Why are Distribution Channels important for Manufacturers?
By *Ameen Ahsan Strategy Consulting*
Over the past fifty years, manufacturing has changed from individual companies producing and distributing their own products, to a global network of suppliers, manufacturers, and distributors. Efficiency, price, and quality are being scrutinized in the production of each product. Because of this global network, manufacturers are competing on a worldwide scale, and they have moved their production to countries where the costs of labor and capital are low in order to gain the advantages they need to compete.
Today, the complex manufacturing environment faces many challenges. First and foremost manufacturers wants sales. They want to make their products and to sell them quickly and profitably. Usually this means selling through distributors
Distribution channels are pathways along which products travel from producers and manufacturers to ultimate consumers. They are routes along which products, information, and finance flow. While some manufacturers deal directly with their customers, most manufacturers use a distribution channel to take products to consumers. Considerable thought, effort, and investment are required to create and maintain a distribution channel.
Channel margins and the expense of sales efforts in managing channels can form a substantial proportion of total marketing costs. An effective channel can be a source of strategic advantage for companies. Channel design and channel management are therefore important elements in a company's competitiveness.
A major challenge in channel management is keeping channel members motivated to support the principal, especially when markets are tough. Channel member profitability is a major driver but not the only factor affecting channel member satisfaction and motivation. Skilled channel managers make concerted efforts to measure and monitor channel profitability and channel members' return on investment (ROI). In addition to ensuring healthy ROI, firms utilise a variety of financial and non-financial incentives to motivate channel members.
Channel objectives should be stated in terms of targeted service output levels. Under competitive conditions, channel institutions should arrange their functional tasks to minimize total channel costs and still provide desired levels of service outputs. Effective planning requires determining which segments to serve and the best channels for each.
Please share your views and experiences on this post!
*Ameen Ahsan Strategy Consulting*
"where visions are realised"
7th Floor, Hi Lite Business Park, Calicut
*Kerala's finest experts for Feasibility Studies, Strategy Reports / Project Reports, Business Models and Vision Realisation*