Creative Destruction in the Marketing Distribution Channel

november 29th, 2013 · by John · Weblog EN

What is a marketing distribution channel?
The term marketing distribution channels refers to the chain of activities to move goods, from the point of production to the point of consumption. A marketing distribution channel can be split into two groups of activities:

• Transaction channel: the process of advertising, negotiating and selling, concerned with the transfer of ownership of goods and services.
• Distribution channel: the supply chain of wholesalers, retailers and distributors through which a product is distributed and delivered until it reaches the end user.

How can value be created?
Customer value is the difference between what a customer gets from a product, and what he has to give in order to get it. The value received by the customer thus is the sum of benefits coming from the product as such (quality, assortment or form), the service associated with the product (after-sale, availability, delivery or transaction services) and the perceived value of the brand.
Since, the difference between benefits received and expenses made is the value of the product in the eyes of the customer; value can be created by increasing benefits and by reducing costs. So, what are the drivers that will create value for the customer?

How can a marketing distribution channel create value?
Intermediaries are used because they create efficiency in making goods available to target markets. Through their contacts, experience, specialization and scale of operation, intermediaries can offer the manufacturer or brand owner more than it can achieve on its own.

The main value creating activity however lies in the overcoming of discrepancies between the supply of products by the manufacturer and the demand of those products by the end user. There are four categories of discrepancies:

• Quantity: the difference between the amount of product produced and the amount an end user wants to buy.
• Assortment: the lack of all the items a customer needs, to receive full satisfaction from a product or products.
• Time: a product is produced but a customer is not ready to buy it.
• Space: the difference between the location of a producer and the location of widely scattered markets.

E-commerce as the Creative Destructor
Historically the marketing distribution channel has indeed created value by bridging the discrepancies of quantity, assortment, time and space. E-commerce will however change this situation dramatically.

Consumers can directly order at the website of the manufacturer, who can then organize the fulfillment needed to deliver products in the quantities ordered. Even if a manufacturer has only one product, meaning a discrepancy in assortment, there are numerous other online suppliers who can bridge that gap. If a customer is not ready to buy a product, a manufacturer can keep it in stock or, if deemed necessary, immediately cut production. In every country we have parcel delivery organizations that can reach any corner of “widely scattered markets”.

The role of traditional wholesalers and retailers in the marketing channel will be destroyed by e-commerce. But this development will create new opportunities for a complete value creating reorganization of the traditional supply chain.

John Greijmans

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