Channeldesign decisions according to the product characteristics

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High-technology products can be divided into two categories: nonstandard-ized products and standard products. Nonstandardized products require a direct sales force. Because these products are manufactured on request for a

Table 7.2 Evolution of Dell Versus Gateway Revenues and Operating Income

1994

1995

1996

1997

1998

1999

2000

2001

2002

Dell

Net sales (dollars in millions)

2,873

3,475

5,296

7,759

12,327

18,243

25,265

31,900

31,200

(percentage of net sales)

14.7

12.2

11.3

10.6

9.8

9.8

9.4

9.8

9.6

Operating income (percentage of net sales)

-1.3

7.1

7.1

9.3

10.7

11.2

9.1

8

7.2

Gateway

Net sales (dollars in millions)

2,701

3,676

5,035

6,294

7,468

8,965

9,252

5,937

4,171

(percentage of net sales)

8

9.7

11.5

12.5

14.1

13.8

16.7

34.1

25.8

Operating income (percentage of net sales)

5.2

6.8

7.1

2.8

6.6

6.5

5.5

-19.9

-12.3

particular customer, personal contact with the users is necessary. The sales force has to be very knowledgeable about the product and its application, to help customers understand and employ the product.

Standard products justify the use of external distributors. These products have well-defined characteristics;products such as a computer memory or a standard microprocessor are sold in large quantities and at unit costs much lower than those for nonstandardized products, justifying the use of distributors.

For products that are neither entirely standard nor truly nonstandard-ized but rather in between these two categories, a marketing channel should be selected depending upon the technical complexity of the product and the need for customer service depending upon the distributor's ability.

On one side, if a company does not have enough resources to provide any customer service, it should depend upon its distributors. On the other side, if the distributor is not able to perform customer service, the product's or the technology's quality image can be seriously jeopardized, which in turn can challenge an entire marketing strategy. It is said that Michael Dell started Dell Computer to sell PCs directly by phone to consumers after he strove to buy PCs from dealers who knew less about computers than he did. A failure in the PC distribution channel gave birth to one of the most formidable new entrants in the PC industry.

This is one of the reasons why Apple Computer changed its channel distribution strategy in Europe at the end of 2002. Apple changed the margins that it was offering dealers. It reduced the basic margin of small, independent dealers from seven to 1% or 2%;at the same time, it significantly raised the margins for large dealers providing customized solutions, demo facilities and after-sale support with a well trained staff and third-party products stocks. Apple's goal was clearly to enhance "the development of the best possible experience for our customers" according to Mark Rogers, Apple U.K. director.

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