Tutorials Supply ChainIt is important to make a wise, informed decision about how extensive your business’s distribution channel shall be. If you want to achieve wider distribution, then the cost will be a lot lower if you use intermediaries. In fact, the vast majority of product manufacturers are unable to sell directly to customers, as it would be way too costly for them. The bigger the producer, the more intermediaries should be used in order to have a cost effective operation.
Most of the concepts surrounding distribution channels are related to costs. Many of the practical matters relating to distribution channels, however, have to do with customer control. A lot of businesses think that by selling their product in to the distribution channel, their role in the matter has come to an end and they no longer have to do any work. But in order to be effective, it is vital for businesses to take a market-oriented approach and manage every level of their product’s distribution until it arrives at the end user.
There are three levels of channel distribution membership. The first one is intensive, wherein a large majority of the resellers are stocking the product. The normal pattern, however, is selective distribution. In this membership model, only suitable resellers are selling the product. Finally, there is exclusive distribution, in which only selected resellers are permitted to sell the product – this is usually one seller per geographical region.
Sometimes it can be tough for suppliers to motivate their distribution team to provide the sales they require. There are many ways a company might motivate their distributors to make more sales on behalf of their organization. One way is through “bribery,” wherein you offer a better profit margin to tempt your distributors to push your product rather than the competition’s. Alternately, competition might be offered to the sales personnel of the distributor, tempting them to push the product. There is another side of the spectrum wherein the personnel of the agent are trained to the same standard as the supplier’s own sales staff. These instances are quite rare, though.
A vital element of supply chain management is the management and monitoring of the distribution channels. Just like a company’s own sales and distribution departments have to be overlooked and taken care of, each level of the distribution chain will have to be managed in a similar vein. In reality, however, most companies utilize a mixture of different distribution channels. They might help compliment a direct sales team, call on bigger accounts, work with agents, or help take care of smaller accounts and prospects.
One of the more recent developments in distribution is the concept of vertical marketing. This unites the producer, wholesalers, and retailers in to one integrated channel. Sometimes this happens as a result of one of the members of the distribution chain owning the others outright – this is referred to as “corporate systems integration.” For example, a supplier might own its own retail outlets; in this case, it is called “forward integration.” “Backward integration,” in which the retailer owns its own suppliers, is a much more common example. The furniture retailer, MFI, falls in to this category, as they own Hugena, who manufactures their kitchen and bedroom units. Another integration model occurs via franchising, as is the case with McDonald’s fast food restaurants. Another model occurs with simple cooperation, in the sense that Marks and Spencer cooperates with their suppliers.
Another approach is via a contractual system. These are often dictated by retail or wholesale cooperatives.
Then there are administered marketing systems. When one member of the distribution chain with more power is able to use its position to coordinate the activities of other members, then there could be said to be an administered marketing system. Typically, it is the manufacturer who has the dominant position in this scenario.
The point of vertical marketing is to give everyone on the distribution channel some power over what goes on there – especially the retailers and suppliers. Research shows, however, that it is best to pursue these strategies at the mature stage. If one sets out at an early stage of the product using these methods, it could do more harm than good in terms of profits. These methods can also pull attention away from more important business matters. Theoretically, suppliers do not do well in retail situations, whereas retailers should focus on selling rather than on bothering with manufacturing facilities.
Then there is horizontal marketing, which is used less often and has less to do with marketing. It typically refers to situations in which several non competing businesses work together on a venture because it is beyond their capacity to go at it alone.
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