Building a distribution strategy is one of the greatest challenges for an organization. When we opt for a strategy of selling through distribution channels very often we have to face the dilemma of efficiency vs. closeness to the end-user. That is, we seek a model that allows us to reach as many customers as possible with a profitable distribution cost. However, at the same time we are giving up contact with the end consumers and thus loosing first-hand information about their habits, interests, purchasing criteria and their reaction of offerings.
The longer the chain of intermediaries, the more disconnection between the manufacturer brand and the customer. Perhaps the most significant risk is that each intermediary pursue own objectives and policies that do not always conform to the interests of the manufacturer. As if all this were not enough the manufacturer must deal with another issue: a distributor of a product or service is not always the best for a new product. This implies that there are constant changes that can potentially affect the performance of a particular distributor.
According to Alexander Chernev from the Kellogg School of Management these are some of the pros and cons of the distribution:
Greater cost efficiency
Rapid distribution that can be implemented instantly
Specialist knowledge of the region and customer buying habits
Broad coverage that enables the company to reach majority of target customers.
Greater effectiveness of entire process due to specialization
No large upfront investment
More complex channel structure can have negative impact on efficiency of distribution system
Intermediaries can add extra layer of profit margins, thus increasing total costs
Loss of control over selling environment
Less flexibility with changing strategy
Greatly diminished ability to communicate with and collect information directly from customers
Potential for channel conflicts resulting from different strategic goals and profit-optimization strategies of each intermediary
There are certainly no magic recipes. All distribution strategy decisions have pros and cons. However we must remember that this is a long-term decision and it is necessary to maintain a certain coherence and consistency over time if we want to succeed. Very frequent changes in distribution policies always affect in some way the customers experience and therefore the brand reputation. So take your time and think very carefully what kind of distribution strategy you want to implement in your company.