ADVANTAGES AND DISADVANTAGES

OF ALTERNATIVE CHANNELS OF DISTRIBUTION


There’s a well-established notion that teachers often learn more from their students than the reverse. The information you’re about to review is a good example. The data were gathered and refined during my leadership of marketing training courses for the AMA. What you'll see is a bulleted array of the pluses and minuses associated with the various alternative channel options a manufacturer faces.


                                              TYPES OF DISTRIBUTION DISCUSSED

  • Direct Distribution--Personal Selling
  • Direct Distribution--Internet
  • Direct Distribution--Telephone
  • Direct Distribution--Mail
  • Indirect Distribution--Retailers
  • Indirect Distribution--Agents/Brokers/Reps
  • Indirect Distribution--Distributors

If the past is a guide, I’ll probably make revisions as I teach more courses; eh, I mean learn more.


DIRECT DISTRIBUTION--PERSONAL SELLING


POSITIVES

          Personal, CRM

          They have a relationship with the customer

          Customer knowledge, esp. BIG customers

          Better/expert/technical product knowledge

          Loyalty, pride in company/product

          They work for you—control

          Very focused/total mind share

          Possibly high ROI

          Repeat business

          Can offer service

          Control brand image, positioning

          Less expensive, more profitable than agents

          Faster communications


NEGATIVES

          Very expensive, not suitable for most goods/services, or for most customers

          Limited coverage

          Limited network

          Salesman can leave with the business

          Lacks overview

          Might focus on bonus and not customer satisfaction

          Cannot call on large customer base

          Big commitment to recruiting and training

          Sometimes identify too closely w/customer

          Large territories may limit contact


DIRECT DISTRIBUTION--INTERNET


POSITIVES

          Low cost, overhead

          Higher profit potential  

          Instantly global if desired, wide exposure

          Always current

          Can target segments

          Instant access for the customer, convenient

          Easy to use

          Can be cross-sold by other sites

          Can obtain high visibility on right sites

          Open 24/7/365, access growing w/wireless

          Good source of customer feedback/research

          Better and better security

          Less data entry error

          “Free” customer information

          Cookies

          Educates customers

          Can be customer friendly


NEGATIVES

          Limited audience (not everyone has it or will use it for shopping)

          Lack of one-to-one interaction, impersonal

          Spamming/laws

          Security problems, trust

          Over 65 misses the market

          Requires a big logistics investment (inventory, warehousing, packing, shipping, record keeping, billing, AR)

          Three click rule

          No human contact, not personal

          So far limited to price-driven customers

          Fear of fraud, ID theft, security

          Product limitations

          Lack of post-purchase service, returns an issue

          May not reach late majority and laggards

          Cannot touch, feel, smell products, concerns about colors, not tangible


DIRECT DISTRIBUTION--TELEPHONE


POSITIVES

          Direct contact

          Inexpensive

          Efficient

          Quick

          Can reach remote areas

          Can be part of a CRM system

          Easy

          Personal contact

          Can be a good source for leads


NEGATIVES

          Cold calls

          Actually is impersonal

          Regulations

          Unpopular with customers

          Often outsourced, off-shore, comprehension issues

          Intrusive

          Annoying

          Unsolicited

          Order-taking vs. selling

          Poor follow-up


DIRECT DISTRIBUTION--MAIL


POSITIVES

          Relatively) inexpensive

          Measurable results

          Testable packages

          Can reach a large audience

          Can find hard to reach/new customers

          Can be altered segment by segment

          Can be personalized

          Non-threatening

          Can build brand recognition

          Introduce new products

          Offer can foster goodwill

          Catalog shopping is fun


NEGATIVES

          Low levels of effectiveness/response

          Postage costs rising

          Targeting may be questionable

          Huge waste—will it be opened

          Low ROI

          Requires investment in logistics (like the Internet)

          Not prestigious, negative image, “junk mail”

          Customer must buy w/o touching/seeing

          Considered a nuisance, “junk” mail

          May foster emotional backlash

          Not environmentally sound

          Catalog shopping is fun


INDIRECT DISTRIBUTION--RETAILERS


POSITIVES

          Very wide distribution, size, exposure, # of outlets, volume, adds web services

          Carry our inventory, cost sharing

          Offers aggressive marketing, upsell opportunity.

          Can offer personal consumer assistance, service

          Data rich environment, market research

          Create markets by offering clusters of competing brands

          Adds its own brand luster to our brand

          Might offer financing

          Post-sales service, added personal services

          Trusted by consumer

          Impulse purchase possible, and instant gratification

          Some people like shopping stores, comparison, hands-on for customers

          POP and can cross-merchandise

          Assumes some overhead: sales, inventory, promotion


NEGATIVES

          Long channel—lots of work, complexity

          Low level of control by us, they set price

          Can be expensive, e.g., slotting, volume return, and promotional allowances

          Can return items that don’t sell

          Can use us as a loss leader and thus hurt our brand reputation

          Also sells our competitors

          Store reputation may be neutral or negative

          May offer poor customer service

          Can be demanding, controlling

          High employee turnover

          Customer must leave home to buy

          We don’t know the ultimate customer

          Lose control of product presentation

          Low margins


INDIRECT DISTRIBUTION--AGENTS/BROKERS/REPS


POSITIVES

          Expertise

          Broad network

          Good relationships with customers

          Personal, face-to-face

          Pricing and competitive intelligence

          Minimal distribution costs

          Established channel

          Quick access to market, mores sales people

          Regional expertise/location, penetrate markets and channels not covered

          Carry complimentary lines; easy for customer

          Can add quickly, flexibility

          They assume some promotional duties

          They assume some overhead


NEGATIVES

          Very independent, difficult to control

          Expensive commissions

          Expensive/difficult to train

          Lack of product knowledge/less than captive

          Loyalty to their biggest selling lines

          No direct customer contact by you

          If they leave, you lose the customer

          They also represent others—focus is limited

          Less loyalty

          Loss of brand image control

          No control over their tactics

          More sensitive to competitive pricing, customer price pressure


INDIRECT DISTRIBUTION--DISTRIBUTORS


POSITIVES

          Focused customer base

          Assume financial and inventory risk

          Additional sales force

          Cover more geography

          Assume final shipping expense

          Technically trained

          Can offer bundled pricing

          Love--Hate relationship


NEGATIVES

          Carry competitive products, less loyal

          Control final pricing

          Unmanageable; have own agenda

          Control issues

          Added costs

          Don’t know end-user

          No control of product presentation

          Training/education costs

          Limited product focus

          Love--Hate relationship




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