So in addition to figuring out what activities have to be done and
who is going to do them, we need to make some other important
decisions about the design of our distribution channel.
And one framework that's often helpful for doing this for us,
is to think about the intensity of distribution.
What do I mean by that?
The intensity, I mean, is how many outlets or
how many channels of distribution do we have serving us in a particular market.
So, if we have an exclusive distribution channel,
that means in a particular market, Philadelphia, Los Angeles, Tokyo,
wherever it is, we just have one individual or one distributor or
one entity that's bringing our product to market.
If, on the other hand, we have intensive distribution, that means there are many,
many providers of the product or service in a given market.
Obviously, if there are many of them,
this may be creating some competition between them.
So what are some rules of thumb that we need to think about
in determining whether or not we want to go with intensive distribution
versus exclusive distribution or the midpoint which is selective distribution?
So intensive distribution might be a good thing
when we don't really need any selling support.
If it's a product like Coca-Cola, we might want it in every store,
every vending machine, every place possible, just so it's made available
in order to minimize the consumer's cost of accessing or obtaining a product.
On the other hand, exclusive distribution might be really, really important
if we want to try to find the strongest provider and somehow reward them.
This is often used in the automobile market.
If I'm selling expensive cars like Ferrari,
I don't want somebody right next door doing the same thing.
I might want the rights to have an exclusive territory.
So that's a reason for having exclusive distribution,
is to partake the reseller and give them a chance to make a bit of margin.
In the middle is selective distribution where
neither of those other two extremes really seem to fit.
The customers need to get access to the product, but
there's also some consultitative selling that's required in order to encourage
the end consumer to buy the product.
So now I'd like to reintroduce something that we talked about earlier and
something that we're familiar with from our discussion of how to
generate those lead users and expand the market beyond the early customers
all the way to the larger target base.
Here I'm showing the product life cycle.
As you may remember, it goes through four phases.
Phase one is the introduction phase, then there's a growth phase, a maturity phase.
And finally, with most products or services at some point,
or brands at least enter into a decline phase.
So let me give you an example with a very, very simple product or service.
A piece of home equipment for an entertainment system,
for showing movies and things in your own home.
When the product's first introduced, let's imagine it's initially introduced in
a very kind of selective way, with home video specialists.
As the product gets into the growth phase and we want it to be more
widely available, then maybe it goes into a larger distributor,
like a base file something like that if we're talking about United States.
Finally, as the product gets into maturity,
you might expand to other channels such as Walmart.
And then finally, as it goes into decline,
the product my end up being sold on Ebay or other kinds of secondhand markets.
So what you could see, as the product goes through the life cycle,
the amount of information that's required to sell it goes down,
because people are familiar with the product or
service, but the intensity of the distribution tends to go up.
We want the product available almost everywhere and because of that,
the logistical needs also kind of increase.
So again,
hopefully what you're seeing from this is when we're accessing customers,
the access to customers is also related to how the product is going through its own
life cycle from introduction, to growth, to maturity and then to decline.
So let's continue with this idea of the hybrid grid, namely that there were
certain entities doing certain activities in sort of an optimal way.
So what are the implications of this view, or using a tool like the hybrid grid to
understand your own customer access plan, your own channel of distribution?
So the first thing to keep in mind is that the kinds of activities that get done
really depend on the complexity of your product.
If you have a very, very complex product,
like that bovine growth hormone that I mentioned in the example,
there may be many, many things that need to be done from education to awareness
to retrieval of the products through after sale service and so on.
And so that's the first thing.
How complex is my productile service that will determine the list of activities.
The second thing to keep in mind is activities,
once you've decided what needs to be done, cannot be eliminated.
Once you've figured out the columns, they are what they are,
you cannot change those.
You can't suddenly decide not to provide after sales service typically or
suddenly decide not to generate new leads.
What you can do however, is you can change who is performing what activity and
that often leads to some very, very interesting innovations.
So let me give you three examples.
So you could think about the notion of a forward shift and function.
And that would be Ikea for example,
who used to in the early days do their own delivery and
installation decided at a certain point, you know what, we can't really do that.
We're going to let some third party do it.
So they're sort of farming off an activity to another entity that's able to do it
better.
You might also think about a backwards integration as well.
This would be the case of Apple taking over some of the function of selling
the goods and services themselves in their own stores as opposed to having
independent retailers do it for them.
And then thirdly, we could think of a sideways shift.
This would be Amazon using a parallel company like FedEx or
UPS to do the delivery of its goods and services rather than doing it themselves.
So this is a very, very important implication,
you cannot eliminate activities, but you can change or eliminate certain players.
And often that's a vital source of innovation,
like the Michael Dell innovation for example, diapers.com.
Many, many innovative businesses don't eliminate activities, but
what they do do is they change who's doing them.
The important thing of course to keep in mind
is that anyone who's performing an activity needs to be compensated
usually in the form of some kind of channel margin for doing that.
Otherwise they're going to stop there.
And this is sort of a nice segue for us now into thinking about the next thing
on our list after the structure of the channel and
the design of the channel, which is how does one keep a channel coordinated.
So, now, let's get to our third piece on the discussion of access to customers and
channels of distribution.
This is kind of a fun one.
This is the idea of coordinating a channel and when a channel often has conflict,
this can be kind of a tricky thing to do.
So let me just illustrate again by way of a chart
what can go on in a distribution channel.
You may have a manufacturer on one side saying hey,
why aren't you taking my entire range of products?
And the distributor or the retailer says well hey, I don't want all the dogs,
I just want the best products.
I only want the three series BMW, I don't want the one series, but
the manufacturer wants all of them to be taken.
The manufacturer may say, we'd like some more information about who's
coming into your store or your channel and buying our product and service.
And the retailer might say, well we don't keep any of that information and
even if we did, we're not going to give it to you.
The manufactures and retailers might also argue over margins.
So the manufacturer might say, gee, you're taking too much margin and
the retailer says well your wholesale prices to me are too high.
So what we have here, typically, in a channel of distribution
are independent businesses that sometimes might be opposing.
And we want to try and figure out what are some solutions to all of this conflict,
so let's go through some of that.
The first thing is that having some level of conflict is good,
it keeps everyone on their toes.
You don't necessarily want all of the conflict in the channel to be
completely eliminated, you want some there just to sort of keep things fresh and
to keep things interesting.
