The American Marketing Association defines channel of distribution as “An organized network of agencies and institutions, which in combination, perform all the activities required to link producers with users to accomplish the marketing task.”
Distribution is the physical flow of goods through channels; as suggested by the definition, channels are comprised of a coordinated group of individuals or firms that performs functions adding utility to a product or service. The major types of channel utility are:
- Place (the availability of a product or service in a location that is convenient to a potential customer);
- Time (the availability of a product or service when desired by a customer);
- Form (the product is processed, prepared and ready to use, and in proper condition); and
- Information (answers to questions and general communication about useful product features and benefits are available).
Since these utilities can be a basic source of competitive advantage and product value, choosing a channel strategy is one of the key policy decisions, marketing management must make.
Distribution channels in markets around the world are among the most highly differentiated aspects of national marketing systems.
For this reason, channel strategy is one of the most challenging and difficult components of an international marketing program. Smaller companies are often blocked by their inability to establish effective channel arrangements. In larger multinational companies operating via country subsidiaries, channel strategy is the element of the marketing mix that headquarters understands the least. To a large extent channels are an aspect of the marketing program that is locally led through the discretion of the in-country marketing management group. Nevertheless, it is important for managers responsible for world marketing programs to understand the nature of international distribution channels. Distribution is an integral part of the total marketing program and must be appropriate to the product design, price, and communications aspects of the total marketing program. Another important reason for placing channel decisions on the agenda of international marketing managers is the number and nature of relationships that must be managed. Channel decisions typically involve long-term legal commitments and obligations to other firms and individuals. Such commitments are often extremely expensive to terminate or change. Even in cases where there is no legal obligation, commitments may be backed by good faith and feelings of obligation, which are equally difficult to manage and painful to adjust.