Channel Choice: It’s not the Distribution Channel – it’s the Lifecycle

We live in an age of channel proliferation.  Possibly the latest channels to arrive on the scene are the social networks (e.g. Facebook, MySpace, Flickr, LinkedIn) and the virtual social experiences (if you like existing in a parallel online world as an “Avator” in Second Life). It might be interesting therefore to consider channel proliferation in a business to consumer context.

Twenty years ago, the use of distribution channels strategically became hot stuff in the UK with the revolutionary use of the telephone to distribute car insurance directly to the insuring public cutting out the middle-man – the insurance broker.

Reaction at that time was polarised to this dramatic development.  One camp said, in the words of the famous Corporal Jones from TV’s Dad’s Army,  “We’re all doomed – it’s all going to go from insurance brokers to the direct channel”.  The other camp said exactly the opposite, holding that “it just won’t work”.

Well, as they say, truth is the daughter of time.

Looking at insurance distribution statistics here in the UK, yes direct insurers have made material inroads, but substantial market share is still controlled by intermediaries – insurance brokers. And the answer to future sources of competitive advantage is to be found at least partially in this experience of insurance sales from the UK.

The direct channel trend has hit many industry sectors, and the Web has of course been a major catalyst in encouraging the establishment of direct distribution strategies, probably the most well known being the PC manufacturer Dell.

So it was interesting to learn that Dell have started to break away from their famous direct only model to use retailers as distributors – you may have noticed their products nestling within PC World newspaper advertisements here in the UK.  So Dell is “proliferating” its channels.

What we can learn from the UK insurance experience is that it is highly unlikely that a single distribution channel will dominate, or be totally effective over time.

Yes, many readers may well say that we’ve understood that.  Companies now quote the number of channels that they use to distribute their products.

But there is more to strategy than the portfolio of distribution routes that are available – it’s how distribution routes are used to create advantage in a world where technology and the Web have done two things – increase price based competition and commoditised offerings.  And that is where I would suggest the concept of lifecycles comes into play.

When I talk of lifecycles I have in mind the consumer’s lifecycle and the usage lifecycle of your product – from pre-purchase awareness generation to final consumption and disposal.  My proposition for your consideration is as follows.  The type of contact that end consumers want with your organisation (and therefore potential sources of competitive advantage) will alter dependent upon both the lifecycle position of the consumer and the lifecycle stage of your product when it is being used by the consumer.  You can construct a matrix out of these two dimensions to try to identify where, in your marketplace, current and emerging distribution channels can be deployed most effectively.  This might be a helpful approach when considering future distribution channel strategy.

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