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Place: Choosing a Distribution Channel
The three main considerations in evaluating a channel of distribution are costs, coverage, and control:
Costs. In many cases, the least expensive channel may be indirect. For example, a firm producing handmade dolls may choose not to purchase trucks and warehouses to distribute its product directly to customers if it costs less to use established intermediaries that already own such equipment and facilities. Small companies should look at distribution costs as an investment—spending money in order to make money—and ask themselves whether the cost of using intermediaries (by selling the product to them at a reduced price) is more or less expensive than distributing the product directly to customers.
Coverage. Small businesses can often use indirect channels of distribution to increase market coverage. Suppose a small manufacturer’s internal sales force can make 10 contacts a week with final users of the venture’s product. Creating an indirect channel with 10 industrial distributors, each making 10 contacts a week, could expose the product to 100 final users a week.
Control. A direct channel of distribution is sometimes preferable because it provides more control. To ensure that the product is marketed with care, an entrepreneur must deliberately select intermediaries that provide the desired support. A small business that chooses to use intermediaries to market and distribute its product must be sure that the intermediaries understand how the product is best used and why it’s better than competitors’ offerings. Additionally, if a wholesaler carries competing products, an entrepreneur must be sure that their product gets its fair share of marketing efforts. An intermediary’s sloppy marketing support and insufficient product knowledge can undermine the success of even the best product.
