The Economics of Channel

Distribution is purchased access to demand. Its full cost includes both visible fees and the bargaining power created by dependency.

The argument.

A distribution channel is not economically neutral. Retail margin, marketplace commission, fulfillment charges, allowances, advertising requirements, chargebacks, returns and compliance all sit between the consumer price and the seller’s contribution.

The explicit take rate is only the beginning. Concentration creates an implicit cost because the channel learns the cost of your switching. The more of the business that depends on one gatekeeper, the less credible the threat to leave becomes. Terms that looked negotiable become structural.

This is why two channels selling the same product at the same consumer price are not the same business. They can have radically different contribution, cash-conversion cycles, data ownership and bargaining positions.

Channel strategy should therefore be modeled as economics, not account management. The relevant variables are contribution, incremental demand, capital requirements, substitution and dependency.