Defending and increasing market share is a strategic imperative for most businesses. Having a strong and diverse channel to market is a strategic asset which allows producers and companies to market and distribute their products effectively to end consumers. The channel to market is referred to the means and infrastructure a business utilises to sell, market and distribute their products and services. These may include but not limited to Distribution centers, warehouses, stores, supermarkets, restaurants, customer service centers, automatic vending and distribution equipment. These maybe company or independently owned.
This is one of the many tools or avenues companies optimize, develop and invest in to cement their market presence and increase market share. It may also enable a company to extract higher margins.
Channel diversity
Major beverage companies recognized the value in diversifying their channel to market in the late eighties and nineties and started distributing their products through vending machines and a variety of independent distributor channels such as restaurant chains. They usually enter into supply contracts with major restaurant chains which secure substantial volumes at discounted prices or other incentives in return for brand exclusivity in their outlets.
For some of these brands the abundant availability of their drink products made it so convenient for customers to consume these on a more regular basis thus substituting for other drink options such as juices, water, and other drinks at the same time establishing themselves as leaders in the bottled drinks market.
Some building products manufacturers through vertical integration have built a diverse channel to market in order to capture different market segments and consumers. As building products will usually cater to different market segments such as DIY renovators, trade installers, large contractors and builders. Each market segment will have different requirements of product volume, range of products, service and price expectation.
An example of a diverse channel to market for a building materials manufacturer and distributor is shown below:
Direct Sales: Usually large supply contracts to developers and big builders
Company owned Trade centre: serve tradesmen who regularly buy the product and install it. They buy in medium to large quantities regularly
Independent Trade centre: serve the same market as the company owned trade centres but has the advantage of tapping established and new markets without capital investment upfront
Hardware/specialist stores: serves the smaller volume end of the market such as smaller trade sales and DIY home renovators
Most of the potential markets for the manufacturer are serviced through the different channels, some such as the company owned trade centres and direct sales will offer direct access to their customers including the ability to gauge market demand and sales data but requires capital investment. These also allow the manufacturer to pick up retail profit margin on top of the manufacturer margin. The Independent trade centres allow the manufacturer to tap established customer bases without capital investment but may lose pricing control if the independent distributor moves a large volume of sales.
To Control or not the Channel to market?
Some businesses and manufacturers depending on the nature of their product and target market may be able to own or control varying degrees of heir channel to market.
An example of a channel to market for a soft drink bottler maybe quite diverse and fragmented due to the wide audience it targets. Their main channels to market for their products can include supermarkets, convenience stores, fast food restaurant chains, vending machines. Most of these channels would be complex to integrate into their manufacturing/bottling businesses and require substantial capital to establish or purchase. These options are also outlets for different other products making them a poor risk/reward ratio in choosing to manage and influence their market, with the exception of vending machines which could prove beneficial to have a degree of involvement or control.
This is why many consumer goods businesses do not own their channel to markets but invest heavily in marketing and promotion, sometimes in partnerships with distributors and retailers of their products.
Another example would be a specialised chemical company, which manufacturer’s chemicals for certain industries. In this case it would make sense for an established chemical manufacturer to own its distribution channels, warehouses, laboratories and customer service facilities to able to service customers directly.
Owning or investing in establishing a channel to market must be evaluated in the context of investment return, complexity of integration and management. In certain cases the channel to market maybe so fragmented it is a wiser investment choice to build brand awareness and market the product well.
Whatever the industry, understanding the market and customer base will allow a business to develop a diverse channel to market and marketing strategy which allows an efficient platform to distribute and market its products while maintaining a disciplined pricing strategy.
