[MUSIC] Hello, we'll continue here our journey in the marketing mix elements and now we move into the distribution channel strategy. This is the third P which is place but we call it distribution channel. Let me begin with a definition, okay. As in the other elements of the marketing mix, I'd like to begin with an understanding of what is the distribution channel. Using a definition, a classic definition, a distribution channel is the path through which goods and services go from the vendor to the consumer. Basically, the idea is that the distribution channel is a set of independent organizations that are involved in the process of making the product or service available for use or consumption. A distribution channel can be as short as a direct transaction for the producer to the consumer or may include several interconnected intermediaries along the way such as wholesalers, distributors, agents, and retailers. So basically, we're going to talk about the whole set of elements that could be between the producer of the product or service, and the final user, okay, and the final buyer. So, one of the main questions that you may be asking yourself is why is the distribution channel decision is so important? Why is this part of the marketing mix? Well, the thing is basically because building a distribution channel takes a lot of time and resources. Okay, so the distribution channel decision is actually long-term. Okay, it takes years to build and is not easily changed. Okay, so the distribution channel is usually a long-term commitment with a very powerful inertia. So the tendency is basically to try and define the distribution channel for the long term okay? Because it has a lot of implication in the other elements of the marketing mix okay? For example thing that we decide to use these intermediary, well actually this is usually a long term commitment okay? And remember there is a lot of interdependency between the different elements of the distribution channel. So, if I'm the producer, my success depends on the intermediary because this is the one who is going to sell to the final customer or final consumer. So, every channel member depends on the other. Okay, so we should think carefully about the distribution channel that we're going to define in our marketing plan, okay? Here, we can see the different ways of organizing your distribution channel. That can go from a very short and direct channel where you basically go from the producer to the final consumer or customer. Or a very long channel where you have different intermediaries between the initial producer and the final consumer. Okay, typically, in some products, for example, anything that is sold on the internet many times goes from the producer to the final user, or the final consumer. For example, a hotel which is selling rooms online in its own website is, basically, a direct channel. While if you are using an intermediary, for example a travel agent, that travel agent is your channel, your distribution channel, okay. Basically, the biggest distribution channel dilemma is whether to use a direct distribution or a indirect distribution. Basically, whether to use intermediaries to get to the final customer, okay. Let me give you an example here, a simple example. Let's say that we are a producer, a manufacturer of furniture based in Spain, okay? And this guy wants to sell his product in Germany, okay? And basically the guy is considering two options in his marketing plan for Germany. One is creating his own distribution channel, hiring for example ten sales representatives in Germany that they will be paid a fixed salary plus a commission and go there directly, that would be the direct situation. And the other option is looking for an agent, okay. So a distributor an intermediary in Germany that is going to take care of selling his product, okay. This intermediary, for this example, seems to have 30 sales representatives in the German market and they will work on commission only. If they sell, they make money, they don't sell, you don't pay them. Okay. And they asked for an exclusive distribution contract meaning they are the only ones are going to be able to sell new products in the market. What is the best decision? What will you do? Well, as usually happens in marketing, there's no right or wrong answer to this question. It's just a question of using criteria for making the right decision. And what is the criteria that we recommend using in this case? First, economic criteria. What is what makes economic sense? Is it better in terms of profit or of course the presumption, the direct distribution or the indirect distribution. Of course, it depends on your forecasted sales in the market. The strategic criteria, that would be the second criteria, meaning from a strategic perspective which one is better. And the strategic meaning do I want to have direct contact with the final customer? Then I need to have direct distribution for strategic reasons, okay? If I use an intermediary, the one that is going to be in contact with the final customer and knowing about the customer is going to be my intermediary, not me. And the third criteria would be flexibility. What is more flexible? If I need to change anything, if I need to adapt myself to the changes in the market, what is more flexible? Usually, the indirect distribution it tends to be more flexible okay, in terms of, for example, of leaving the market, okay. So finally, to close this discussion, let me mention three different types of distribution channel values usually define a marketing plans. One is what we call the intensive distribution where I want to be everywhere, typically used in convenience pools of buying goods or consumer goods. I want to be in any type of distribution channel that I can find. Then, this is what we call the Selective Distribution, where I'm going to choose only some of the distribution channel members to sell my product. Okay, usually that happens in fashion products or perfumes, for example. And then the Exclusive Distribution, meaning I'm only going to choose some members for example the case of the German market that we mentioned before. That will be an exclusive distribution. Which one is the best distribution channel for you? It depends as usually and once again on your target segment. Okay, so depending on what you're trying to get in the market, you should define the distribution channel one way or another. And that will be a concern in the distribution channel definition. Thank you very much. [MUSIC]
