An organization’s supply chain consists of all parties and activities that help to create and deliver products to the final customer. For marketers, the distribution decision is primarily concerned with the supply chain’s front-end or channels of distribution that are designed to move the product (goods or services) from the hands of the company to the hands of the customer. Obviously when we talk about intangible services the use of the word “hands” is a figurative way to describe the exchange that takes place. But the idea is the same as with tangible goods. All activities and organizations helping with the exchange are part of the marketer’s channels of distribution.
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As described below, activities involved in the channel are wide and varied. A while some marketers may choose to handle all distribution activities on their own, most marketers find many of these tasks are best left to others. Whether handled by the marketer or contracted to others, these activities are crucial when structuring a cost-effective and efficient distribution system.
Importance of Distribution Channels
As noted, distribution channels often require the assistance of others in order for the marketer to reach its target market. But why exactly does a company need others to help with the distribution of their product? Wouldn’t an organization that handles its own distribution functions be in a better position to exercise control over product sales and potentially earn higher profits? Also, doesn’t the internet make it much easier to distribute products, which then lessens the need for others to be involved in selling a marketer’s product?
While, on the surface, it may seem to make sense for an organization to operate its own distribution channel (i.e., handling all aspects of distribution), there are many factors preventing them from doing so. While companies can do without the assistance of certain channel members, for many marketers some level of channel partnership is needed. For example, L.L. Bean, which sells a large percentage of its products through catalogs and over the internet, is successful without utilizing other resellers to sell their products. However, L.L. Bean still needs assistance with certain parts of the distribution process, primarily with its free shipping program (e.g., FedEx, UPS and USPS). In L.L. Bean’s case, creating its own transportation system makes little sense given how large such a system would need to be in order to service their customer base. Therefore, by using shipping companies, L.L. Bean is taking advantage of the benefits these services offer to the company and to its customers.
When choosing a distribution strategy, a marketer must determine what value a channel member adds to its products. As we discussed in Product Decisions discussion, customers assess a product’s value by looking at many factors, including those surrounding the product (i.e., augmented product). Several surrounding features can be directly influenced by channel members, such as customer service, delivery, and availability. Consequently, selecting a channel partner involves a value analysis in the same way customers make purchase decisions. That is, the marketer must assess the benefits received from utilizing a channel partner versus the cost incurred for using their services.
Learn More About Distribution Decisions
- What are Channels of Distribution?
- What are the Different Types of Channel Members?
- What are the Benefits Offered by Channel Members?
- What are the Costs When Utilizing Channel Members?
- What are the Different Types of Marketing Channel Arrangements?
- What are the Different Levels of Distribution Coverage?
- What are the Distribution Options in Global Markets?