New channel structures

Channel structure Channel structures describe the way a manufacturer or selling organisation delivers The configuration of products and services to its customers. The distribution channel will consist of one or more intermediaries such as wholesalers and retailers. For example, a music company is unlikely to distribute its CDs directly to retailers, but will use wholesalers which have a large warehouse of titles that are then distributed to individual branches according to partners in a distribution channel.

Disintermediation

The removal of intermediaries such as distributors or brokers that formerly linked a company to its customers.

demand. A company selling business products may have a longer distribution channel involving more intermediaries.

The relationship between a company and its channel partners can be dramatically altered by the opportunities afforded by the Internet. This occurs because the Internet offers a means of bypassing some of the channel partners. This process is known as disintermediation or, in plainer language, 'cutting out the middleman'.

Figure 2.7 illustrates disintermediation in a graphical form for a simplified retail channel. Further intermediaries such as additional distributors may occur in a business-to-business market. Figure 2.7(a) shows the former position where a company marketed and sold its products by 'pushing' them through a sales channel. Figures 2.7(b) and (c) show two different types of disintermediation in which the wholesaler (b) or the wholesaler and retailer (c) are bypassed, allowing the producer to sell and promote direct to the consumer. The benefits of disintermediation to the producer are clear - it is able to remove the sales and infrastructure cost of selling through the channel. Benjamin and Weigand (1995) calculate that, using the sale of quality shirts as an example, it is possible to make cost savings of 28% in the case of (b) and 62% for case (c). Some of these cost savings can be passed on to the customer in the form of cost reductions.

Producer

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