Distribution Channel Strategies: Multi-Channel Distribution for Sales Without Friction

In today's complex distribution channel structure, with sales coming through direct mail, inbound and outbound phone, websites, retailers, partners, and even apps, companies more than ever need a sophisticated approach to how they sell. Miss a channel and you could leave money on the table. In fact, more than 25 percent of middle market companies identify new channel and market customer acquisition as their top source of growth, according to research by the National Center for the Middle Market

But there is a problem with running a multiple distribution channel structure: conflict. According to researchers Anil Arya and Brian Mittendorf, the tension between manufacturers and their wholesalers and retailers is growing.

Historically, there has always been some degree of conflict between different parts of a distribution chain. Typically it happened in the B2B space, where large customers could order in such volume that the manufacturer could cut prices and still make more than had the orders gone through distribution at full price.

These conflicts have radically escalated because of e-commerce. Suddenly, an Internet-based infrastructure and order-processing system could allow companies to handle even small orders. Not only did conflict in B2B relationships grow, but manufacturers in a B2C space could sell directly, bypassing the long-established distribution and retail structures.

Middle market companies find such dual distribution channel strategies - direct and through chains of partners - to be a useful approach. The dual structure lets them bridge the gap between small operations that rely on third-party distribution because they don't have resources to support extensive direct sales and large organizations that have strong control over channels.

According to the research, middle market companies should accommodate the concerns and actions of distribution channels while also promoting their own direct sales channels. There are three steps the middle market company should take to reduce conflict while increasing the results from all sales channels.

1. Turn the cheek. Distribution partners will often react badly when they perceive a manufacturer challenging their business. The reaction may come in the form of negative advertising focused on the sales channel and not the product or brand. After all, the retailer or distribution partner wants to keep selling the products for continued profit. The manufacturer should avoid striking back. Instead, focus advertising on the brand and don't challenge partners' promotion of their own sales channels. The concession will help mollify the retailers and distributors and increase total sales.
2. Use pricing smartly. The largest concern in distribution channel partners is if the manufacturer has become a competitor with an enormous financial advantage. The manufacturer's cost is clearly significantly lower than that of the partner. The feeling is that if push comes to shove, there is no way the partner could compete because the manufacturer could constantly undercut it. The answer is not to do so. It may mean that the middle market company will reduce costs for the partner, maintain strict full retail pricing for direct customers, or both.
3. Use unique channel strategies. A manufacturer can effectively mitigate competition by offering special products, versions, or promotions through the channel. The manufacturer may tailor some product for channel sales. Appliance manufacturers have done this for decades, customizing features for a given retail channel. Some highly desirable products might only be sold through the channel. There could be tiered releases, with different categories of resellers receiving products at different times.

In short, a middle market company should make use of multiple distribution channels. Just remember to make each channel feel appreciated and protected so they continue to provide sources of profits to you and not replace your offerings with those of a competitor.

Erik Sherman is an NCMM contributor and author whose work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, Newsweek, the Financial Times, Chief Executive, Inc., and Fortune. He also blogs for CBS MoneyWatch. Sherman has extensive experience in corporate communications consulting and is the author or co-author of 10 books. Follow him on Twitter. Circle him on Google+.