Designing Channels of Distribution

11 Pages Posted: 16 Jun 2009

See all articles by Paul Farris

Paul Farris

University of Virginia - Darden School of Business

Robert E. Spekman

University of Virginia - Darden School of Business

Abstract

This note addresses the issues that arise and the complexities that must be addressed when designing a channel of distribution. Content includes the definition of a distribution channel, the steps in its design, functional discounting and margin allocation, the role channels play in branding, and recent trends.

Excerpt

UVA-M-0769

Rev. Apr. 15, 2016

Designing Channels of Distribution

Introduction

In marketing, distribution is the process of getting goods from the producer to the ultimate consumer. Distribution occurs through channels, agents that facilitate and encourage consumer purchase, the number and nature of which are determined by the producers. Effective sales require that producers determine and then manage a channel or array of channels with the aim of assembling products, personnel, advertising message, and downstream selling partners that, combined, maximize competitive advantage. Producers may change channels in response to changes in market conditions, technology, or other factors, but ill-advised or poorly implemented changes in channels invariably result in loss of reseller support, disappointing sales, and lower profits.

For many firms, how to go to market—how to design a distribution system—is a key strategic marketing decision, with each approach providing a unique set of benefits and costs. Often, the only reasonable option is some combination of third-party resellers in a multistage distribution process: a manufacturer sells to a reseller (a wholesaler, who may then sell to retailers) who then sells to consumers. In the business-to-business space, the manufacturer often sells to the end-use consumer through wholesale distribution or, in some instances, through a distributor to a dealer or supply house who then serves the consumer. The existence of this multistage process has often been ignored in simple economic models of firm behavior, but increasingly economists and marketers have examined the extent to which producer/reseller relations and incentives determine how goods and services get to consumers and at what price.

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Keywords: B2B marketing strategy, channel design and implementation, distribution

Suggested Citation

Farris, Paul and Spekman, Robert E., Designing Channels of Distribution. Darden Case No. UVA-M-0769. Available at SSRN: https://ssrn.com/abstract=1420598

Paul Farris (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-0524 (Phone)

HOME PAGE: http://www.darden.virginia.edu/faculty/farris.htm

Robert E. Spekman

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4860 (Phone)

HOME PAGE: http://www.darden.virginia.edu/faculty/spekman.htm

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