Distribution Channel Management: Competition, Structures, and Product Types

Types of Competition in Distribution Channels

Understanding the dynamics of competition is crucial for effective channel management.

1. Horizontal Competition

Intratypic Horizontal Competition

Opposes intermediaries of the same kind operating on the same level of the network.

Intertypic Horizontal Competition

Opposes intermediaries at the same level in a network, but with differences in the sales formula adopted. This can translate into differences in stock, choice, and pre-sale services.

2. Vertical Competition

Involves agents located at different levels of the distribution network, exercising intermediate or higher functions in the previous net. Example: Retailers performing wholesale functions.

3. Competition Between Distribution Networks

Entire networks oppose each other, corresponding to different channels. Example: Opposing a traditional network to a new one.

Criteria for Selecting a Distribution Network

Selection depends on a balance of market, product, and company characteristics:

• Market Characteristics: Number of potential buyers.
• Product Features: Physical and technical specifications.
• Company Characteristics: Size and financial resources.

Structures of Vertical Distribution Systems

Conventional Vertical Structure

Each level of the distribution channel behaves independently, seeking to obtain the best conditions for purchase or sale without concern for the overall performance of the channel.

Vertical Coordination

The parties coordinate the exchange process (part or all of their functions) to achieve economies of operation, strengthen their impact on the market, and improve negotiation strength.

Types of Coordinated Vertical Structures

• Integrated Vertical Structure

  The stages of production and distribution are controlled by the same owner. This structure can be initiated by the manufacturer or the dealer.

• Contractual Vertical Structure

  Independent firms at different channel levels coordinate their actions under contracts, which define the precise rights and obligations of the parties.

• Controlled Vertical Structure

  Non-contractual forms of cooperation obtained by a manufacturer over parts of its distribution network, usually through the power of the brand or manufacturer influence.

Product Classification by Consumer Purchase Behavior

1. Convenience Products

These are products purchased frequently and easily, often categorized further:

• Staple/Routine Products: Routine shopping where brand loyalty facilitates the point-of-sale (POS) purchase.
• Impulse Products: Purchased without planning; they require easy access sites.
• Emergency Products: Purchased immediately when the need is felt.

2. Specialty Products

Products with unique features for which the consumer devotes much effort to find. These often include specific luxury brands, and the consumer typically does not make comparisons between brands.

3. Unsought Products

The consumer either does not know about the product or knows it but has no spontaneous interest in purchasing it. These require substantial sales efforts, and strong cooperation between the agent and the manufacturer is important.