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Channel Leverage

Definition - What does Channel Leverage mean?

Channel leverage is the strategy by which a company makes the most out of its different distribution channels. Though often viewed as increasing the efficiency of different channels, in reality, it is about maximizing the different channels to achieve scalability.

Divestopedia explains Channel Leverage

Channel leverage is highly dependent on the existing management structure. If a company is engaged with multiple channels, then the management structure will be wide enough to make adjustments on an as-needed basis. Hence, it is important for the company to view each channel from the ideal maximum size point of view. Based on this view, the company must decide on a strategy to get to that ideal maximum size. This ideal size will be different for different channels, so the company should have a proactive strategy for its partner programs, direct sales, incentive models, online channels and any other channel through which the company will be selling its products.

For example, if a company is using only the direct sales channel then it is a non-leveraging model because it offers no scope for scalability. Even if the company makes the most out of that direct sales channel, it may still not be enough for the company to distribute its products. Alternatively, when the company engages in about ten different channels, such as dual distribution, reverse channels and selling through intermediaries, then it increases the possibility for the company to sell more products through those channels. At the same time, it is important for the company to keep adding new channels to enhance its scalability.

Based on the ideal size, the company should work on its remuneration models. Many channel management strategies fail when a channel is no longer scalable and the organization is not able to leverage it. Therefore, any one channel should not be allowed to grow out of control. At the same time, it should not be restricted as this reduces the market access available. This is why every company should follow an optimum strategy that will allow it to leverage the power of each channel.

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