The manufacturer’s choice of indirect channel relationships may be separated into those of a strategic nature and those which are matters of policy. In the former instance there are two basic alternatives: selective distribution is one in which the firm sells through one or a limited number of outlets in each market area or segment, or intensive, is one in which all outlets in a given market segment will be utilized. The decision to pursue a selective rather than an intensive strategy, or vice versa, based on a number of circumstances.
- Intensive distribution: If the manufacturer elects to market through all outlets of the chosen type or types that will buy his products, he may be able to gain complete coverage of his total market rather quickly. Merely by the laws of chance at least one outlet in each market area should be willing to handle his product. Moreover, there is apt to be fairly uniform quality of distributor performance throughout a manufacturer’s market, since one could expect to find both good and poor distributors in every market area, many of whom would be handling his product. However, the degree of cooperation the manufacturer receives from his several outlets covering the same territory is likely to be small because none receives preferential treatment and each is competing with the others in the sale of the manufacturer’s product.
- Selective distribution: If the manufacturer pursues a selective strategy, he must fit the chosen outlets into mosaics of areas in which they operate to be sure that all parts of the market are covered. He also has the problem of adjusting claims to territories where the trading areas of two or more selected outlets overlap. Perhaps the most serious drawback is that the manufacturer puts all his marketing eggs in one basket. The manufacturer who follows a selective strategy constantly faces the risk of losing an outlet in at least one of his marketing areas, and in the meantime being without good representation there.
The manufacturer can designate one distributor as his sole outlet in a given area and make a valid contract to this effect; he cannot legally make a contract that requires the distributor to refrain from handling the products of a competitor. The selective strategy when carried to the extent of the exclusive franchise can be exclusive on only one side, that of the manufacturer.
On the other hand, a selective strategy tends to generate a much close working relationship with the manufacturer. The spirit of cooperation between manufacturer and middleman tends to produce a higher quality of marketing effort by selected distributors and agents than under an intensive strategy. This manifests itself in more aggressive and active cooperation in promotional programs, and greater willingness to equip him to render the kind of service called for by the manufacturers.
The manufacturer whose pursues a selective strategy can expect some savings in marketing cost. The savings will probably not be commensurate with the reduction in number of accounts. Salesmen can usually spend more of their calling time in constructive effort to move the product into the hands of users and less of it in the struggle to get an order. Since the outlets would be fewer, the average order is likely to be larger, with resulting reductions in order-handling costs. The selective strategy also is likely to provide the manufacturer with a better distributor sales force to sell his product than would be possible with any other indirect alternative. If a distributor knows that the business he develops for a product in his territory belongs to him and can be served by no one else, it is clearly to his benefit to have his salesmen properly trained by sending them to the producer’s factory and by cooperating in other training programs the manufacturer may develop. This is especially important to the maker of highly technical products or those that require technical service.