and differentiation strategy has a great impact on choosing the distribution channel.

Premium brands are usually sold through the company’s own stores or specialized distributors. Coach, the luxury brand of handbags and accessories, distributes its products mainly through a network of over 500 own stores in US and Canada.

The main advantage of owning your distribution network is the full control over the brand messaging. Moreover, the company can deliver a superior shopping experience, while the sales force is solely dedicated to explaining the benefits of a single brand: yours.

For brands competing in the value segmment mass retailers and the internet are popular options. Assuming that the brand is price competitive these two channels provide the exposure and accessibility required.

It is very common for companies to use a hybrid distribution based on various positioning strategies. Canon sells its top of the line lenses throgh specialized distributors while the more affordable consumer versions at mass retailers such as Best Buy.

The Nature of Product Offering

Some products are more suitable to be distributed through a particular channel than other. Cars, for example, cannot be bought over the internet, but books can.

An expensive, unique product that requires a lot of personal selling has  no place in mass retailers. Typically inside these channels the purchase decision is left to the customer, with little to no intervention from the sales clerks.

The Upfront Investment

The cost of developing a distribution network is a major influencer in the decision to sell direct versus through intermediaries. Building up the company’s own distribution chanel, although more advantageous long term, is the most costly alternative.

With the rapid advancements in techology selling over the internet has become a visble option, even for small companies. However, as I said earlier, not all products are suitable to be sold online.

In most cases the cost of selling through intermediaries is lower. That being said make sure that “hidden costs” such as co-op advertising, merchandising and sales support are discussed upfront and taken into account.

Time To Market

If you are under preasure to launch a new brand quickly then selling through distributors is the quickest way to get the product into the hands of consumers. These intermediaries already have a system in place to distribute your product, and an existing customer base.

Bulding your own distribution network is the most time consuming (unless internet is an option). Many companies begin by selling through intermediaries and later decide to add the direct channel into the mix, for obvious reasons. This is not an easy strategy to implement, as management has to find ways to mitigate channel conflict.

On-Shelf Competition

Obviously selling direct means no possibility for the consumer to assess competitive offerings.  Selling through indirect presents one major challenge: the retailer’s private label.

No independent retailer will choose to build your brand over its own. Their goal is to solely to make money selling whatever brand offers the best margin.

To summarize, before you decide on your brand’s distribution strategy, make sure you consider the impact of your decision on the overall strategy.

Comments

  1. Bambang, very good question. Although these considerations are mostly applicable to physical products, they can be easily transferred to services as well. Unlike physical products, services are intangible, and more difficult to compare, since they deliver a “personal experience”.

    That being said when “distributing” a service you still have to take into account your brand positioning (how you want to be perceived by your clients), nature of your product offering (delivered over the internet, only in person, or a combination of both), the upfront investment (how much you want to spend creating awareness and distributing your service), the time to market (promoting your service through intermediaries is faster than doing everything yourself) and competition.

    I hope this helps.

  2. Is this 5 considerations also suitable for services?, I think services is different than products.

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