A distribution channel is a network of firms that are interconnected in their quest to provide sellers a means of infusing the marketplace with goods and buyers a means of purchasing those goods, doing all as efficiently and profitably as possible.
The channels of distribution are designed to achieve following objectives:
1. Product Availability:
The first objective is to make available the product to the consumer who wants to buy it. The availability has two aspects – the desired level of coverage in terms of appropriate retail outlets and secondly, the positioning of the product within the store. Product availability is important for consumer convenience goods, where customer does not wait to buy a particular brand. However, for unique and important products immediate availability is less critical.
2. Meeting Customers’ Service Requirements:
To meet the service requirements and create differentiation over competitors, channels become critical. Some of the service requirements may include – order cycle time (how long it takes to receive, process and deliver an order), dependability (consistency and reliability of delivery), communication between buyer and seller (to sort out problems spontaneously), convenience ((to accommodate the special needs of different customers), and post-sale (installation, user training, help lines, repair, and spare parts availability).
3. Promotional Support:
It includes strong support from the channel member for the firm’s product, including the use of local media, in-store displays, and cooperation in special promotion events. This kind of support is especially important in case of highly competitive market phenomenon, complex and expensive consumer durables or industrial goods, or a differentiator defender is trying to attain a competitive advantage.
4. Market Information:
Since intermediaries are in the marketplace and near to consumers they are the best and first hand source of getting feedback with regard to sales trends, inventory levels, competitors’ moves and customers’ reactions.
Costs to be incurred to attain the firm’s channel objectives should not be too much in relation to gains. There is often a trade off between channel costs, associated with physical distribution activities such as transportation and inventory storage, and achieving high levels of performance on many other objectives.
A flexible channel is one where it is relatively easy to switch channel structures or add new types of middlemen without generating costly economic or legal conflicts with existing channel members.