Thursday, March 4, 2010
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.
(1) Picture from http://100.naver.com/100.nhn?type=image&media_id=58321&docid=22505
(2) Picture from http://blog.naver.com/tkddk2003?Redirect=Log&logNo=30078993367
(3) Kotler, Marketing An Introduction, pg.294, Pearson Prentice Hall, 2009
Jungmin Park (Mina), Section E