by Kenneth Rudich
A distribution channel is the primary delivery path the product or service travels from the producer to the intended receiver.
The delivery path itself is divisible into three fundamental elements: the production end, the throughput process, and the receiver end. How well these three get integrated – that is, the degree to which they work in sympathy with one another – can make all the difference in the world for delivering value fulfillment.
What do I mean by working in sympathy? Take for instance a food server at a restaurant. Some might characterize the server as part of the product or service, and they of course would be right in making that assertion.
At the same time, one could also say the server is responsible for the throughput process between the production end and the receiver end. If a diner requests something special during the food preparation process, then the server must convey that information to the cook prior to preparation, and also make sure the cook carried it out before delivering the plate to the table.
A mishap anywhere along that path can tarnish the customer experience. Say, for instance, the food was prepared as normal despite the special request, and then it was delivered to the customer like that. In this case, it would be a distribution channel flaw that resulted in a product/service problem. And that, in a nutshell, is why the three elements of the distribution channel must be designed to work in sympathy with one another.
An even more vivid example of this can be shown with technology. Think of a television show. There’s the production process, any of several throughput processes, and any of several viewing options. The throughput could be local broadcast tv, cable, satellite, or internet. In this case, the throughput is independent of the production end and the receiving end, but all three must work in sympathy with one another for any given distribution channel to work properly.
distribution channels as competitive strategy
The distribution channels can also play a prominent role in the competitive strategy realm.
A recent post about the competition in the video rental industry between big name providers like Blockbuster, Redbox and Netflix illustrates the difference a distribution channel strategy can make within the context of the value chain.
Each started out with distinctly different distribution channel strategies. Blockbuster was first out of the gate, followed by Netflix and then Redbox.
Netflix and Redbox each chose distribution channel strategies that were designed to differentiate their value propositions from what already existed. No two designs among the three looked exactly alike, and that mix among them ignited a competitive fervor that is currently unfolding.
multi-channel distribution strategies
Another important point to recognize is that a business may have more than one distribution channel operating at the same time. Each dissimilar pathway indicates the presence of another separate channel.
For instance, what if the above restaurant also offered home delivery? Would that not require another set of distribution channel design considerations?
The video rental industry also provides a relevant example. Blockbuster, who started off by solely relying on a bricks-and-mortar store model for distribution, is not only in process of adopting the distribution channels used by Netflix and Redbox, but also possibly abandoning their original strategy due to the comparatively high costs (and non-competitive nature) of it.
Redbox, in the mean time, is looking to embrace some facsimile of the Netflix internet strategy.
If all three eventually end up perfecting the same distribution channel strategies, it could very well negate the differential advantage any of them might have once gotten from their distribution channel strategy.
This example illustrates how a distribution channel strategy can be used to either gain a strategic advantage or diffuse one.
distribution channel design
A distribution channel can be just as important to the overall customer experience as any other part of the value chain. In future posts, we’ll look at some design considerations and concerns in greater detail.