No man is an island applies to the relationship between manufacturers and partners in their channels of distribution. Whether manufacturers choose wholesalers, distributors, value added resellers (VARS), agents, dealers, or retailers, they also need to consider that not all channels of distribution are created equal for their particular business objectives. Not only does a company need to choose the right distribution channels, but they need to know how to use them to get the most out of their product. A creative approach always comes in handy.
Over the years, a few sectors have come up with methods that, while at first glance might seem questionable, worked to their advantage. Lars Perner, an associate professor at the Marshall School of Business, UCLA tells of two such pathways on Consumer Psychologist.com.
In its infant years, Compaq chose a policy that limited distribution to dealers. While it may have appeared that the computer manufacturer, in choosing not to sell directly to corporations, was unnecessarily inserting a middle man, there was a method behind their madness. Compaq policy makers knew that dealers would be likely to recommend and promote their computers as Compaq didn’t compete with the dealers. Long time customers trusted the dealers, and Compaq capitalize on that trust.
Other manufacturers have extended this philosophy into the retail channel. They have found that by entering into exclusive distribution arrangements, retailers will
- sell larger quantities by recommending their product
- carry larger inventories and selections
- provide more services such as handling returns and repairs
Manufacturers often view prestige account distribution as a way to get their product into an exclusive offering opportunity. Such is the situation with airlines and soft drink manufacturers. The airlines get very good pricing, while the soft drink makers know they have no competition for the duration of the flight.
Practicality vs Originality
Sometimes the cost of distribution can put an end to an idea that might otherwise fill a gap. Ben and Jerry came up against this before they began their ice cream business. They toyed with the idea of home delivering the New York Times on Sunday mornings along with fresh bagels. Then they calculated the cost of the service and realized it would be more than most customers would be willing to pay.
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