Channels

• 1. Understanding the role of distribution channels and how we reach customers

  2. Web distribution vs Physical Distribution

  3. Understanding how prices are established

  4. Direct vs Indirect Channel Fit

The greatest product or service in the world is useless if people do not know about it or have no way to get your product. In this section we will discuss how to personally target our customer segments to generate interest, keep them coming back, and how to maximize sales with our current customer base.

Watch the following videos and answer the questions to prepare for class discussion, online discussion (FB Group), and for your quiz. Each of the videos are between one to three minutes in length. While they may be short, it will take you some time to get through all of the videos and answer the questions.

All titles listed in GOLD represent the videos you will need to watch for the first quarter. It is recommended to watch and answer the questions prior to class to help facilitate instruction and develop a deeper understanding. You may choose to watch all of the videos listed below or the entire library in Udacity. See the course schedule for instruction dates.

Videos to Watch

Udacity: Lesson 7.1 – Introduction

Udacity: Lesson 7.2 – Distribution Channels Overview

Udacity: Lesson 7.4 – Web Distribution

Udacity: Lesson 7.5 – Physical Distribution

Understanding the Financial Anatomy of a Business

Before moving forward, it is important to understand what factors are considered when creating a price (Manufacturer's Suggested Retail Price - MSRP). In the diagram above you can see how the cost of manufacturing, product distribution, marketing, taxes, and research and development all contribute to the final shoe price. What might seem shocking is that, in this example, Nike only makes $5 per shoe after all expenses that went into getting the shoe into a customer's hands.

You might be thinking, "what about when they sell the product direct from their warehouse or in their Nike stores?" While it may seem like they will be making a greater profit, there are costs to having a warehouse or running a store front (direct channel). In the next video, 'Direct Channel Fit', they will introduce the concept of working with 'resellers' (Indirect Channel) such as Footlocker, Champs Sports, and Shoe Palace to help expand their distribution channel.

While Nike may get only $5 for each shoe, resellers will purchase these shoes in bulk (100's to 1000's of shoe orders for larger resell businesses) securing profits for them. In order these resellers to make a profit and cover their costs, they will mark up the customers to the MSRP of $100. Though it may seem as though the resellers make a larger profit margin, remember that they must pay for their store front, employees, insurances, taxes, and not all shoes will sell for MSRP.

Udacity: Lesson 7.8 – Direct Channel Fit

Think about it: Direct Channel Fit

• • Would you rather use a direct channel, indirect channel, or both? Why?

  • Why is Nike happy to make $5 off each shoe when selling to resellers?

Udacity: Lesson 7.9 – Indirect Channel Economics

Think about it: Indirect Channel Economics

• Using resellers to increase sales and profitability

• While you may lose out on bigger profits per unit, you may gain significantly more in total unit sales

Udacity: Lesson 7.10 – OEM (Original Equipment Manufacturer) Channel Economics

Think about it: OEM Channel Economics

• How your product/service may play a role in the final products costs

Udacity: Lesson 7.12 – JerseySquare Channel