Match Your Distribution Channels to Your Product or Service

It’s fairly easy to change periodically some of your marketing tactics and strategies. For example, you can generally change your pricing, packaging and product mix with a minimum of difficulty.

The decision on how you choose to distribute your product or service, however, is much more difficult to change once made. And distribution affects the selection and use of all your other marketing tools.

There is a wide variety of possible distribution channels, including:

• Retail outlets owned by your company or by an independent merchant or chain
• Wholesale outlets of your own or those of independent distributors or brokers
• Sales force compensated by salary, commission or both
• Direct mail via your own catalog or flyers
• Telemarketing on your own or through a contract firm
• Cybermarketing, surfing the newest frontier
• Broadcast and cable TV direct marketing and home shopping channels.

Distribution choices for a service business follow the same lines as those for a physical product. For example, financial planning services may be offered through printed material such as books or newsletters; sold at retail by consultants; delivered electronically by computer; or relayed by phone, fax or mail.

To select the optimum distribution options, you must:

1. Identify how your direct competitors’ products are sold.
2. Examine the costs of your channel and sales force options.
3. Determine which distribution options best match your overall marketing strategy.

Competitors’ distribution channels. As a starting point, make a list of any competitors that could compete directly with you for the same customers. Then divide these competitors into categories based on the distribution channels they currently use. The result will be a picture of which channels are being successfully used in your type of business and location.

To illustrate, let’s use the example of a local one-man architect business, Life Designs, which provides residential home design and competes indirectly with all architectural design firms and home building suppliers.

These include large firms that do both industrial and residential designs and suppliers of home-building kits (e.g., log houses and A-frames). However, Life Designs’ direct competition is a small group of similar firms that specialize only in local area home designs and remodeling. A list of competitors broken down by the different local distribution channels they use includes:

• competitors who advertise in local city and county magazines, newspapers and real-estate flyers
• subdivided by home-design-only firms and home-design and industrial-design firms
• competitors who work with contractors and developers in the local county
• the local university’s architectural design department

Channel costs. Obviously, financial resources and cost-effectiveness are important in considering distribution and sales force options. What can you afford, and what will give you the most bang for your buck?

Continuing with the example above, Life Designs looks at the costs of using each channel:

• Media sales — Life Designs can place ads in local city and county magazines, newspapers and real-estate flyers.
• Contractors and developers — Life Designs can pursue referrals from contractors and developers who receive a commission from home owners and buyers. The contractors and developers are the “sales” personnel, who expect some “wining and dining.”
• University design department — This is a closed distribution channel for architectural students and professors only, and not available to Life Designs.

Life Designs knows from talking with media suppliers, competitors and contractors that the least expensive distribution channel is sales from contractors and developers. However, the frequency of sales referrals and volume of business are unpredictable. Life Designs decides to work with both distribution channels concurrently. The contractor/developer channel requires personal time and some minor entertainment expenses. Media spending will provide a good alternative when the architect is busy with a project.

Matching with strategy. A small company must work harder at focusing its limited resources of time and money, especially with distribution and sales force options. Key factors to prioritize your choice of channels include the costs and time involved in entering the channels, your experience with the channels, and which channels best reflect the product positioning that you believe is crucial to your success.

Sample Case Study

Here’s a case study that illustrates how you might match a distribution option to your business goals. A company selling gourmet cooking equipment found that it had many options for distribution and sales force representation, including:

• Company retail stores, with company sales personnel
• Specialty food stores, with sales brokers
• Department stores, with sales brokers
• Hardware stores, with sales brokers
• Specialty chains (e.g., Williams-Sonoma, Crate & Barrel), with sales brokers
• Direct mail, with company personnel
• Distributors, with company sales managers, brokers, distributor sales reps.

The company’s products are positioned as the highest-quality cookware, used by celebrity chefs and guaranteed for the life of the end user/buyer. Target end users/buyers are upscale, well-educated, urban consumers who read upscale food magazines (e.g., Gourmet, Food & Wine), dine out at gourmet restaurants, drink wine, travel, drive expensive cars, and spend heavily on luxury purchases. Ideally, the company wants their products distributed through every upscale channel that caters to this exclusive target group.

The company believed that hardware stores and direct mail were not consistent with the image and reputation that they were trying to establish with their positioning. Company retail stores, while desirable, were financially risky and too expensive at the early stage of development. Distributors were also eliminated because of the belief that distributors could not be encouraged to learn enough or devote enough time to the product line. In addition, the estimated 35 to 40 percent discount with shipping expense to distributors was financially unattractive.

The company decided the best distribution channels were direct sales to specialty stores and upscale department stores such as Bloomingdale’s and Nieman-Marcus. Their sales force consisted of three regional managers with professional cooking experience, who also did demos in stores with the cookware. In addition, the company had the extra margin available to afford this highly trained and motivated sales force since distributors were not utilized.

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