One of the biggest challenges that faces the modern business is the creation of distribution channels. When the decision is made to sell through them, there must be a balance in place which allows the organization to meet the needs of their customers while still maintaining a level of profitability. When these channels are successfully created, then the possibility of growing more opportunities becomes accessible. If they aren’t successfully created, then the business may be one step closer to closing for good. Should your business be selling through distribution channels? It isn’t always necessary to create these channels to build a foundation of financial success. Here are some of the key pros and cons to consider on the subject.
What Are the Pros of Distribution Channels?
1. It provides businesses with a greater level of cost efficiency.
Because sales are handled through the distribution channel instead of directly to the end customer, then the ability to sell becomes easier and more efficient. Instead of an individualized approach, the distribution channel can reach multiple end users simultaneously with a consistent message. This creates fewer expenses in return.
2. There are options available which allow for rapid distribution.
Mass deliveries are much easier to accomplish with a good distribution channel. Because the channels are automatically in contact with the end users, implementing a contact to a targeted demographic is easy and delivering wanted products is even easier.
3. Distribution channels still offer some level of end user knowledge.
Although there are fewer opportunities to interact with specific end users, an organization that uses distribution channels can be aware of regional influences. By knowing what the customer purchasing habits happen to be in a specific location on the globe, the company’s specialists can tailor their marketing messages and products to meet these expectations so a meaningful value proposition can be offered.
4. No customers feel left out when distribution channels are used appropriately.
If one set of customers in a targeted demographic receive products and marketing effectively and another region feels like they’re left out, then this can create discord within the customer base. Discord always leads to lost profits. Because there are such broad levels of coverage through an effective distribution channel, the organization can reach a vast majority of those within their targeted demographics so very few individual end users feel left out.
5. Distribution channels don’t cost much to get started.
The average organization can take advantage of existing channels that exist within each region they wish to target. Because there is no need to create a new channel, the actual expenditures to reach a targeted demographic are often quite small. Instead of a large upfront investment, all that is typically required is a small, manageable ongoing investment whenever communication or product distribution needs to happen.
6. Specialization of the regional process creates better overall effectiveness.
The problem with a mass marketing strategy is that unless the brand awareness is fully saturated, there is no real loyalty that is created in the engagement with the distribution channel. End users are only loyal to the lowest possible price that is available. With specialization in place, this issue may not always be eliminated, but it does give end users a point of contact with the organization and this can become the foundation of a relationship.
What Are the Cons of Distribution Channels?
1. The ability to interact with the end user is completely eliminated.
When distribution channels are used, then contact with the end users are sacrificed for the ability to reach multiple end users simultaneously. When an organization knows more about the interests, habits, and passions of their end users, they’re able to engage with them on a more personal level. The end result is a higher level of brand loyalty, something which distribution channels don’t necessarily provide.
2. Some distribution channels can be extremely complex.
When distribution channels are simple, then they are effective. Point A connects with Point B and this lets everyone experience satisfaction. When a distribution is forced to add Points C, D, E, and F to the equation, then this creates a time delay within the channel. The end result is a decrease in efficiency, which ultimately creates individualized dissatisfaction at the end user level.
3. Distribution channels may require multiple intermediaries.
Whenever there are intermediaries between an organization and its end users, then there are going to be added costs involved. An organization needs to make a certain amount of profit in order to survive. If that organization needs to pay intermediaries for their actions, then this adds to the cost of the final profit so that everyone can get their needed share. The end user pays the higher costs almost every single time and that higher cost could turn some of them away.
4. There’s very little flexibility within this structure.
Once an organization implements a distribution channel strategy, it becomes difficult to change it. The created structures are designed to be more of a mass marketing approach than an individualized approach. Companies that focus on the end user first can create distribution channels, but companies that create distribution channels first struggle to cast them aside because there’s no relationship with the end user.
5. Different intermediaries may have different goals that they wish to accomplish.
If an organization can setup a distribution channel with intermediaries who share a similar vision, then all will be well with this strategy. Far too often, however, the intermediaries tend to have their own strategies for optimizing their profits and this can get in the way of a successful business relationship. When there are different strategic goals fighting for dominance, there is discord that gets communicated to the end user.
6. There will always be some loss of control over the selling environment in every region.
If purchasing habits change, companies that are using distribution channels are going to be slow to adapt simply because they have no information available to them. There is no way create meaningful change because there isn’t enough information available. Even if there are employees directly interacting with end users outside of the distribution channel, control only comes with individualized knowledge of each end user and that’s virtually impossible to obtain with this strategy.
The pros and cons of distribution channels show that they can be extremely effective when implemented properly. It is when they are implemented improperly that problems begin to occur. Consider each of these key points so that the best strategy for sales and consumer interactions can be implemented. If you are considering a distribution channel for your organization, remember that a regional emphasis isn’t always required for profitability to be achieved.