E-commerce Crushing Your Business? The Distribution Channel Hack You NEED!
The best channel structure forms when no other channel generates more profits or provides greater consumer satisfaction per dollar of product cost. To achieve the optimal channel structure, functions shift from one channel member to another to improve delivery and cost. There are three factors that influence the structure of the distribution channel:
Market coverage objectives involve decisions regarding the size of specific market areas and the intensity of coverage of specific geographic regions. For example, this could be measured by the number of retail outlets in a particular region relative to the concentration of customers. There are three basic market coverage alternatives:
- Intensive distribution: This involves the placement of a product in as many outlets or locations are possible. An example of this would be a product, such as Tide laundry detergent, that is available at almost all supermarket locations.
- Selective distribution: This involves the placement of a product or brand in a more limited number of outlets within a specific geographic area.
- Exclusive distribution: This involves placement of a brand in only one outlet in each geographic area. Exclusive distribution is an alternative that should be related to the types of customers the company wants to serve.
Product characteristics are another significant factor in the design of the distribution channel. For example, high-value products typically require a shorter supply chain to minimize cost, whereas low-value products should have intensive distribution to maximize sales. Highly technical products usually require product demonstration and are better suited for a direct channel. Highly perishable products need to be delivered to markets fast due to their short life cycle.
Customer service objectives are another consideration in designing a channel structure. Customer service is used to differentiate the product or influence the market price, provided that customers are willing to pay more for better service. In addition, the supply chain structure determines the costs of providing a specified level of customer service. This means that customer service levels and the design of the appropriate distribution channel should carefully balance customer needs and costs.
The perfect distribution channel maximizes profits and customer satisfaction. With the rise of e-commerce, how can traditional brick-and-mortar businesses adapt their distribution strategies to remain competitive?