Mar 27, 2009

Big D distribution

Surviving the distribution revolution won't be easy, and is not for the fait of heart - espefcially in the current global economic environment.

But there's way to not only stay out of the line of fire - but thrive. It's through big D-style distribution. And you achieve it by building differentiation, diversification, and discipline into your routes-to-market strategy.

A few words about each.

Differentiation. Start with a straightforward strategic exercise: figure out experience gaps most important to customers, evaluate the current distribution system’s capabilities to create the desired outcome, and proactively negotiate “who does what” to close critical performance gaps.

  • Market leaders take an end-customer view of distribution and from it create precise refinements in how their channel systems meet the distribution needs of end customers. Their ultimate goal is ensuring that end-customers’ distribution experiences with their own products are demonstrably better than with competing products.

Diversification. Market leaders know deep down that there is peril in viewing distribution needs as homogenous. They work diligently to see the trees for the forest. They ensure that unique channel solutions are crafted individually for every potentially profitable segment of customers. Diversification is just as essential in distribution as it is in other portfolios. One-size-fits-all never works everywhere or always.

  • Thus, attractive as low-cost channels can be, both Dell and Wal-Mart have seen their growth stall as they reach the saturation point of efficiency-minded customer segments. Both are now struggling to branch out. If they are successful, it will be by structuring direct sales, the Internet, and channel relationships into a portfolio of activities designed for unique customer distribution experiences.

Discipline. There is a critical distinction to be made between unhealthy channel conflict and healthy channel competition. Conflict tends to be marked by price wars between distribution channels that lack differentiation from each other. Healthy competition, on the other hand, flourishes when different channels create distinct sets of distribution experiences to attract different segments of end customers.

  • Minimizing conflict and invigorating competition requires discipline in channel portfolio design and management. Above all, it requires making sure that channel mix, intensity, and management decisions are true to customers’ experience demands and shared manufacturer-distributor beliefs about how customers segment.

* * * *

Manufacturers and distributors can do a much better job of acting in concert with each other, assigning and coordinating downstream programs and activities to create powerful new total customer experiences.

By focusing together on experience innovations, they will give end customers higher, more desirable value and drive market share and profitability gains.

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