A Macro perspective of Channel Performance

A recurring question dealing with distribution in society is: Has the consumer been paying too much for goods and services because of the cost of distribution? The answer to this question has been elusive due to many inherent problems associated with two tasks: quantifying the appropriate objectives for distribution in the economic sector and gathering data. To answer whether or not distribution ‘costs are too much’ it is first necessary to specify these objectives and then assess current performance relative to those objectives.

Macro Objectives:

It has generally been agreed by marketing analysts that the output of distribution is a series of services for consumers. Bucklin suggested that these services can be classified as lot size time, market decentralization, and product variety. Lot size refers to the ability of consumers to purchase products in the quantities they desire. Waiting time is the length of time it takes for customers to gain possession of goods after they have purchased them. Market decentralization refers to the proximity of goods to buyers and to the customers’ convenience in buying product variety refers to the customers’ ability to purchase an assortment of goods and services that matches their unique desires.

Clearly, the measurement of distribution systems on a societal or even an industry level in terms of these service outputs is virtually impossible. In fact, it should not be suggested that society would necessarily benefit from maximization of any one or all of these service outputs, For example, an increase in product variety may lead to an excessive proliferation of products and a trivialization of features in the product assortments. Determination of the optimum performance of an economy’s distribution structure in terms of service outputs will, most likely, continue to be difficult.

A reacted issue concerns well the distribution system provides equitable access to service for all members of society. For example, in rural areas and urban ghettos the assortment of products available, the location convenience, and the waiting time for service may all be significantly worse than in other markets. Similarly, prices to these consumers are generally higher than in other markets.

Nevertheless, it may be useful for management to ask questions about the ability of existing structures within an industry to satisfy customers. Have customers’ needs or desires for the service outputs been met? Such analysis may reveal a potential for innovation that would otherwise remain undetected. An interesting example is revealed by the changes in the distribution channels or household furniture. For decades, the distribution of furniture required that consumers visit local independent furniture stores. These were, in effect nothing more than showrooms that displayed various styles and models of furniture. On visiting a store a consumer could choose, for example, a sofa in a desired style and with a specific pattern of upholstery. The furniture retailer, in turn, would send the customer’s order to the manufacturer who would then schedule the item for production. It was not uncommon for the consumer to wait as long as six months for the sofa to be produced and delivered. Due to these long lead times, many customers were subject to dissatisfaction. In the 1960s alternative channels for distribution of furniture emerged. Large furniture retailers came onto existence that maintained sufficient inventories to allow consumers to take possession of their furniture at the time of purchase. While consumers may have given up freedom of choice in terms of the product variety available, many are willing to make that trade off in order to obtain the product immediately. In the 1990s, both channel structures are available to consumers, and can be selected based on the individual’s needs.