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A distribution channel (Channel) refers to the path through which a product (or service) passes from the producer to the end user, consisting of various intermediate links. These links include the enterprise's (producer's) own sales organizations, wholesalers, retailers, agents, and so on.
Just as blood vessels are the channels for the body's metabolism, channels are the river of life for a company to succeed in the market economy. Whether the river is unobstructed greatly affects the company's success or failure. In this sense, it is not an exaggeration to list channel construction as the biggest marketing challenge.
Channels are key to the smooth distribution of products and are a headache for many marketers. Due to a lack of theoretical sorting, there are often many mistakes in channel strategy in practice. In summary, there are roughly the following 10 types:
Self-built networks are better than using intermediaries. Many companies are unwilling to let profits be "divided" by others and attempt to build their own sales networks to perform distribution functions. For example, they widely establish branch offices, representative offices, or专卖店 (franchised stores), bypassing intermediaries to sell products directly to end users and consumers. They believe this has many advantages, such as ease of control, ease of command, safety, flexibility, and cost savings. Is this really the case? Analysis is as follows:
- Is it easy to control? Not necessarily. Due to long distances and information barriers, headquarters may not fully understand all situations of branch offices.
- Is it easy to command? Not necessarily. Branch offices established on a regional market basis are only responsible to headquarters, lack coordination among themselves, and often operate in their own spheres, creating barriers and acting independently.
- Is it safe? Not necessarily. Phenomena such as damaging public interests for private gain, bad debts, and absconding with funds are common.
- Is it flexible? Not necessarily. If the scale is too large, the organization becomes bloated, information transmission and decision-making are slow, and it is often difficult to respond quickly to situations.
- Is it cost-saving? Not necessarily. In actual operation, waste in personnel expenses, advertising, and market promotion is common.
The more intermediaries, the better. "The more distributors, the greater the sales volume" is the logic of many companies. If this logic is truly followed to build a channel network, the following problems may be faced: the market is narrow, there is too little for too many, and phenomena such as "internal strife" (channel stuffing, vicious price cuts, etc.) often occur; channel policies are difficult to unify; service standards are difficult to standardize. Generally, products that require extensive distribution (such as daily consumer goods) need many distributors.
The longer the channel, the better. A long channel has its advantages. For example, daily consumer goods have highly dispersed consumers, high purchase frequency, and many sales links, so long channels are more suitable. But this does not mean that the longer the channel, the better, because: the battle line is stretched too long, making management more difficult (management of sales personnel, management of distributors, etc.); delivery time is extended; product loss increases with the lengthening of the channel; information transmission is not smooth, making it difficult for the company to effectively grasp terminal market information; and the company's profits are diverted. In fact, channel flattening is the development trend of today's channel marketing. The behavior of "bypassing the first batch, bypassing the second batch, and selling directly to terminals and final consumers" will become more and more common.
The wider the coverage, the better. We often hear marketers proudly say, "My sales network has wide coverage; even remote rural shops have products." Is wider channel coverage really better? On this issue, the following points need careful consideration: 1) Does the company have sufficient resources and capabilities to pay attention to the operation of every node? Because the cost of building and maintaining network operations is often quite high. 2) Is the network self-built or does it rely on the intermediary's network? The results of the two will be quite different; the latter is less reliable than the former. 3) Does the company's channel management level match it (distributor management, capital management, logistics management, information flow management)? 4) Simply pursuing coverage will inevitably lead to omissions or weak links, easily leaving opportunities for competitors. If attacked by competitors, can the company effectively counterattack? It should be pointed out that wide coverage is not a bad thing, but it requires intensive cultivation and continuous integration.
The bigger the intermediary, the better. "A big tree provides good shade," but everything has pros and cons. The stronger the intermediary's strength, the greater their say, and the stronger their bargaining power with the company. Powerful intermediaries often put forward harsh distribution conditions, some of which are even unacceptable to the company. This is because: 1) Powerful intermediaries may simultaneously distribute similar products of competitors as a bargaining chip. 2) Powerful intermediaries generally do not invest much effort in promoting a brand that is not a famous brand. 3) The company may lose control over sales. Companies can quickly open up the market by leveraging the intermediary's reputation, but because of unequal strength, they are inevitably constrained by the other party. Channel control is the focus of channel members' competition. If a large intermediary is chosen, the company is likely to lose control over the channel.
