When designing your Business Model, your first step will be to define the Customer Segments and then the Value Propositions that are in line with this target audience. After this stage, it is time to establish the Distribution Channels, that is, the means by which the company will deliver its value proposition to each customer segment.
Channels will therefore be the way the organization chooses to reach out and communicate with its consumers. It is, in short, the interface between the company and the public.
Finding the right distribution channels to reach customers is paramount so that your value proposition can reach the market. But, what is this block for?
Distribution Channels Definition and importance
Distribution channels establish how an organization communicates with its pre-identified customer segments and are the way to deliver the value propositions it has to offer. They are, therefore, essential for the customer experience.
Channels can be the most varied, and different channels are often used for different customer segments. If before the 1990s the channels were limited to the stores that sold the products, today, with the advent of the internet, the reality is much more promising.
As a point of contact between the company and the public, the channels serve several functions, which include:
- Expansion of knowledge by customers about products and services offered by the company;
- Delivery of the value proposition developed by the company.
- Assistance to clients in evaluating the value proposition delivered by the company;
- Acquisition of specific products and services by the costumers;
- Support after purchase.
Phases of the distribution channel
- Awareness: it is the advertising stage when the customer learns about your value proposition.
- Evaluation: it is the moment when the customer will evaluate your product, by reading about, looking, testing. This is when they will form an opinion about the value proposition to see if he or she chooses you or the competition.
- Purchase: involves the buying and selling process itself.
- Delivery: this is the service, how the product arrives at the customer.
- After-sales: this is the support offered after the purchase of the product or service. It is the phase that empowers the customer and creates “defenders” of your brand.
Types of distribution channels
The organization can seek its customers through its own channels, in partnership, or both.
Owned channels are divided into direct, when the manufacturer sells directly to the consumer (own sales team or a website, for example, a model also known as D2C) and indirect, such as retail stores of the brand.
The channels in partnership are those that include third parties that act together, as distributors, representatives, and websites of others.
Here are some examples of owned distribution channels:
- Personal sale: very convenient for the client, because it offers personal demonstration and home delivery. It involves low cost and creates a strong relationship with the consumer, ensuring interesting margins.
However, it is unfeasible for large organizations because it limits reach, unless it involves exorbitant costs.
- Internet: it is the alternative for personal sale, since it also represents a low cost, but is able to reach a wide customer base.
The conveniences are like personal selling: immediate access, ease of use, and even customization. In addition, it is available 24 hours a day, 7 days a week. Finally, it still offers the possibility of consumer’s feedback.
On the other hand, it is an impersonal channel, without human contact. In this case, the after-sales can be harmed, reducing the chance of customer loyalty and bonding.
- Telephone: another inexpensive way to make direct contact with the customer and an effective way to reach consumers in remote areas. However, telemarketing has become a malicious tool, considered intrusive and disturbing.
- Traditional and electronic mail: cheap and easily customizable according to each customer segment. Creates an image of the brand and communicates innovations and novelties.
However, it is very common for users to delete e-mails or throw away printed material before examining their content. Therefore, ROI ends up quite low.
The indirect or partnership distribution is usually done through retailers, agents, brokers, representatives, and distributors. Look:
- Retailers: they have already established infrastructures, either through stores or web pages, with a strong marketing strategy, that can reinforce their publicity. They also offer support and after-sales to the consumer. However, they include lower margins and loss of control over the customer relationship.
- Representatives: agents, brokers, and representatives in general establish good personal relationships with the clientele. They have a wide network of performance, with low cost, and are responsible for the dissemination of the product.
But one representative can sell competing brands, diminishing control over his image and relationship with the public. In addition, it is a channel very sensitive to price changes.
- Distributors: they have a broad and focused customer base, take the risk on inventory, and are technically trained. However, they also work with competing brands, have an influence on the final price of the product and you once again have no control over the relationship with the customer. Finally, they also involve additional investment.
To select a distribution channel, look at the following 5 elements:
- The number of pre-defined customer segments and / or the size of the market to be segmented;
- The cost-benefit ratio offered by the distribution channel (investment vs profitability);
- Standardization or non-standardization of the product – a standard product can be sold by external channels because it reaches more than one segment of customers, but a product that requires customization demands direct contact with the customer;
- The required control over a channel – as in the case of a distributor that also has appeal to competition, for example.
- The time it will take to establish a good relationship with the distribution channel, as well as the duration and “term of validity” of that relationship.
In short, the disadvantage of partnership channels is that they often bring in smaller profits. However, they allow faster expansion and extended reach. Own channels, on the other hand, offer higher profits, but also demand greater initial investment, of both time and money.
The key is, therefore, to balance the different types of channels, to improve the customer experience, and to ensure a higher return on sales. Once the distribution channels have been selected, it is time to move on to the next block, Customer Relationship.