Selecting the Right Sales Channel Strategy for Distribution
Your distribution channel strategy includes selecting the channel type, determining the distribution intensity, designing the channel configuration, and managing the channel.
A channel strategy is a plan that outlines how a business will reach its target market through various channels of distribution. This plan should include the different types of media used to communicate with the target market and the specific messages that will be delivered.
It’s important to have a clear and concise channel strategy to ensure that all marketing efforts are aligned and working towards the same goal. In this blog post, we’ll discuss what a Channel Strategy is, what goes into it, and how you can create your own for your business. Stay tuned!
Do you want to learn how to create a successful channel strategy for your business?
A Channel Strategy is a plan that outlines how a business will reach its target market through various distribution channels. This plan should include the different types of media used to communicate with the target market and the specific messages that will be delivered.
It’s important to have a clear and concise channel strategy to ensure that all marketing efforts are aligned and working towards the same goal. In this blog post, we’ll discuss what a Channel Strategy is, what goes into it, and how you can create your own for your business.
By learning how to create a Channel Strategy, you’ll be able to effectively reach your target market and deliver your message in a way that resonates with them. You’ll also be able to track the success of your strategy so you can make necessary adjustments along the way.
Channel strategy consists of selecting the channel type, determining the desired intensity of distribution, designing the channel configuration, and managing the channel on an ongoing basis.
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Type of Distribution Channel
A traditional distribution channel is a group of independent organizations, each trying to look out for itself, with little concern for the total performance of the channel.
Marketing executives in many firms realize the advantages of managing the channel as a coordinated or program system of participating organizations.
These Vertical Marketing Systems (VMS) dominate the retail sector today and are significant factors in the business and industrial products and services sectors.
Vertical Marketing Systems
Professionally managed and centrally program networks pre-engineered to achieve operating economies and maximum market impact. Vertical Marketing Systems are rationalized, and capital-intensive networks designed to achieve technological, managerial, and promotional economy’s through the integration, coordination, and synchronization of marketing flows from the point of production to the point of ultimate use.
In a VMS, one company typically managed is the distribution channel. A firm that is the channel manager programs and coordinates channel activities and functions. The participating organizations are linked through ownership by one firm, and you’re a contractual agreement or an administrative relationship.
Prescribed rules and operating guidelines indicate each participant’s functions and responsibilities. The channel leader supplies management assistance and services to the participating organizations.
Distribution intensity is best examined geographically. It uses an intensive distribution approach if management distributes its products in all or most retail outlets in a trading area that normally carries such a product. The trading area may consist of a city or some portion of a city.
If only one retailer or dealer in the trading area distributes a product, the management is following an exclusive distribution strategy. Different degrees of distribution intensity can be implemented.
Distribution intensity depends on several factors, some the result of management’s preferences and some determined by product in market influences.
The major steps in making the decision are:
Identifying the range of feasible distribution intensities taking into account the size and characteristics of the target market, product, and the requirements likely to be imposed by perspective intermediaries.
Select the alternatives compatible with the proposed target market and marketing program positioning strategy.
Choosing the alternative that:
- Provides the best strategic fit
- Meets executive management’s financial performance expectation
- It will be significantly attractive to intermediaries so that they will properly perform assigned functions
The type of product and the target market to be served may determine distribution intensity. For example, expensive products like BMWs and Audi luxury automobiles do not require intensive distribution to reach potential buyers.
The next step in selecting a distribution strategy is deciding how many levels of organizations are in the channel and the types of intermediaries to use.
Several factors influence the channel configuration decision, including:
- End-user considerations
- Product characteristics
- Capabilities and resources of the manufacturer
- Functions and need to be performed
- Availability and capabilities of channel members
After deciding on the channel design, management must identify, evaluate, and recruit specific sales channel partners. Finding competent and motivated channel members is critical to implementing your channel strategy. The choice of channel type, distribution intensity, and configuration determine many specific channel management activities.
Channel management includes deciding how to assist channel members, developing operating policies, providing incentives, selecting promotional programs, and evaluating results.
Managing the channel consumes much of management’s time since channel design is not modified frequently. Changes in channel design may have serious consequences for some members.
Selecting a Channel Strategy
The steps in selecting a channel strategy.
Marketing management must:
- Choose a channel arrangement to be used
- Determine the desired intensity of distribution
- Decide on the channel configuration
One of the first issues in selecting a channel strategy is deciding whether to manage a channel or assume a participant role. The choice often depends on how much bargaining power a company can exert a negotiating with other organizations in the channel system, often called the supply chain.
Management may decide to manage or coordinate operations in the distribution channel, become a member of a vertically coordinated channel, or become a member of a conventional channel system.
Access to the Target Market
Management choice of the market strategy must be closely coordinated with a channel strategy since a channel connects suppliers to the end users. The market target decision cannot be finalized until the channel strategy is established.
Two financial questions affect channel strategy. First, are resources available for launching management’s preferred strategy? A small manufacturer or producer may not have the money to build a distribution network. Second, the company must estimate the revenue cost impact of alternative channel strategies. This task grows more complex as a channel network expands to include several levels and types of organizations.
Flexibility and Control Considerations
Management should consider how much flexibility it wants in the channel network and how much control it would like over other channel participants. An example of flexibility is how easily changes can be made in channel participants.
A conventional channel provides little opportunity for control by a particular firm, yet it offers flexibility and channel relationships. Legal and regulatory constraints may also affect channel strategies in pricing, exclusive dealing, and allocation of market coverage.
Analyzing Distribution Systems
Changes in distribution may improve relationship management, customer satisfaction, and productivity. Companies with direct sales forces may consider using indirect channels (wholesalers, distributors, dealers, and retailers) to serve portions of the customer base.
Strategies at Different Channel Levels
Wholesalers and retailers are also concerned about what channel strategies, and in some instances, they may exercise primary control over channel operations.
Channel strategy can be examined from any level in the distribution network. The major distinction lies in the point of view (wholesalers, distributors, dealers, and retailers) used in developing the strategy.
Channel members may have fewer alternatives to consider than producers and think us less flexibility and channel strategy. However, their approach to channel strategy should be active rather than passive.
Selecting a channel strategy begins when management decides whether to manage or assume a particular role. The strategic analysis identifies and evaluates channel alternatives.
Several factors should be evaluated, including access to the target market, channel functions performed, financial considerations, and legal and control constraints.
The channel strategy establishes several guidelines for price and promotion strategies.
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