Your distribution channel strategy includes selecting the type of channel, determining the intensity of distribution, and designing the channel configuration, and managing the channel.
Channel strategy consists of selecting the type of channel, determining the desired intensity of distribution, designing the channel configuration, and managing the channel on an ongoing basis.
It’s essential for product and/or service distribution to your target markets and potential customers.
Selecting the right distribution strategy is important for the survival of many manufacturing companies.
What is the omnichannel strategy?
Omnichannel — also spelled omni-channel — is a multichannel approach to sales that seeks to provide customers with a seamless shopping experience, whether they’re shopping online from a desktop or mobile device, by telephone, or in a brick-and-mortar store.
What is channel strategy in marketing?
A marketing channel is the people, organizations, and activities necessary to transfer the ownership of goods from the point of production to the point of consumption.
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Type of Distribution Channel
The traditional channel of distribution 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 an increasing number of 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 are:
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, you’re a contractual agreement, or by 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. If management distributes its products in all or most of the retail outlets in a trading area that normally carries such a product, it is using an intensive distribution approach. 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.
Selecting the alternatives that are compatible with the proposed target market and marketing program positioning strategy.
Choosing the alternative:
- Provides the best strategic fit
- Meets executive management’s financial performance expectation
- 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, such as BMWs and Audi luxury automobiles, do not require intensive distribution to reach potential buyers.
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Marketing Channel Configuration
The next step in selecting a distribution strategy is deciding how many levels of organizations are to be in the channel and the types of intermediaries to be used.
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
Marketing Channel Management
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 the implementation of your channel strategy. The choice of channel type, distribution intensity, and channel 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
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 to 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 channel of distribution, 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 actually be finalized until channel strategy is also established.
Financial Considerations for Your Channel Strategy
Two financial questions affect channel strategy. First, are resources available for launching the 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 alternatives 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 such areas as 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) for serving 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 thought us less flexibility and channel strategy. However, their approach to channel strategy should be active rather than passive.
Wrap-Up on Channel Strategy
Selecting a channel strategy begins when management decides whether to manage the channel or to 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 to be performed, financial considerations, and legal and control constraints.
The channel strategy establishes several guidelines for price and promotion strategies.
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What is a channel distribution strategy?
You must decide how you will distribute your product. The channel distribution strategy consists of selecting the type of channel, determining the desired intensity of distribution, designing the channel configuration, and managing the channel on an ongoing basis.
Why do I need a channel strategy?
Your distribution channel strategy includes selecting the type of channel, determining the intensity of distribution, and designing the channel configuration, and managing the channel. You might think about why you need a channel strategy for access to markets, marketing, and sales support, or other sales support.
What is the best channel strategy for a SaaS technology company?
In the markets of licensed enterprise software, software companies pay channel partners called Value-Added Resellers (VARs) and Independent Software Vendors (ISVs) to sell, install, and customize the software and are a great option for SaaS start-ups and small businesses. This strategy is not the case with SaaS companies.
How do you develop a distribution strategy?
How to Create a Distribution Strategy That Actually Makes Money
Step 1: Evaluate the end-user.
Step 2: Identify potential marketing intermediaries.
Step 3: Research potential marketing intermediaries.
Step 4: Narrow in on the profitable distribution channels.
Step 5: Manage your channels of distribution.