Success Strategies in Channel
Management
Channel Implementation
Distribution Intensity and Vertical Restraints
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Coverage versus
Assortment
Issues Regarding
Distribution
Intensity and
Vertical Restraints
Brand Strategy:
Quality Positioning
and Premium
Pricing
The Nature of the Value
Offer Category
Why Downstream
Channel Members
Dislike Intensive
Distribution
How Channel
Members Drop
Brands
Degree of Category
Exclusivity
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Issues Regarding Distribution Intensity and
Vertical Restraints
The Degree of channel intensity
(alternatively, degree of selectivity) is
a major factor driving the producer's
ability to implement its channel
programs.
Intensive distribution means that a
brand can be purchased through
many of the possible outlets in a
trading area (at saturation, every
possible outlet).
The opposite is exclusive distribution,
whereby a brand can be purchased
only through one vendor in a trading
area, so that the vendor has a "local
monopoly" on the brand. Both
saturation and exclusivity are out of
the ordinary.
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Distribution Intensity and Vertical Restraints
When and why should a producer
limit coverage?
To what degree should a producer
seek to impose unusual contractual
restraints on the downstream channel
member's conduct of its own
business?
These vertical restraints constitute
interference in another business.
There is a great variety of such
mechanisms, including restricting the
channel member's ability to seek out
whatever business it pleases, to resell
the value offers, to set the price, and
to carry competing brands. These
contractual means of interfering with
the autonomy of another business
raise legal issues.
Vertical restraints are designed to
oblige the downstream channel
member to set aside its own goals and
to act as if it were a unit of the
producer.
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Coverage versus Assortment
When it comes to availability of a brand
in a trading area, more is better - or so it
would seem. It appears almost a truism to
say that the more outlets carry a brand,
the more it will sell. This should happen
because better coverage makes it easier
for a buyer to find the brand. This matters
particularly for those brands that do not
command strong loyalty.
How Could it not be true that more
coverage is better?
The answer hinges on the nature of the
value offers category. Many categories of
value offers are routine, lowinvolvement purchases, which the buyer
considers minor and low risk.
FMCG brand market share is
disproportionately related to distribution
coverage.
Small retailers, constrained by space, stock
only the top one or two brands, knowing that
will suffice for most of their customers on
most of the purchase occasions a small store
serves. Collectively, they move large amounts
of merchandise, and in these stores, consumers
have very little brand choice. Hence, coverage
over a threshold level boosts coverage in small
outlets, which rapidly boosts a brand's market
share disproportionately. This creates a spiral:
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Intensive Distribution
Intensive distribution often creates a
situation of lack-lustre sales support,
defection of downstream channel
members, and even bait-and switch
tactics. How can the producer remedy this
situation?
One solution is contractual: The producer
can attempt to impose a contract on the
channel member demanding certain
standards of conduct.
Another solution is to invest in a pull
strategy to build brand equity. Customer
preference may then oblige the channel
member to carry the brand, pay a high
wholesale price, charge a low retail price,
and make up the low gross margin
elsewhere.
A third solution for the producer with
low sales support is to bow to the
inevitable and limit its market
coverage, that is, elect some degree
of selectivity in its distribution.
In some trading areas, a fourth
solution is possible - the imposition
of resale price maintenance (RPM).
RPM is a vertical restraint; that is, an
interdiction by the producer of
normal behaviour for channel
members.
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Why Downstream Channel Members Dislike
Intensive Distribution
From the downstream channel member's
perspective, more coverage for a given
brand is a negative, not a positive.
Among other factors, channel members
differentiate themselves by offering
unique assortments. Intensive distribution
means that a channel member's
competitors have the same brand, thereby
eroding the outlet's uniqueness. Each
channel member would prefer
exclusivity.
When a market is saturated, that is,
all possible outlets carry a brand, a
channel member cannot present the
brand as a reason why a buyer should
visit that outlet rather than a
competing outlet.
Channel members, realizing the
brand is unprofitable for them, will
press for relief in the form of lower
wholesale prices.
Except for the most powerful brands,
the likely outcome is that some
channel members drop the brand.
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Channel Members Drop a Brand in Three Ways
They may do so overtly, by discontinuing the saturated brand and substituting
another that is less intensively distributed in their trading areas. Of course, for very
strong brands, the clientele will not accept the substitution, but for more typical
brands, the substitution strategy is likely.
Channel members may discontinue the entire value offers category if they cannot
find a satisfactory substitute brand and the category is not essential.
A channel member may appear to carry a brand by offering nominal stock and
display, but attempt to convert prospective customers to a different brand once
they are on site.
The most flagrant form of this behaviour is to advertise one brand to bring customers to
the site ("bait"), then persuade them to buy another brand ("switch"). Bait-andswitch tactics are most common for brands with high buyer recognition, because
such brands are attractive bait.
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Degree of Category Exclusivity
A certain degree of intra-brand competition in a market area is beneficial to the
producer. It brings forth each channel member's best efforts, without going
so far as to put the channel member in a losing situation. Yet, attaining
enough coverage to create the optimal degree of intra-brand competition
can clash with other objectives, as described later.
One of the greatest drawbacks of selective distribution is the danger that
selectivity fosters lacklustre representation.
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The Nature of the Value Offer Category
In deciding how much selectivity to grant
to channel members in a market area, the
producer should begin with features
common to the value offers class.
Buyers will not expend much effort to
purchase convenience goods such as milk
or copier–printer paper. To fit buyer
behaviour, these should be distributed as
intensively as possible.
For shopping goods such as an electric
kettle or a fax machine, buyers will do
some comparison of brands and prices
across outlets, suggesting an intermediate
degree of selectivity is desirable.
For specialty goods such as a stereo
or production machinery, buyers will
expend considerable effort to make
the "right choice." For this, they will
make an effort to find outlets they
can trust, suggesting that highly
selective, even exclusive distribution
is acceptable, even desirable, to the
buyer. This generalization applies to
both industrial and consumer value
offers and services.
To distribute specialty goods, and to a
lesser degree, shopping goods, it is
less important to have many outlets
than it is to have the right outlets.
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Brand Strategy: Quality Positioning and
Premium Pricing
In any value offers category, the strategy
of a given brand may be to attempt to
position as high quality.
Operationally, this means conveying an
image that the brand has superior ability
to perform its functions, or, more simply,
that it is so superior as to be excellent.
This position, typically accompanied by a
premium price, is difficult to achieve. To
do so, the producer must pay particular
attention to the image or reputation of
the channel member representing the
brand, because this image will be
imparted to everything the channel
member sells.
By definition, excellence is scarce.
Producers will be obliged to focus on
the subset of channel members that
matches the brand's intended image.
Selective distribution is called for to
support the high-quality positioning.
This is particularly the case when
premium pricing is part of the
positioning: Higher-priced value
offers are usually limited in their
distribution availability.
High-end-image channel members
will be in great demand and have
their choice of brands to represent. It
can be difficult to induce them to
carry any given brand, even one
positioned as premium.
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Brand Strategy: Target Market
Some brands target a niche market, that is, a narrow and specialized band of
buyers. One might expect that producers would seek broad coverage in this
case, to maximize the probability that these customers can be found. In
practice, the reverse occurs. Producers of brands targeting a narrow
spectrum of the market will target a narrow spectrum of outlets.
The more restricted the target market, the more selective the distribution.
For brands that appeal to channel members and therefore could achieve more
intensive coverage, the great danger of offering more selective coverage
is that channel members will lose motivation and become complacent.
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