7.4.4 Selecting Distribution Channel¶
Selecting the right distribution channels is a crucial step in the channel design process. This step is quite straightforward but requires careful consideration of various factors. The process involves evaluating potential channel members (such as wholesalers, retailers, and sales agents) based on specific criteria. A common method used to make this decision is the weighted average approach, where each potential distributor or agent is scored based on a set of parameters.
Key Parameters for Channel Selection¶
To evaluate different distributors, wholesalers, or sales agents, the following parameters are typically considered:
1. Years in Business¶
- The experience and track record of a potential channel member can be an important factor. Established distributors or agents with a long history in the market are often preferred, as they bring reliability and a proven ability to handle distribution effectively.
2. Product Lines and Brands¶
- The variety of products or brands that the distributor or wholesaler handles is another consideration. If they already carry products similar to yours, they may have a better understanding of your market and customer needs, making them a stronger partner.
3. Financial Strength¶
- Financial capability is essential when selecting a distributor or retailer. For example, if you're choosing a franchisee model, they must be able to make the necessary investments to set up and operate the business. This includes costs for:
- Property (either owned or rented in prime locations like high streets).
- Manpower (hiring skilled staff).
- Store setup and maintenance (for example, creating a branded store like McDonald's or Domino's).
Financial strength ensures that the channel member can support the operational demands of running a successful business.
4. Service Reputation¶
- The reputation for service is another important factor. Distributors or retailers with a strong reputation for customer service can help enhance your brand's image and provide a better experience for your end consumers.
5. Cooperativeness¶
- It's important to select a channel member that is cooperative and willing to collaborate. The ability of the distributor, wholesaler, or retailer to work with your business and follow your guidelines (such as quality control, product handling, and service standards) is crucial for long-term success.
6. Availability of Skilled Manpower¶
- Skilled manpower is needed for the smooth functioning of the distribution process. Whether it's for store management, delivery services, or handling customer queries, a reliable workforce is key to maintaining efficiency.
7. Franchise Model (if applicable)¶
- If you're opting for a franchise model, the franchisee must not only meet the above financial and operational criteria but also be able to follow the established Standard Operating Procedures (SOPs). For example, companies like McDonald's, Domino's, and KFC use a franchising model where the franchisor provides:
- Supply chain access: The franchisee gets access to the network of suppliers for consistent product quality (e.g., McDonald's sourcing of bread, potatoes, burgers, etc.).
- Brand standardization: The franchisee follows the exact process and branding guidelines provided by the franchisor.
In return, the franchisee pays a revenue share or profit share to the franchisor.
Weighted Average Scoring System¶
To make an objective decision, you can create a scoring system for each parameter. Here’s how you can approach it: - List each potential distributor, wholesaler, retailer, or agent. - For each one, score them based on the parameters mentioned above (e.g., financial strength, years in business, service reputation, etc.). - Assign a weight to each parameter depending on its importance for your specific business (for example, financial strength may be more critical for a franchisee than for a retailer). - Calculate the weighted average for each channel option. The distributor or agent with the highest score is the one you should consider selecting.
Example of Scoring Parameters:¶
| Channel Member | Years in Business (25%) | Product Lines (20%) | Financial Strength (30%) | Service Reputation (15%) | Availability of Skilled Manpower (10%) | Total Score |
|---|---|---|---|---|---|---|
| Wholesaler A | 8/10 | 7/10 | 9/10 | 8/10 | 7/10 | 8.0 |
| Retailer B | 6/10 | 8/10 | 8/10 | 9/10 | 8/10 | 8.0 |
| Franchise C | 10/10 | 6/10 | 10/10 | 8/10 | 9/10 | 9.1 |
Conclusion¶
The process of selecting the right distribution channels involves evaluating potential partners based on a set of well-defined criteria. By using a weighted average scoring system, businesses can objectively compare different wholesalers, retailers, and sales agents and choose the one that best aligns with their needs and objectives.
Key factors like financial strength, service reputation, and the availability of skilled manpower will determine the success of your distribution channel. This structured approach helps in selecting the ideal channel partner for your business, ensuring long-term success and growth in the market.
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