Critique: Distribution Channel Profitability

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Critique: Distribution Channel Profitability
The article, Distribution Channel Profitability was published in a trade journal in January 1995, the era of Activity-Based Costing (paradigm C). The author, Kenneth H. Manning, poses the question “Do companies know which of their distribution channels is most profitable?” The purpose of the article was to evaluate distribution channel systems using ABC concepts to make strategic decisions. The author advocated the need to understand the revenue and cost trade-offs associated with the various channels through which companies deliver products and services. He discussed three approaches to evaluate strategic issues within the distribution system and advocated the Strategic Cost Management approach to channel profitability in particular. This idea is notable because profitability studies are shifting from product and client profitability toward channel profitability. Companies are starting to analyze the impact of their distribution channels as the number of distribution methods expands. The logic behind this trend is clear different channels will have different profitability levels. Just as it’s important to recognize the most profitable products and the least profitable products, it’s important to understand each distribution channel’s profitability. The concepts behind channel profitability are identical to those behind product profitability: measuring the revenues and costs associated with each channel to determine its profitability and taking strategic decisions to use the most profitable channels as much as possible while focusing less on the least profitable channels

Channel profitability studies are here to stay. Global competition means that the companies with the best information will be the most successful. To be profitable, organizations must know where they derive their profits — from which products, from which customers, and now, from which distribution channels

He said every business deals with...
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