As entrepreneurs, our businesses are fueled by volume of potential customers reached and the purchases that result from a fraction of the customers reached. The challenges associated with reaching a wide potential customer-base cannot be over emphasized. In this article our channel choices are challenged and the risks associated with the number of channels we choose are enumerated.

As entrepreneurs we are desperate for customers and for these reasons we tend to use multiple channels to reach our customers. Some of the available channels are through stores, the Internet, phone purchases etc. These have a tendency to be more expensive than in cases where only one channel is used. The proliferation of channels has had the unintended consequence of increasing costs and diminishing revenues in many cases. To regain control of our profitability and to use the resources available to us most efficiently, it is best if the company is able to actively guide their preferred customers to the right single channel during sales through the offering of incentives.

It is customary for entrepreneurial businesses to emulate larger organization and non-resource restricted firms through the use of multiple channels to reach and service their customers. However, these firms are better able to manage multiple channels because they have the financial means to manage, maintain and keep abreast of all the channels simultaneously. They also have the human capacity to keep multiple channels. In many cases, the breadth of the overall customer base is substantial and as such, each channel manages a big enough customer base. The size of an entrepreneur’s entire customer-base can be a fraction of that managed through one channel of a larger firm.

An illustration of this can be found in this example. In this instance, customers purchase the said products through the stores, phone order and the internet and are informed and sensitized via all these means. The entrepreneur has to keep all these channels informed and maintained. To reduce costs, the entrepreneur can set aside a period when all the channels but the one to be retained (in this case the phone order method) offer incentives for the use of phone purchases. This will cause a migration of customers to use the more beneficial channel. The cause for abandoning the stores may be because of the cost of stocking the stores, distribution costs, cost accrued as a result of late payments or credit sales to the store or the inability of the store to provide a transparent interface between the product users and the manufacturers. The internet may have been abandoned as a result of the cost involved in maintaining the website, updating information and the inability and convenience of desired customers to have access to the internet.

Another example can be illustrated in the case of a real estate firm, the very large firms may use the internet, chains of estate management offices, direct mailing and newsprint advertisements of the property available on the market. All these channels may individually generate adequate incomes and profits to keep them relevant. However, an entrepreneurial firm may become unprofitable because many channels are used and the cost of maintaining the channels are sucking out the profits of the firm. In this case, the entrepreneur may decide to use just direct mail and maximise on either a database of clients or remain within a specific geographical location to service its clients better and more effectively.

Carefully, tailored “routes to market” can become important sources of differentiation, as they are difficult to imitate and can become strongly associated in the minds of customers with actual product or service offerings. In many cases, a small number of satisfied customers within a niche is more profitable than numerous customers with various needs. The cost of reaching the wider variety and keeping them satisfied is costly both in terms of finance and human resource .

The Take-away

Companies can reduce their sales and service costs, increase their revenue per customer, and penetrate underserved segments by guiding customers to the most appropriate channels. To do so, companies should gain a clear understanding of their channel economics and develop plans to manage relations with their channel partners.