Ch. 14 - Marketing Channels and Retailing

The fundamental concepts behind utilizing expansive or specialized marketing channels and retailers was always to get your product out to the most amount of potential buyers possible. In the pre-2000's world, this usually meant having product presence or retail in as many physical locations as possible. Since most commerce up until then was done in-store, this was always the best practice for mass produced products of pretty much any kind. In order to get these products out there, marketing channels were utilized so that manufactures didn't have to worry about the product once it was off the assembly line. In today's world, however, where anything and everything can be ordered online (and quite often with not shipping charges), physical product presence doesn't necessarily need to be as extensive, so much is a social awareness for it. All people need to know is that your product is out there. That is, if enough people know about a specific product and its reputation is well founded, people don't need to find it in a store to purchase it- they just go online.

Another concept that is of great importance to both sales and service is mark-up. Every intermediary in the marketing channel between the producer and final consumer will mark up the price at their level in order to make their profits. A producer will sell their product to a wholesaler at $X, the wholesaler then charges the retailer $X+10%, and the retailers charges the consumer $(X+10%)+10% (10% being a very modest markup in the world of retail).The more links in the chain the greater the markup. The consumer at the bottom of this chain ends up paying an addition of 21% (again, being modest) that essentially pays the way for the entire distribution line.

So once again the recurring question- in this world of online shopping, where a direct link can be established between customers and producers, where anyone can buy anything online, is the entire chain of distribution even necessary? Could we not, at the very least, remove a few links in the chain?

Tesla Motor does exactly that. Based on the Dell Sales Model (1994), Tesla customers can order their cars, online with the specifications they desire, and have their cars shipped to their houses, all while saving on all the marking up done along the chain. While there are many Tesla owned store-fronts, these are more of the informative institutions (product research, test driving, etc.), sales being conducted mainly online. Tesla doesn't need the power of quantified retail real estate to reach customers, since their product can be bought anytime and anyplace.