Using Selectivity to Motivate Channel Members

What Level of Intensity (Selectivity) is the Best Channel Strategy? Affects the ability to implement channel programs Affects level of control Manufacturer’s perspective Intermediary’s perspective

Coverage versus Assortment: Convenience Goods Typically manufacturers of convenience goods should pursue higher levels of intensity downstream. Relationship between coverage and sales/market share Spatial convenience is critical FMCG

Downstream Channel Members Don’t Like Intensive Distribution The intermediary tries to differentiate itself via its assortment Intensive distribution means competitors have same brands The intermediary has to find another way to differentiate Source of conflict May result in the brand being dropped

How can the manufacturer manage intensive distribution? Contractual arrangements Pull strategy to build brand equity Limit market coverage Resale price maintenance Available in global markets Illegal in the U.S.

How does the retailer or wholesaler decide how many brands to carry? The importance of the product assortment to the customer suggests exclusivity is not the best choice Manufacturer wants maximum coverage Intermediaries want multiple brands per category Potential for conflict

Negotiating Selectivity Threat of complacency The nature of the product category Convenience, shopping, specialty Brand Strategy Quality positioning Premium pricing Scarcity

So how can the manufacturer use selective distribution and motivate members to support the brand? Restrictive contracts Specify obligations of reseller Specify conditions for termination Specify demanding goals

Choosing Selectivity to Gain Influence Over Channel Members Assumes the channel member will not respond to market incentives Selective distribution can be used to gain cooperation from members Higher margins and higher volume Allows reseller to differentiate Works best when the brand is positioned as premium

The more important control is to the manufacturer, the more selective the manufacturer should distribute Selectivity creates reward power More and better resellers may be available A small, dedicated group of resellers may provide higher levels of marketing effort

Selectivity May Be Used to Stabilize the Channel Relationship If power is unbalanced, the stronger member may offer selectivity as a reassurance A stronger manufacturer may limit number of members in a market A strong reseller may limit the number of competing brands

If a Direct Channel is Used, Selectivity May Be used to Reassure Other Members Manufacturer reduces channel members in a market to compensate

Will we really reduce costs by reducing intensity? Selling expenses Support expenses Lower turnover of resellers Reduced inventory holding costs Improved forecasting

Will we really increase sales if we increase intensity? Generally, brands that are more widely available have higher sales/market share May be caused by a third factor Increasing revenue may not increase profits Customers may be willing to pay higher price for a brand that is widely distributed