Managing Distribution Channels
There are three choices in choosing your distribution channels:
- Sell direct to your customers or do the distribution yourself (direct distribution)
- Sell to your customers through intermediaries (indirect distribution)
- Dual distribution, a combination of direct and indirect distribution.
Your final choice of a distribution system should consider how much control you want in the distribution of your products and how much are you willing to pay in terms of distribution costs.
When your customers are large in number and purchase in small amounts, you should consider intermediaries to help you in distributing your product. Intermediaries are organizations who help in distributing your product if you do wish to sell them yourself. Examples are supermarkets, distributors, retailers, wholesalers, franchisees, etc. In return for performing the distribution function for you, you will have to share some of your margin (or markup) with the intermediary.
When your customers are very few, say, large organizations ordering in big amounts, you should consider direct distribution. All too often, entrepreneurs start with direct distribution and use indirect distribution when their businesses grow.
There are a lot of factors to consider in choosing your intermediary. The important ones include the intermediary’s reach (or relationship) with your target customers, sufficiently large and well-trained sales force, good location of outlets, creditworthiness, and compatibility of management attitudes with yours.
Another concept you have to bear in mind is your distribution coverage. This is related to your target customer and the product positioning you wish to keep inside your customers’ minds. If you have a premium product and image, charge a premium price, your distribution coverage should be limited, even exclusive, meaning one outlet or distributor. If there are more distributors willing to carry your product but you choose to select only a few, this is selective distribution. At the extreme when you need to make your product as ubiquitous as possible. You should go intensive distribution, making your product in as many outlets possible.