Thursday, March 4, 2010

Distribution channels

Distribution channel is “a set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business user” (3)

In general, the distribution channel enhances a company’s operations by dealing with customers more efficiently. The channel is not only a market supplier but also a partner of the company that works as a team to achieve higher quality performances. Thus, utilizing the distribution channel effectively is considered as one of primary factors of accomplishing a successful marketing.

However, the distribution channel could be turned to a threat. The most extreme case would be regarding the international business.

Assume that you own a company who supplies coffee beans. You sold the coffee beans to an exporter at $0.90/lb. The exporter then sold the beans to an importer in other country at $1.00/lb (10% mark-up). The importer sold the beans to a distributor at $1.50/lb (15% mark-up). Then the distributor’s “magic” occurs. The distributor sold the coffee beans to a retailer at $24.00/lb (700% mark-up). Finally, the retailer sells the coffee beans to customers at $36.00/lb.

Your company receives almost nothing for this sales transaction due to the distributor’s mark-up. In order to be profitable, you should shorten the distribution channel.

It is risky for a small business to sell a product without the distribution channel’s support. However, if the company is not satisfied with its performance, they need to shorten the channel or get efficient (lowering a unit cost) to be more profitable.

* Citations

(1) Picture from

(2) Picture from

(3) Kotler, Marketing An Introduction, pg.294, Pearson Prentice Hall, 2009

Jungmin Park (Mina), Section E

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