Channels of Distribution
| Author | Allen Truell, Lou Pelton, David Strutton |
| Pages | 108-112 |
Page 108
The word channel might bring to mind a waterway such as the English Channel, where ships move people and cargo. Or it might bring to mind a passageway such as the Chunnel, the railroad and car tunnel under the English Channel. Either image implies the presence of paths or tracks through which goods, services, or ideas flow. This imagery offers a good starting point for understanding channels of distribution.
The term marketing channel was first used to describe trade channels that connected producers of goods with users of goods. Any movement of products or services requires an exchange. Whenever something tangible (such as a computer) or intangible (such as data) is transferred between individuals or organizations, an exchange has occurred. Marketing channels, therefore, make exchanges possible. How do they facilitate exchanges? Perhaps the key part of any distribution channel is the intermediary. Channel intermediaries are individuals or organizations who create value or utility in exchange relationships. Intermediaries generate form, place, time, and/or ownership values between producers and users of goods or services.
Marketing channels were traditionally viewed as a bridge between producers and users. This traditional view, however, fails to fully explain the intricate network of relationships that underlie marketing flows in the exchanges of goods, services, and information. To illustrate, consider a prescription drug purchase. To get authorization to purchase the drug, one must visit a physician to obtain a prescription. Then, one might acquire the drug from one of several retail sources, including grocery store chains (such as Kroger), mass discounters (such as Wal-Mart), neighborhood pharmacies, and even virtual pharmacies (such as Drugstore.com). Each of these prescription drug outlets is a marketing channel. Pharmaceutical manufacturers, distributors, and their suppliers are all equally important links in these channels of distribution for pharmaceuticals. Sophisticated computer systems track each pill, capsule, and tablet from its point of production at a pharmaceutical manufacturer all the way to its point of sale in retail outlets worldwide.
To appreciate the complexity of marketing channels, exchange should be recognized as a dynamic process. Exchange relationships themselves continually evolve as new markets and technologies redefine the global marketplace. Consider, for example, that the World Wide Web's arrival created a new distribution channel now accounting for trillions in electronic exchanges. It may come as a surprise that the fastest-growing segment of electronic commerce involves not business-to-consumer, (called B2C in today's Web language) but business-to-business (B2B) channels.
Whether these exchange processes occur between manufacturers and their suppliers, retailers and consumers, or in some other buyer-seller relationship, marketing channels offer an important way to build competitive advantages in today's global marketplace. This is so for two major reasons:
Distribution strategy lies at the core of all successful market entry and expansion strategies. The globalization of manufacturing and marketing requires the development of exchange relationships to govern the movement of goods and services. As one sips one's preferred coffee blend at the neighborhood Star-bucks, consider that consumers in China, Lebanon, and Singapore may be sipping that same blend. Then consider how the finest coffee beans from Costa Rica or Colombia get to thousands of neighborhood coffee shops, airports, and grocery stores around the world.
New technologies are creating real-time (parallel) information exchange and reducing cycle times and inventories. Take as an example Dell Computer, which produces on-command, customized computers to satisfy individual customer preferences. At the same time, Dell is able to align its need for material inputs (such as chips) with customer demand for its computers. Dell uses just-in-time production capabilities. Internet-based organizations compete vigorously with traditional suppliers, manufacturers, wholesalers, and retailers. Bricks-and-mortars (organizations having only a physical location) and clicks-and-orders (organizations having only a virtual presence) are in a virtual face-off.
The Greek philosopher Heraclitus wrote, "Nothing endures but change." Marketing channels are enduring but flexible systems. They have been compared to ecological systems. Thinking about distribution channels in this
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manner points out the unique, ecological-like connections that exist among the participants within any marketing channel. All marketing channels are connected systems of individuals and organizations that are sufficiently agile to adapt to changing marketplaces.
This concept of a connected system suggests that channel exchange relationships are developed to build lasting bridges between buyers and sellers. Each party then can create value for itself through the exchange process it shares with its fellow channel member. So, a channel of distribution involves an arrangement of exchange relationships that create value for buyers and sellers through the acquisition (procurement), consumption (usage), or elimination (disposal) of goods and services.
Marketing channels always emerge from the demands of a marketplace. Nevertheless, markets...
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