If you want to understand the Internet, you need to understand the basic ideas of a channel. Why? Because in many ways the Internet is simply a different way of distributing what channels have traditionally distributed.
Typically we think of a channel of distribution as a manufacturer selling to some retailers or distributors, and then on to consumers. We might also think of a salesperson or a manufacturers' rep in that channel as well, or any number of other businesses that can move a product from a manufacturer to a buyer.
But if you want to understand channels of distribution, the first thing to note is that distributors, retailers and the other channel members are physical institutions that can make up a channel of distribution. But there is another way to look at the channel that is far more powerful.
CHANNELS AS FUNCTIONS
Long ago academics stopped looking at channels of distribution as physical institutions, and instead began seeing them as a set of channel "functions". Below we list these basic functions:
- Who collects and distributes information? (information)
- Who develops and disseminates promotional communications? (promotion)
- Who agrees on terms for transfer of ownership or possession of the product? (negotiation)
- How handles the ordering? (ordering)
- Who provides financing for the purchase? (financing)
- Who assumes the risks, such as product failure? (risk taking)
- Who moves the product? (physical distribution)
- Who stores the product? (storage)
- Who shapes the offer to a buyer's needs? (matching)
- How handles the payment of funds? (payment)
These may look a bit dull to be sure. But to understand why these are important, consider this. In any channel of distribution, each of these channel functions must be performed by some party (or parties). Typically, a business was created (e.g., an intermediary) because they could perform one or more of these functions more efficiently than some else.
A distributor (the classic middleman) is a prime example of this. In comparision to manufacturers, distributors have traditionally been better able to match a manufacturer's products with customers. Thus, distributors performed a more efficient matching function.
Allen Weiss is the founder and publisher of MarketingProfs.com. He can be reached at firstname.lastname@example.org.