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Strategic Channel Design

July 15, 1997 | Erin Anderson , George S. Day, V. Kasturi Rangan | Strategy

Three forces are changing the customary rules of distribution channel management: proliferating customers' needs, shifts in the balance of power in channels, and changing strategic priorities. Many firms are outsourcing the distribution function to third parties. Others, using IT, direct marketing, database marketing, and other variations contact customers directly, so the roles of the distributor or dealer are evolving. And some firms are simultaneously experimenting with a number of distribution options before committing to one system. A personal computer, for example, may be available by direct mail or through a computer superstore or a specialty store. Firms are also dealing through specialists rather than generalists, because specialists tend to be more focused and nimble than the manufacturer in a turbulent environment.

The authors propose a strategic approach to planning for future channel configurations, control of the channel, and resource commitment. The channel must address customers' needs, ensure that the customer sees the value in the company's offering, be cost-efficient, and handle any new products and services that emerge.

Anderson et al. suggest that a company first assess its current distribution channels, each channel's profitability, its market coverage, and the cost of each channel function. Next, a company should choose a channel arrangement based on sound design principles that recognize that the distribution strategy must contribute to the business's overall objectives.

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