Having an intermediary is enough. Many companies believe that as long as they choose a good distributor, the product will sell automatically, and the company no longer needs to worry about sales. This is a fatal mistake! This is because: 1) The selection of intermediaries is only one part of channel construction, not the whole of marketing activities. 2) Product sales cannot be successful without the cooperation and efforts of both the company and the intermediary. 3) The vast majority of companies have a purely transactional relationship with distributors (Transactional Customers). Driven by interests, some distributors may "defect" (simultaneously distributing competing products, shifting their main focus, or even abandoning the company), causing significant losses to the company. In a purely transactional relationship, if the company lacks proper supervision and control over channel members, losses may be inevitable. With the intensification of competition, new types of channel relationships have emerged. Companies often establish strategic partnerships with distributors (Strategic Customers, such as mutual support, mutual investment, etc.), where both parties fully support and cooperate in software and hardware to jointly develop the market. From this perspective, choosing a good distributor is only the first step of the "Long March"; a lot of work remains (promotion, technical guidance, personnel training, after-sales service, etc.). More dangerously, over-reliance on intermediaries can reduce the company's own sales capabilities, lose sensitivity to market changes, degenerate into a "low-energy person," and even eventually be abandoned by the market.
Channel cooperation is only a stopgap measure. Is channel cooperation a stopgap measure or a long-term plan? Many marketers and even senior executives believe that cooperation is only a mutually exploitative relationship: use it when needed, discard it when not. Maintaining long-term cooperative relationships is neither possible nor cost-effective. In fact, this is an extremely wrong understanding. 1) The market economy is a cooperative economy. If you bring Don Quixote-style romanticism and individual heroism into reality, the results will be disastrous. 2) "It takes ten years to grow a tree, and a hundred years to cultivate a person." Only long-term investment will yield rich returns. 3) From another perspective, working with trustworthy distributors can save on prevention and supervision costs, allowing the company to focus on R&D, production, marketing, and other activities.
Channel conflict is harmful and should be eradicated. The correct statement should be that channel conflicts can be divided into malignant and benign types, and they cannot be generalized; conflicts can never be eradicated, only transformed or resolved. Specifically: 1) Malignant conflicts, such as vicious channel stuffing, low-price dumping, using payment as a threat, and counterfeit goods, are obviously destructive to the channel. 2) Benign conflicts can serve as a catalyst to improve channel efficiency. For example, if two distributors jointly distribute the same company's product, and due to differences in distribution capabilities, one is hot and the other is cold, the conflict formed is benign, prompting the lagging party to take active measures to catch up. 3) Companies should actively transform or resolve conflicts. For example, when discovering that a regional market has too wide a channel, too many distributors, and vicious competition, the company may consider appropriately reducing the number of distributors.
The more favorable the channel policy, the better. Those who hold this view believe that if distributors are not given some benefits, they will not sell the product vigorously; the more favorable the policy, the higher their enthusiasm. This is probably just wishful thinking! If a company truly uses this as a guideline to formulate channel policies, they may face a very awkward result: paying a lot but gaining little. Distributors care about interests, but if too much "profit" is given, distributors may not necessarily sell vigorously. The reasons may be: 1) If the product is not good (quality, packaging, brand, etc.), giving more "profit" may not be useful; if the product is very good, even if the profit is thin, distributors will still flock to it, because distributing famous brand products is also a good promotion for themselves. 2) If too much "profit" is given, distributors will develop a psychology and habit—over-reliance on the company's policies and lack of initiative. Sometimes they may even use "policies" to threaten the company, forcing it to continuously provide various preferential conditions, otherwise they threaten to "go slow." 3) From the distributor's perspective, when choosing which products to distribute, in addition to considering returns, they also assess risks, and ultimately decide whether to do it. The company's channel policy is only one aspect to consider. In fact, distributors value the company's strength more.
Once a channel is built, it can last for several years. Technology, products, market competition, industry development, distributor capabilities, consumer characteristics, and other factors are constantly changing. Facing the rapid changes in the macro and micro environment, companies often need to adjust their channels according to actual conditions and their own needs (such as reducing intermediate links, adjusting channel members, developing new channels, etc.). Thinking that once a channel is built, it is done forever is a naive idea and a manifestation of ideological complacency.
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