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IF View - Issue No. 07

DISTRIBUTION
DENSITY
PLANNING

Issue No 07

Marketing Channel Strategy Consultants
USA - EUROPE - AUSTRALIA - BRAZIL - HONG KONG
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Introduction

An essential component in channel marketing is distribution density planning. How many channel members (resellers) should a supplier have in an area to achieve its marketing goals? Restricted distribution might limit market share. Saturated distribution can cause destructive price competition among resellers and damage customer satisfaction. Suppliers can choose between distribution strategies that are:

Intensive use all available channel members to reach a target market, or

Selective use a limited number of channel members to reach a target market, or

Exclusive use one channel member to reach a target market.

Strategic Elements in Distribution Density Planning

1. Brand Strength

Intensive distribution is most appropriate for strongly branded (well known) products. Suppliers can maximize the benefits of a strong brand by making products readily available to customers through broad distribution.

Weaker branded products are more appropriately distributed selectively or exclusively.

2. Product Support Requirements

Selective or exclusive distribution is most appropriate for products that require customer support before and after purchase (eg engineering test equipment). If such products are distributed intensely, resellers will often not provide the levels of support required to maintain customer satisfaction.

Products that require no customer support can generally be distributed intensively (eg food products, beverages, and shoelaces).

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3. Channel Power

When purchasing products, customers are influenced by price, product feature, brand name (or supplier backing) and by resellers (presentation, sales, and support). In cases where the influence of the reseller dominates, products should be distributed selectively or exclusively. In cases where the influences of pricing or branding dominate, products may be distributed intensively.

 

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Conclusion

The degree of distribution density has a significant impact on product pricing to customers and margins retained by resellers. Because of competition, resellers earn lower unit margins on intensively distributed products than on exclusively distributed products. Intensive distribution is appropriate for strongly branded products that require little support. Little investment is required to sell such products, and resellers earn profits through volume business.

Resellers generally will not make investments (eg facilities, inventory, sales training, support systems) in order to sell products which are intensively distributed. Suppliers of products that require reseller investments must provide some level of territorial protection to gain channel access. Examples of territorial protection include exclusive geographic territories afforded to franchised retail stores and selective appointment of a limited number of dealers to sell office products or computer products.

Selective or exclusive distribution strategies are often the only options available to new market entrants who require reseller commitment to gain market share. Resellers will not actively develop markets for new products unless they are offered margin protection in the form of restricted distribution.

The appropriate level of distribution density for a product or technology will usually change over time. It is common for new products to be distributed exclusively or selectively. As products mature, they become easier to use and require less reseller support. More intensive distribution becomes appropriate. A key opportunity for differentiation through channel marketing is to recognize when products should make the transition to a different level of distribution density and to prepare the appropriate channel program before competitors are able to.

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