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Channels of Distribution
Regardless of medium, the channels of distribution hold a great deal of significance. In fact, with traditional sales techniques, the channels of distribution account for approximately 50% of the entire marketing cost. It does not take long to realize that slicing the cost of distribution even slightly will greatly increase profit margin--putting more cash in your pocket.
I simply cannot imagine the look I would have received if ten years ago I had gone to some large wholesale company and said, "You know how you guys buy your product from the manufacturer and then sell it to some retailer who sells it to the consumer? Well, I had this great idea. You could buy your product from the manufacturer, but then sell it directly to the consumer...with very little expense. In fact, you wouldn't even have to open any stores, you could sell it electronically." Ten years later, after they finally release me from my straight jacket, they would understand exactly how the Internet has shaped the channels of distribution. In essence, the web has allowed some companies the opportunity to completely remove the retail level of distribution, resulting in a "manufacturer to wholesaler to consumer" strategy.
Companies such as Amazon.com has initiated a new wave of distribution called "Affiliated Networks" in which the traditional sense of wholesalers and retailers have been collapsed into one entity. Amazon.com, as well as music companies such as CDNow, have found a virtual gold mine in creating on-line storefronts that sell products directly from the manufacturer to the consumer. This has not only increased competition and decreased overhead, but it has allowed some companies to concentrate more fully on allowing the end consumer to customize the product being purchased.
A prime example of this customization trend is a company called Custom Revolution who will soon allow consumers to create their own personalized compact discs on-line by selecting from a variety of individual songs. No longer will you have to purchase those 14 tracks of instrumental music from the Titanic soundtrack to get that one Cilene Dion song. Instead, consumers can search for music by entering general information such as the artist, genre, or title, or enter keywords describing emotions or occasions such as "beach music" or "romance". The company aims to compile the music onto the compact disc and send it out within one day. In an interview with Wired Magazine in December, Custom Revolution president Nick Darveau-Garneau explained the company's strategy like this :
"Twenty-four million people bought Michael Jackson's Thriller in the US, but that means that 50 or 75 million record buyers didn't. That's our market - the hundreds of thousands of people who wouldn't buy the album, but would pay $1 to put 'Billie Jean' on a custom disc."
In addition to selling custom compact discs, Custom Revolution will also be carefully assembling and analyzing buying behavior from customer purchases and then selling the information to the music industry. This dual-purpose strategy provides a lifejacket for the uncharted waters of custom compact disc sales.
Other larger companies have followed this customization trend while decreasing the channel of distribution even further. In fact, many manufacturers have decreased the channels of distribution to an optimal two level strategy--themselves and the consumer.
Computer manufacturers such as Gateway 2000 and Dell allow consumers to not only learn more about the computers they sell, but customize features such as processor speed, memory, hard drive space, and sound cards, and then purchase the customized computers instantly on-line. Companies such as these understand the needs of a large portion of their consumers -- instant information, customization, low prices, and direct purchase. Decreasing the channels of distribution allow them to achieve these goals more efficiently and effectively.
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