Costs of Distribution Channels

Obviously, financial resources and cost-effectiveness are important in considering distribution and sales force options. What can you afford, and what will give you the most bang for your buck?

For example, Life Designs, an independent architect specializing in residential work, has identified three primary distribution channels for its residential design services and estimated costs for each one:

• Media sales: This channel is composed of competitors who advertise in local city and county magazines, newspapers, and real-estate flyers, subdivided by home-design only firms and home-design and industrial-design firms. Ad inquiries are referred by the various media groups carrying the ads. This quasi-sales force is paid on commission for referrals that turn into jobs.
• Contractors and developers: This distribution channel is composed of referrals from contractors and developers who receive a commission from home owners and buyers. The contractors and developers are the "sales" personnel, who expect a commission and entertainment.
• University design department: This is a closed distribution channel for architectural students and professors only. It is not open to any other architects. However, this architect's reputation may be enhanced by occasional lectures at the university.

Life Designs knows from talking with media suppliers, competitors, and contractors that the least expensive distribution channel is sales from contractors and developers. However, the frequency of sales referrals and volume of business is unpredictable. It is also somewhat out of the architect's control because the business is dependent upon many outside variables such as the economy, style of home wanted by buyers, etc.

Life Designs decides to work with two distribution channels concurrently — both media and the contractor/developer channels, since most of the spending commitment is for media. The contractor/developer channel requires personal time and some minor entertainment expenses (wining and dining the contractors). This one-man architect firm cannot spare much free time, and media spending will provide a good alternative when he is busy with a project.