In the rapidly evolving global marketplace, there are more opportunities to connect products with consumers. In fact, the number of methods can be overwhelming. Choosing the most appropriate connection methods is the foundation of marketing channel management. While each company has different products and possible methods of distribution, there are many ways to optimize the delivery of products to customers. Companies, however, must first understand the marketing channels they use.
Direct Channel Marketing
In this type of distribution, the company or seller directly provides the product to the buyer. This marketing channel is often the most appropriate for companies that sell services. For example, a hairdresser or an electrical contractor will use direct channel marketing. The service is provided straight to the customer with no middleman. In this simpler type of marketing, the company has authority over the whole channel from origin to customer. However, this is not the most common type of marketing distribution channel.
In short form, direct channel marketing is a clear line from company to customer.
Company → Customer.
Indirect Channel Marketing
More commonly, products are sold through a number of intermediaries. The channel for a beverage manufacturer provides a great example. The manufacturer does not often sell directly to the customer. Instead, the manufacturer provides the product to a distributor. The distributor then delivers this to a supermarket. Finally, the supermarket sells the beverage to the end customer. The original manufacturing company is only indirectly associated with the buying process.
Indirect channel marketing can be complicated with multiple intermediaries. The example described above can be shown like this in short form:
Company → Distributor → Supermarket → Customer
Indirect channel marketing strategy can be more difficult to determine than direct marketing because every intermediary receives a portion of the profit for their services. Managing indirect marketing channels can prove to be a challenge for many companies because small changes to the product affect every part of the distribution channel.
The Need for Strategic Channels in Marketing
Adjusting product channels and pricing can have unexpected impact on an indirect marketing distribution channel.
An example in Mission in a Bottle offers a glimpse into the impact of a simple price increase. If Honest Tea raised the price by 1 cent, it could actually lower the total profits of the company. The company’s increase of 1 cent would be a 2 cent increase to the supermarket, the final intermediary. However, if a 2 cent increase doesn’t fit the marketing plan of the supermarket (such as a price of $1.41 versus $1.39), the supermarket may increase the price further. If the growth of sales falls as a result of this larger increase, the manufacturer, Honest Tea, would lose profits. In complex marketing channels, a price increase may thus lower profits if a proper strategy is not employed.
Adjusting the distribution channel can also have negative consequences if the strategy has not been adequately prepared. Mission in a Bottle explains that Quaker Oats bought Snapple with the intention of improving its distribution. They cut out the distributors and sold directly to stores. While this saved the company money in distribution costs, sales immediately plummeted. Without the distributors to save high-value shelf space for the product, Snapple products were pushed to the back and purchased less frequently. Quaker had to sell Snapple. In large part, this was due to a poor strategy for the marketing channel of the supermarkets.
To maximize profits, companies need to develop a marketing channel management strategy. Here are three recommendations for a successful strategy.
Devote Resources to Marketing Channel Management
Maintaining marketing channels often falls within the ambit of a sales manager. While this person may have the proper interpersonal skills and product knowledge for the job, channel management can be a laborious and time-consuming process. Developing a relationship with all the intermediaries in the distribution channel is essential for success. An article in Industrial Marketing Management notes that channel management leaders must develop not only new channels but also maintain existing channels. While expenditure can be substantial, it is valuable. If one intermediary does not agree to a proposed change, it can affect the whole channel. An underperforming channel is likely to lead to underperforming profits.
As an example, maintaining a relationship with the distributors is essential for beverage companies. In many cases, companies incentivize distributors with discounts that lead to better profit margins for the distributor. Some companies also work with distributors to develop an exclusive contract with a single distributor. There are many options for a successful partnership. However, a sales manager needs to monitor the situation to prevent a breakdown in the channel. With a good relationship, distributors can report issues and work with the sale manager to resolve them. For example, waste due to broken glass bottles could be reported by the distributors. The sales manager could then work with the product manager to switch to plastic bottles to reduce wastage.
A dedicated sales manager that carefully monitors the marketing channel is vital to its success.
Sell Direct when Possible
Companies that sell directly to consumers often have more control over when and how their product is delivered. Using the same beverage example, a direct marketing strategy could be to sell the product at a farmer’s market. The company controls the look of the booth, the style of the sellers and the placement of the product. In contrast, if the same company drops off the beverage at a store, the store controls where it is placed and how it looks. More of the channel is out of the control of the company when indirect marketing channels are utilized. Therefore, making changes can be difficult. All the intermediaries have to buy off on the changes.
Amazon is a great example of a company that moves to direct marketing whenever possible. For years, Amazon had to sell its products through the intermediary of various postal services. Therefore, the company had little control over the time of delivery or the look of the product delivered. To address customers needs for faster delivery, Amazon developed alternative channels that are more direct. For example, in some cities, Amazon customers can pick up items left in lockers by Amazon employees. Amazon couriers also deliver products in many major cities. By eliminating intermediaries where possible, Amazon was able to exert more control over delivery times and address customer concerns.
This was in line with their mission to dazzle customers, so developing these marketing distribution channels had a positive impact on both their branding and image.
Align with Strategic Priorities
Like Amazon, companies should seek to align their channels with their business priorities and missions. Speed and customer satisfaction are important to Amazon, so the company invested in channels that optimized the delivery speed and quality. Their customers were satisfied with these new channels. Other companies may need to optimize in different ways. For example, a company that sells a very fragile product may prefer distribution channels that are slower and less likely to cause damage to the product. This approach may seem like common sense; aligning the channels with the product. However, many companies fail to change their marketing distribution channels as the company strategy evolves.
An MIT Sloan Management Review article warns that distribution channels are often created without a strategy in mind. They are simply ‘reactive, one-by-one’ decisions. Marketing channels often require a more solid foundation and strategy.
Keeping to established distribution methods can bankrupt a company. Kodak provided customers with pictures through the intermediary of a photo processor for nearly 100 years. Then digital photography technology allowed users to bypass the photo processor. Kodak did not adjust to this new technology and announced bankruptcy in 2012.
Even tried-and-true distribution channels should be periodically reviewed to confirm that the channels are in line with company strategy and market trends.
Successful marketing distribution channel management enables companies to deliver their products to customers efficiently. In some cases, these channels are a simple exchange of services between the business and the customer. However, more often, the channel also includes intermediaries. Changes to the product can have a negative or positive ripple effect through the channel due to the intermediaries’ response. Therefore, companies need to put a careful channel management strategy in place. Devoting resources to channel management, selling directly when possible, and aligning the channels with the company’s strategy are key to overall profitability.