Selecting distribution channels for hightech products

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Selling a good or a service requires the combination of three distinct channels: a sales channel, a delivery channel, and a service channel. Those channels can be joined together or can be discrete from one another. For instance, successful direct marketing firms employ the Internet, the phone, and mail as sales channels, express mail services as the delivery channel, and regional maintenance people as the service channel. Those firms integrate all the information about customers obtained through those different channels thanks to sophisticated customer relationship management software programs (previously introduced in Section 3.3), in order to develop a complete overview of customers' needs, wants, and requests.

For each of those three channels, the strategic decision always will be between using a direct (in-house) channel, belonging to the firm, or a third party indirect (outside) channel, or a hybrid solution combining the use of direct and indirect channels. This comes at a time when new channels like the Internet and on-line services continue to emerge [5], and new management tools, like data networks tracking in real time the inventories of all distributors in a market, have combined to speed up the evolution of more traditional channels.

As a matter of fact, the majority of the high-technology companies use their own sales forces to sell products directly to customers. However, the most successful organizations also count on other distribution channels in order to reach all the customers of a targeted market segment in the most efficient way [6]. Today, for instance, value-added resellers, system integrators, and distributors are becoming more prominent in the distribution of electronic and telecommunication solutions. For instance, Cisco Systems depends on its 35,000 partner channels for more than 90% of its revenues [7].

Selecting a distribution channel is very important because it can make or break a product, since distributors are part of the reinforcing loop leading to increasing returns, as seen in Chapter 2. Inasmuch as their revenues depend on the size of the market they can serve, marketers tend to concentrate on the solution that appears to produce the most potential buyers. For instance, in addition to the application developers, distributors have been a major force behind the success of Microsoft Windows and the decline of Apple Computer.

Companies must continuously reevaluate their distribution choices to maintain the most efficient networks. Take the case of Logitech. Today retail outlets account for 85% of Logitech's sales, while just 15% stem from Original Equipment Manufacturer (OEM) partnerships. However, until the late 1980s, it was the opposite: The OEM business outpaced retail and the company believed that its retail business would soon die, because every PC would be sold with a mouse. In contrast, OEMs figured out that PC prices were key for consumers, thus they kept up distributing PCs with standard keyboards and mice. Consequently, Logitech stuck with its retail business providing them with products slightly ahead of those sold by its OEM partners, such as optical wireless keyboards and mice.

Five selection criteria can assist a marketing manager in his or her channel-design decisions: the size of the market, the cost of the distribution network, the type of product to be marketed, the degree of control on the distribution channels, and the channel's flexibility.

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