February 23, 2024

What is a Drawback of Longer Distribution Channels?

Imagine you have a remarkable product, meticulously crafted to meet your customer’s needs. However, it’s no good to your customers if they never receive it, so how do you get the word out? The answer lies in your distribution channel.

A distribution channel is a network of intermediaries that connects manufacturers with their customers. By handling the marketing and sales functions, these partners free up the manufacturer to focus on production.

The most obvious drawback of longer distribution channels is that they can add to your selling costs, with each intermediary adding its own markup to the product. This creates a critical link between channel length, final selling price, and the firm’s profit margin (Sharifi, Masoudi & Javadin, 2013).

Long distribution channels also have to deal with bottlenecks — points in the product flow where capacity is lower than demand. For example, seaports can be a source of delay as companies try to balance size handling and transport lot sizes.

Some manufacturers prefer to avoid the middlemen altogether and go direct to their customers, an approach exemplified by the Apple store model or products sold on the internet. In this case, you may be able to eliminate some distribution channel members and reduce your overall cost of operations. But you need to ensure that your direct distribution strategy aligns with your business model and sales goals. For example, if you’re selling a specialty item that requires consumers to see and interact with it before buying, it might make more sense to work with retail intermediaries such as department stores or grocery chains.

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