Personal MBA: Distribution Channel

Personal MBA: Distribution Channel

How you choose to get your product or service into the hands of your customers is an important decision, and affects multiple aspects of your business. According to Kaufman, your distribution channel “describes how your form of value is actually delivered to the end user.”

There are two main types of distribution channels: direct-to-user and intermediary. Either type can be appropriate based on the size of your business and the nature of your form of value. He explains that service-based companies almost always require a direct-to-user distribution channel. The nature of service usually requires that the customer receive the service directly from the business owner or service provider. This channel is good because it gives the business owner full control over the delivery process and the customer experience. However, the physical capabilities of the service provider limit the amount of growth that can occur through this channel. Once the your schedule is full, you must either raise your prices or hire and train employees to serve more customers.

Product based businesses have flexibility when it comes to the distribution channel they choose. Small or home-based businesses often employ a direct-to-user channel until they are profitable enough to afford an intermediary approach. The intermediary channel involves shipping your products to one or more resellers that either house and ship your products or provide physical store locations where customers can find and purchase your products. Amazon is the best example of a reseller. They receive products from thousands of different manufacturers and provide a space on the internet for shoppers to browse and make purchases. My business currently utilizes a direct-to-user channel, because I only have around 100 monthly customers. It makes more sense for me to spend time packing and shipping my boxes than spending money for someone else to do it for me. Once I reach a certain number of monthly subscribers, I’ll be able to afford to outsource my fulfillment process, which includes packing the boxes, shipping them to subscribers and handling any returns.

Whichever distribution channel you choose, diligence is required to ensure that your customers have a good experience with your product or service and that poor value delivery doesn’t damage your reputation. Kaufman explains that products could be damaged or mishandled during transit to a reseller, which could give shoppers a low perception of the quality of your product. You could also expand your service business by hiring two new employees, but any poor service that they provide will be a reflection of your business as a whole if they are not trained properly. All business owners want to grow and increase their profits, but you have to be careful not to sacrifice your reputation for the sake of growth.