Channel Diagonal Theory

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Channel Dispersion Theory

Channel dispersion theory, first introduced by Professor Michael Porter of Harvard Business School, is a strategic marketing concept that aims to maximize the return on an organization’s marketing resources by optimizing the distribution of goods and services through multiple channels. Essentially, it suggests that a company should differentiate its goods and services by distributing them in as many outlets as possible in order to increase the company’s revenues and profits in the long run.

Under this theory, companies should focus on exploiting the different channels at their disposal in order to expand their presence and maximize the return on investment for each of their goods or services. There are two primary channels that are considered in channel dispersion theory—direct and indirect. Direct channels involve selling directly to customers, including retail outlets, independent distributors, and sales forces. Indirect channels involve selling to intermediaries and then to the customer, i.e. wholesalers, brokers and other third-party providers.

The main advantage of the channel dispersion theory is that it enables companies to increase their margin by differentiating their offerings. For example, a company may sell only high quality goods to its customers directly while selling low-cost goods through its indirect distribution channels. This enables the company to capture a greater share of the market even on relatively small sales. Furthermore, since the company has invested in different channels, it can enjoy a larger base of loyal customers and is able to quickly adapt to changing markets.

Channel dispersion theory also enables companies to benefit from economies of scale. By leveraging different channels, companies can lower their overall costs by sharing and leveraging the same resources. Further, by increasing the number of distributors, companies can benefit from increased bargaining power and access to a wider variety of markets. Finally, channel dispersion allows companies to hedge their investments by investing in multiple channels, thus ensuring that if one channel performs poorly, the other channels can act as back-ups.

In conclusion, channel dispersion theory enables firms to take advantage of different channels and optimize their marketing strategy to maximize revenues and profits. This can be done by exploiting the different channels available and by leveraging economies of scale. By investing in multiple channels and targeting diverse markets, companies can benefit from increased revenue streams, increased customer loyalty and the ability to quickly adapt to changing markets.

The channel conflict theory, developed by Jeffrey M. Kernoff, is a technique that aligns the demands of channel members with each other to reach a beneficial goal. This theory encourages companies to break traditional channels of distribution and to look at new and innovative ways to match suppliers and consumers. The key to successfully implementing this theory is to view the demand of channel members as a vast array of individual parts and structure them so that they develop a cohesive whole.

The theory suggests that channel members must interact with each other along a diagonal. This means that they must recognize and address their different needs. The theory uses the concept of power, which is determined by each channel members perceived control over the relationship.

In applying the theory to the distribution of products, the goal is to create a channel of distribution that ensures the satisfaction of both channel members and the customers. This requires a mutual understanding of goals and incentives between the channel members. Effective collaboration must be established between all members in order to ensure that everyone involved receives their desired level of compensation.

Once these connections between channel members have been established, it is often helpful to chart them out like an inverted pyramid. This method can help create a visual representation of the different levels of influence each member has, and how this requires them all to work together to maximize profit and reach a successful outcome.

The origins of the channel conflict theory stem from the realization that distribution chains are not merely linear. To be successful, all members must be equally invested in the success of the chain. Kernoff argued that all components of the chain should interact with each other, which could create problems if they were working against each other because of conflicting interests or agendas. With the implementation of the channel conflict theory, these issues can be addressed and all members are able to execute their responsibilities in a predicative and mutually beneficial way.