Distribution Matters

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There is significant variation in the costs and profitability of distribution channels and intermediaries such as wholesalers, distributors, dealers, resellers, brokers and retailers across industries and distribution systems (Dent 2014). Distribution businesses are inherently difficult to get right, Figure 1 demonstrates the typical types of distribution structures.

Figure 1 – Typical Distribution Structures

distribution model

Each structure has its own advantages and disadvantages:

Advantages

Disadvantages

Direct

  • Increased customer convenience
  • Reducing costs
  • Increase customer insight through direct interaction
  • Not always effective for complex, high cost products

One-Tier

  • Increased reach
  • Product positioned within established channels for existing customers
  • Easy and immediate access to well defined segments
  • Need to grant an acceptable trading margin to intermediary
  • Product positioned with direct competitors (e.g. within a retailer)

Two-Tier

  • Cost effective
  • Enables manufacturer to reach a wide mass but low volume market
  • Manufacturer distanced from the customer and market

Companies that have invested in analysing and understanding their distribution structure are able to take significant costs out of their processes, increasing profits or reducing prices to gain an edge over their competition.

Channels to market that a company pursues has significant implications for access, brand and product differentiation:

  • Channels to market control access, without the right channels to market you simply won’t reach your target market (Dent 2014). Apple uses a number of different channels to make including online, in store and via resellers and retailers including David Jones, Harvey Norman, JB HiFi and Myer. This makes it easy for customer to purchase their products at their convenience.
  • Channels to market control brand, without adequately managing your channels to market and distribution you can’t deliver and fulfil your brand promise (Dent 2014). Apple is has built its brand on quality attributes, its channels of distribution execute those attributes through a high level of customer service and sales force knowledge. Alternatively, if Apple was built on low prices its channels to market would need to be aligned to eliminate unnecessary activities that incur costs (Iacobucci 2013).
  • Channels to market control product differentiation (Dent 2014). Dell was a pioneer in the 1990s to 2000s with its online direct channel to market offering price and flexibility advantages over its competition. Apple continues to provide innovative online purchasing options for its consumers with easy to use website and online store.

Conflict in Distribution Channels

Many companies use a mix of distribution structures in order to cover the market completely and to reach different segments however operating within multiple distribution models and channels creates the potential for channel conflict.

Channel member conflict is defined as the disagreement between a manufacturer and a channel member as each party strives to achieve its business goals (Samaha, Plamatier & Dant 2011).

Apple’s early distribution strategy was to sell through retailers however more recently their focus has shifted to distributing directly to customers through their stores and online channel so they can control the end-to-end process.

iCorps Technologies, a Boston based Apple partner for 21 years, has seen its revenue from Apple products and services shrink from 90 per cent to less than 10 per cent of its overall business in the past five years due in part by Apple’s lack of attention to the channel (O’Donnell 2015).

A CRN Intelligence Survey revealed that 55 per cent of Apple’s partners believe Apple’s direct sales force has directly competed with them in the last 12 months, with 46 per cent rating enterprise direct sales channel conflict with Apple (O’Donnell 2015).

Managing channel member perceptions of unfairness will be important if Apple wants to ensure ongoing collaboration and wants to mitigate the negative consequences of conflict including frustration, anger, dysfunctional behaviour and decreased satisfaction (Samaha et al. 2011). Going forward, Apple will need to ensure open and transparent communication to build member channel trust, this might be achieved by exchanging staff to better understand member perspectives, mediation through a third party or arbitration (Dant and Schul 1992).

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Dant, R & Schul, P 1992, ‘Conflict resolution processes in contractual channel distribution, Journal of Marketing, vol. 56, no. 1, pp. 38-54, retrieved 15 May 2016, Business Source Complete database.

Dent, J 2014, Technology distribution channels: understanding and managing channels to market, Kogan Page, London, UK.

Iacobucci, D 2013, MM4, student edn, Cengage Learning, Mason, OH.

Samaha, S, Palmatier, R & Dant, R 2011, ‘Poisoning relationships: perceived unfairness in channels of distribution’, Journal of Marketing, vol. 75, no. 1, pp. 99-117, retrieved 14 May 2016, < http://eds.a.ebscohost.com.ezproxy-f.deakin.edu.au/eds/detail/detail?vid=3&sid=70cdba0e-95b1-459b-800a-1fc7ab5feba7%40sessionmgr4001&hid=4202&bdata=JnNpdGU9ZWRzLWxpdmUmc2NvcGU9c2l0ZQ%3d%3d#AN=60032148&db=bth&gt;.

O’Donnell, L 2015, ‘Bad apple: an inside look at the rotting relationship between Apple and its partners’, CRN Tech News, 12 October, retrieved 14 May 2016, < http://www.crn.com/news/mobility/300078386/bad-apple-an-inside-look-at-the-rotting-relationship-between-apple-and-its-partners.htm&gt;.

 

 

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