Distribution Decisions

Channel Arrangements

The distribution channel consists of many parties each seeking to meet their own business objectives.  Clearly for the channel to work well, relationships between channel members must be strong with each member understanding and trusting others on whom they depend for product distribution to flow smoothly.  For instance, a small sporting goods retailer that purchases products from a wholesaler trusts the wholesaler to deliver required items on-time in order to meet customer demand, while the wholesaler counts on the retailer to place regular orders and to make on-time payments. 

Relationships in a channel are in large part a function of the arrangement that occurs between the members.  These arrangements can be divided in two main categories: independent and dependent.

Independent Channel Arrangement

Under this arrangement a channel member negotiates deals with others that do not result in binding relationships.  In other words, a channel member is free to make whatever arrangements they feel is in their best interest.  This so-called “conventional” distribution arrangement often leads to significant conflict as individual members decide what is best for them and not necessarily for the entire channel.  On the other hand, an independent channel arrangement is less restrictive than dependent arrangements and makes it easier for a channel members to move away from relationships they feel are not working to their benefit.