As noted, when developing a channel strategy, marketers must also be aware of potential costs that may come with utilizing channel members. These costs include:
Loss of Revenue
Channel members are not likely to offer services to a marketer unless they see financial gain in doing so. Firms obtain payment for their services as either direct payment (e.g., marketer pays specialty service firms for shipping costs) or, in the case of resellers, by charging their customers more than what they paid the marketer for acquiring the product (see Markup Pricing). For the latter, marketers have a good idea of what the final customer will pay for their product, which means the marketer must charge less when selling the product to resellers. In these situations, marketers are not reaping the full sale price by using resellers, which they may be able to do if they sold directly to the customer.
Loss of Communication Control
Marketers not only give up revenue when using channel partners, they may also give up control of the message being conveyed to customers. If the reseller engages in communication activities, such as when a retailer uses salespeople to sell to customers, the marketer is no longer controlling what is being said about the product. This can lead to miscommunication problems with customers, especially if the reseller embellishes the benefits the product provides to the customer. While marketers can influence what is being said by offerings sales training to resellers’ salespeople, they lack ultimate control of the message.
Loss of Product Importance
Once a product is out of the marketer’s hands, the importance of that product is left up to channel members. If there are pressing issues in the channel, such as transportation problems, or if a competitor is using promotional incentives in an effort to push its product through resellers, the marketer’s product may not receive as much of the resellers’ attention as the marketer feels it should.
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?