The first time I heard the term “Channel Management” was in the 1990s.  I thought it referred to the person holding the remote control for the TV.  At the time, I was working for a large consumer electronics manufacturer.  It was at a time when new kinds of resellers were emerging, such as discount club stores, on-line ecommerce platforms, full-service specialty retailers, and so many more niche dealers, each serving a specific and targeted customer. We had always been managing our distribution to an extent, but with all of the new options of where to sell our products, we found the need to formalize the process.  Thus, the term  “Channel Management” was born.  It is the process of identifying and differentiating the way each sales outlet is sold to, priced, merchandised, and supported. 

Channel Management in the Age of eCommerce

Before the advent of on-line sales, the vast majority of purchases were done in a physical store (today called Brick-and-Mortar”).  Channels were easier for a supplier to control because very few stores crossed geographic boundaries.  Catalog sales did exist, but it was a very small, and a fairly insignificant part of the market.  Most retailers were regional.  Very few crossed national and international boundaries.  In today’s world, through ecommerce, anyone can sell anything to anyone in the world.  That makes channel management that much more important, and that much more difficult to manage.  

What Is a Channel?

There are various channels, or categories of retailers to choose from.  Below are the most common and general channels:  

  • Service-oriented
  • General merchandiser
  • High image and prestige
  • Discount/value price-oriented
  • Specialty/niche
  • Manufacturer/supplier owned

Once upon a time not long ago, ecommerce on-line retailers were considered a channel of their own.  Today however, almost everyone has an ecommerce platform.  Therefore the ecommerce-only category has been virtually eliminated.  All of today’s sales channels include an ecommerce component of some sort. 

Making a Product Statement Through Channel Selection

When a supplier chooses their distribution network, there are a lot of factors that goes into that decision.  Choosing the right mix of retailers is done for a number of reasons:

  • To establish the image of the product.   A product’s image can be determined in large part, by the retailers it is associated with.  The choice of retailers who can adequately represent, and demonstrate the product makes a product statement.  
  • After-sale service can also be a determining factor when choosing a retailer.  Some products, especially technology products, are complicated to use, and require support. 
  • The image of the product, and the value proposition of that product can be established by the price point, and sometimes the continuity of the advertised price, commonly referred to as MAP (see explanation below). 
  • Control supply and demand, especially if production quantity is an issue.

What Is MAP?

MAP is an acronym for Minimum Advertised Price.  Without going too deep into actual selling price and the associated laws (and there are many), MAP is a way for suppliers to create a uniform advertised price across the market.  There are many legalities regarding MAP which again, I will not be addressing in this blog.  Requiring a retailer to honor MAP is legal, and a common practice.  Some suppliers regard MAP as an important go-to-market strategy, some don’t. And, some retailers choose to honor and support MAP, some don’t.  

Why is this important when discussing channel management?  When deciding who to sell to, a supplier makes a decision as to whether MAP is important or not.  They may sell only to retailers who honor MAP, or they may have separate lines of products for different channels, some with MAP, some without.  MAP policy tends to be among the most important deciding factors for suppliers and retailers. 

Brand Ownership

It is important that a supplier own their brand, and controls the message potential buyers are getting about that product.  There is a natural conflict between the supplier and retailer in the messaging of the product, for various reasons.  Ultimately, the supplier should retain control of that message, and can expect that the retailer delivers the correct message.  In a perfect world, that is how it works.  In the real world, that does not always happen.  The wider the distribution, the greater chance the message will not be consistent from retailer to retailer. 

There are two criteria that will determine the identity of a brand:

  • Price – The advertised price and actual selling price will place a product in a specific “zone,” or category. Some suppliers want their products to be identified as “High End.”  Some want their products to be identified as “Value.”  There are almost an unlimited number of combinations and aspects of product pricing strategy.  Each outcome will deliver a different product message.  
  • Product content – In the ecommerce world, there is a saying “Content Is King.” There is no longer an in-person salesperson to answer the customer’s questions.  The product presentation is done through the content.  Quality, accurate, and complete content is a big factor in how well a product sells on the Internet.  It seems like an obvious point, but not all eCommerce platforms treat content the same.  If a supplier wants their brand and product represented well, picking sites that display content well will make all of the difference.  Not all platforms do that.  Some don’t include everything a supplier offers, and some actually use incorrect content. That is why it is important for a supplier to choose the best sites.  

Overdistribution and Retail Price Erosion

The wider a retailer network, the greater chance a product has of getting caught up in the discounting of the retail price point.  There are suppliers and retailers that don’t care about the resale price of an item.  Profit margin is not important to them, which means that a channel strategy and differentiation is not very important.  

On the other hand, if a supplier depends on a specific channel to distribute their product, and that channel requires a certain profit margin, then a channel strategy is crucial.  The same holds true for a retailer.  If they require a certain margin on their products, they may decide to choose suppliers who have a strong MAP program.  

Supplier Profit Margins

Ultimately, the retailers dictate the profit margins they require to sell a product.  The supplier makes a decision as to who they will choose to sell to, and whether they choose to meet the margin demands of each retailer.  Generally speaking, profit margins that the supplier can deliver to the retailer will be a major criteria in retailer choices and channel strategy.  

Summary

Channel strategy is a major determining factor in the success of a brand and product.  There is a delicate balance between the width of the retailer network, and the sales volume a product produces.  Each brand and individual model requires its own channel strategy. 

Problems caused by Overdistribution

  • Retail price erosion
  • Lower profit margins
  • Product shortages

Problems caused by Underdistribution

  • Not taking advantage of economies-of-scale in production, resulting in product pricing that is too high  
  • Lower sales volume 

Global ecommerce has created opportunities that didn’t exist as little as five years ago, especially for small businesses.  Understanding channel strategy is crucial in maximizing those opportunities. 

Perry Goldstein
Perry Goldstein

Perry Goldstein has spent over 40 years in the electronics industry, in both the Consumer and Pro A/V sides of the industry. He is a pioneer of the ecommerce industry, working with ecommerce platforms since the advent of the channel in the mid-1990s. He has extensive experience working with Amazon since their entry into the electronics industry, as well as many of the biggest online retailers.