The key factors to be considered when designing a distribution strategy discussed below.
- Marketing Decision Issues
- Channel Relationship Issues
Marketing Decision Issues
Distribution strategy can be shaped by how decisions are made in other marketing areas.
- Product Issues: The nature of the product often dictates the distribution options available especially if the product requires special handling. For instance, companies selling delicate or fragile products, such as flowers, look for shipping arrangements that are different than those sought for companies selling extremely tough or durable products, such as steel beams.
- Issues: Besides issues related to physical handling of products, distribution decisions are affected by the type of promotional activities needed to sell the product to customers. For products needing extensive salesperson-to-customer contact (e.g., automobile purchases) the distribution options are different than for products where customers typically require no sales assistance (i.e., bread purchases).
- Pricing Issues: The desired price at which a marketer seeks to sell their product can impact how they choose to distribute. As previously mentioned, the inclusion of resellers in a marketer’s distribution strategy may affect a product’s pricing since each member of the channel seeks to make a profit for their contribution to the sale of the product. If too many channel members are involved the eventual selling price may be too high to meet sales targets in which case the marketer may explore other distribution options.
- Target Market Issues: A distribution system is only effective if customers can obtain the product. Consequently, a key decision in setting up a channel arrangement is for the marketer to choose the approach that reaches customers in the most effective way possible. The most important decision with regard to reaching the target market is to determine the level of distribution coverage needed to effectively meet customer’s needs where distribution coverage is measured in terms of the intensity by which the product is made available.
Channel Relationship Issues
Channel conflicts arise due to disagreement on roles assigned, activities to be performed or rewards given.
Type of Conflicts
Horizontal conflict: Horizontal conflicts occurs among firms at the same channel level
Vertical conflict: Vertical conflicts occurs among firms at different channel levels
Vertical Marketing System (VMS)
- Corporate VMS: One member owns one or more other channel members. There is corporate ownership all along the channel and often involves vertical integration
- Contractual VMS: Channel members operate according to contractual agreement. Legal contracts need to be maintained among channel member
- Administered VMS: Channel members operate according to the plan agreed upon. There is an informal agreement between the channel members