Kaushik Gala: Which distribution channels will you use?

galatime.com - Kaushik Gala

Note: The views & opinions expressed in these essays are strictly my own, and not those of any entity I may be associated with as an employee, consultant, promoter, investor, etc.

Which distribution channels will you use?

(Last revised Apr-2012, Send comments to galatime@gmail.com)

Distribution channels are the means by which (technology) products/services get sold. While designing their business model, entrepreneurs need to analyze:

the various offline & online channel options available,
the economics of each option, and
the benefits and challenges of each option, and possibilities of conflict

Early-stage ventures must try out multiple types of channels (e.g. direct sales, big-company partner, distributor) to understand the trade-offs between sales volumes, channel margins, sales cycle-time, etc. Using a check-list of critical success factors for your product/service will help zero-in on the most suitable channel(s).

As a supplier with relatively less leverage, your pricing power & profit margins will greatly depend upon the 'shapes' of distribution channels:

Channel shape	Number of suppliers	Number of distributors	Number of customers
Hour-glass	Many	Few	Many
Funnel	Many	Moderate	Few
Pyramid	Few	Moderate	Many

In India, technology ventures have to face more hurdles in distribution, e.g.:

Impact of unequal state / local taxes (e.g. octroi, VAT)
Counterfeiting & grey market
Expectations of kick-backs (especially in B2B & B2G contexts)
Skewed costs of reaching consumers (e.g. bottom-of-pyramid rural markets)
Multiple layers of (outsourced) distribution, resulting in an unreliable, inefficient channel with greater costs and delays

Tools

Harvard's channel margins simulator

Perspectives

In India, Distribution is King - be innovative in your channel strategy.
Mark Suster on the fallacy of channels