Distribution Channels and Retailing
Distribution channels and retailing examines how products move from producer to customer and how retailers create value at the final link. Questions often ask you to count channel levels, choose coverage intensity, or resolve channel conflict.
Channel functions and levels
- Intermediaries perform information, promotion, contact, matching, negotiation, physical distribution, financing, and risk-taking functions.
- Channel level counts intermediaries between producer and consumer: producer to consumer is zero-level; producer to retailer to consumer is one level; producer to wholesaler to retailer to consumer is two levels.
- Direct channels give control and data but carry high fixed cost; indirect channels add reach and efficiency but reduce control.
Coverage and systems
- Intensive distribution places goods in many outlets for convenience products; selective uses a limited set for shopping goods; exclusive restricts outlets for specialty or prestige goods.
- Vertical marketing systems coordinate levels: corporate, contractual (including franchising), and administered.
- Channel conflict can be vertical (between levels) or horizontal (between firms at the same level).
- Logistics covers order processing, warehousing, inventory, and transportation.
Retailing
- The retail mix adds personnel and presentation to product, price, place, and promotion.
- Formats include department stores, discount stores, specialty stores, convenience stores, supermarkets, warehouse clubs, and e-commerce.
- Omnichannel retailing integrates store, web, and mobile rather than treating them separately.
Worked example
A craft soda maker starts direct-to-consumer online to build trial and data. It adds selective specialty-food stores for credibility, then moves to intensive grocery distribution once volume supports it. The grocery channel may undercut specialty stores, creating vertical conflict with retailers and horizontal conflict among stores. The maker uses different package sizes and suggested prices to reduce direct comparison. Reasoning: coverage should match product type and positioning, and channel additions create conflict that must be managed.
Traps that cost marks
- Miscounting channel levels by including the producer or consumer.
- Assuming intensive coverage is best for every product.
- Confusing disintermediation (cutting out an intermediary) with conflict.
- Treating retail format and channel level as the same thing.
- Ignoring that channel design starts with customer needs, not with existing partners.