Using a product that you regularly purchase (water) as the example write a summary that answers the following four questions.
- What is the company’s market penetration strategy (intensive, selective, etc.), and how do the channels being used reflect that strategy?
- Do the channels being used reflect a push or pull distribution strategy?
- Which of the channels being used do you believe are most profitable, given their relative costs? Which of the channels being used do you believe are not as profitable as others but are still necessary to maintain market coverage?
- How much control does the company need over its channels (0-level, 1-level, 2-level, 3-level, multichannel, etc.)? How is this need for control reflected in the channels being used?
Selecting Distribution Channels
[Topic: Selecting Distribution Channels.] HOST: Products can reach consumers via different routes. So how do you determine the most effective distribution channel for a product or service?
There are several considerations that include a distribution channel’s cost and profitability, the available resources, your organization’s market penetration strategy, and how much control is needed over distribution.
Marketers need to consider whether the cost of dealing with each intermediary is worth the value it provides. In other words, you calculate a cost-to-benefit ratio to determine whether a channel is profitable.
The resources and capacity of an organization must match the chosen distribution channel.
Next, consider the company’s market penetration strategy. Some producers use intensive distribution to get products into as many outlets as possible. Others use selective distribution, concentrating narrower channels on the best-performing outlets.
A final consideration is control. Some producers require tight control over distribution channels. Others give more control to intermediaries.
Distribution channels can be defined by the number of intermediaries they involve. Each intermediary in a channel is described as a distribution level. Most basic distribution channels involve zero, one, two, or three distribution levels.
Zero-level distribution channels involve direct distribution, with no intermediaries.
One-level channels have a single intermediary. With this type of channel, producers typically sell directly to retailers.
Two-level channels are among the most common. They typically involve products being sold to a wholesaler, then to a retailer, and then to consumers. Sometimes products are sold to an agent or broker instead of a wholesaler.
Three-level channels involve three intermediaries. They’re most common when goods are imported or exported and have to go through a broker so that duties and taxes can be levied before they’re approved for sale.
Marketers may also use a multi-channel approach, combining channels to reach different markets.
But what if your product is a service, rather than something tangible? In most cases, services use zero- and one-level channels. Because services are intangible, there’s no need to consider storage, transportation, or physical distribution.
An important consideration for marketers is the directional flow of product demand.
When producers anticipate demand by making products and then placing them within reach of customers, they are using a push model.
A pull model is when organizations respond to customer requirements, producing products to meet demand.
Push distribution is forecast-driven – it’s executed in anticipation of demand for products. Pull distribution is demand-driven, or initiated in response to customers.
Remember, when selecting a distribution channel, marketers need to consider a channel’s cost and profitability, available resources, the organization’s market penetration strategy, and how much control of distribution is needed.
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