Routes to Market
Applied Market & Business Strategy (the “Strategy & Management Game”) - NIT / TUHH, Hamburg · part of my Technology Management MBA · study notes for revision.
You can have the best product and the sharpest positioning in the world, and still fail - because the customer never gets a clean, convenient way to buy it. This chapter is about that gap: the route to market. It’s the path a product travels from the factory to the moment it’s actually used, and - when you cross a border - the entry mode you pick to reach a foreign customer at all.
The two questions sit together neatly. Domestically, the question is “which channel serves my customer best?” Internationally, it becomes “how deeply do I want to commit to being there - and how much control and risk does that buy me?”
1 · Entry modes - the control-vs-commitment ladder
Section titled “1 · Entry modes - the control-vs-commitment ladder”When CERMEDES - our running case, a mid-sized German power-tool maker - thinks about selling in, say, France or the US, the first decision isn’t “which distributor?” It’s a more fundamental one: how do we want to be present in that country? The options form a ladder from low commitment to high commitment, and the whole ladder is really one trade-off.
At the far right sits the biggest commitment of all: a greenfield FDI - a type of foreign direct investment where a parent company creates a wholly-owned subsidiary in another country and builds its operations from the ground up (its own plant, its own salesforce, its own warehouse). Maximum control, but you carry all the risk and the money is sunk.
| Entry mode | Commitment | Control | Risk / cost | When it fits |
|---|---|---|---|---|
| Exporting | Low | Low | Low | Testing a market; small volumes; product travels well |
| Agent / distributor | Low-Med | Low-Med | Low | You want local reach fast without owning assets |
| Licensing / franchising | Medium | Medium | Medium | Local partner has know-how or brand access you lack |
| Joint venture | Med-High | Shared | Med-High | You need a partner’s plant, permits or relationships |
| Wholly-owned subsidiary (greenfield FDI) | High | Full | High | The market is big and strategic enough to justify building |
2 · Designing a channel - the 6-step guide
Section titled “2 · Designing a channel - the 6-step guide”Whether the channel is at home or abroad, the same disciplined method works. Don’t jump to “let’s sell online” or “let’s find a distributor” - run these six steps in order, and the answer falls out of the analysis instead of out of a hunch.
2.1 Step 1 - Articulate key goals
Section titled “2.1 Step 1 - Articulate key goals”Before anything, ask what you actually want the channel to do, because different goals imply very different designs. A channel built to squeeze out cost looks nothing like one built to grow fast.
| Goal | What it pushes the channel toward |
|---|---|
| Seeking efficiency | Fewer, leaner intermediaries; low cost-to-serve |
| Expanding channels to grow revenue | Adding new routes to reach more buyers |
| Market penetration | Wide coverage, presence everywhere the buyer looks |
| Customer satisfaction | Rich service, advice, easy returns - even if pricier |
| Defend current position | Protect existing partners and shelf space from rivals |
The point of naming the goal is that it becomes the yardstick. Everything after this - every option you weigh in step 5 - gets judged against “does this serve the goal we set?“
2.2 Step 2 - Understand customer needs
Section titled “2.2 Step 2 - Understand customer needs”This is the heart of it. A channel exists for the customer, so you have to know the customer’s buying behaviour cold. Four questions do most of the work:
- Who is the buyer, and who is the end-user? (They’re often different - a procurement manager buys, a tradesperson uses.)
- How and where do customers buy? In a store? Online? Through a rep? On a jobsite?
- What information do they seek while searching - specs, demos, reviews, advice?
- What complementary products and services do they need alongside - blades, batteries, warranty, repair?
You’ll usually need to answer these per segment - a professional builder and a weekend DIY buyer want completely different things from the same drill. And critically, the answers from steps 1 and 2 are what you turn into evaluation criteria - the specific tests you’ll later score each channel against.
2.3 Step 3 - Map the current channels
Section titled “2.3 Step 3 - Map the current channels”Now draw what exists today. A channel map shows the product flowing through intermediaries to end-use, with the alternative paths sketched alongside. Here’s the classic shape, with CERMEDES’s current reality highlighted - it sells mainly through one big retailer:
Mapping isn’t just boxes and arrows, though. The real insight comes from asking what each link actually does - the channel functions (also called flows): the value-adding activities performed on the way to the end-user.
| Function / flow | What it means | Who tends to do it |
|---|---|---|
| Customer service & advice | Answering questions, demos, product selection help | Retailer, agent |
| Physical distribution | Storing, transporting, delivering the goods | Wholesaler, own logistics |
| Complaint handling | Dealing with problems after the sale | Retailer, producer |
| Product returns | Taking goods back, refunds, exchanges | Retailer |
| Financing / credit | Letting the buyer pay over time | Wholesaler, retailer |
Two more concepts belong here. Channel structure is which exact partners make up the route - you choose them so their goals fit the segment you’re serving. And disintermediation is the option to cut middlemen out - for example, selling direct to end-users through e-business and skipping the wholesaler or retailer entirely. Disintermediation can lower cost and hand you control, but (as we’ll see) it also picks a fight with the partners you removed.
2.4 Step 4 - Identify channel options
Section titled “2.4 Step 4 - Identify channel options”With the map in hand, brainstorm the realistic alternatives. Four prompts open up the field:
- What are the potential channel options at all - every plausible way to reach the buyer?
- Are there dominant channels for this product, and did/will that dominance change? (For power tools, big retail chains have long dominated - but online is rising.)
- Are there new channels worth watching, now or in the near future? (Marketplaces, direct-to-consumer web shops, trade-only platforms.)
- Do domestic and international options differ? They almost always do - a channel that works in Germany may not exist, or may be structured differently, in another country.
2.5 Step 5 - Evaluate the channels
Section titled “2.5 Step 5 - Evaluate the channels”Now score each option - current and new - against the criteria you built in step 2, plus a standard set of channel yardsticks:
| Criterion | The question it answers |
|---|---|
| Coverage | Which channels reach the most of our target customers? |
| Efficiency | Which deliver the sale at the lowest cost-to-serve? |
| Control | Which give us the most say over price, service and brand? |
| Functions performed | Which channel functions does it cover - and how well? |
| Feasibility | Can we actually perform the functions the design imposes on us? |
| Customer fit | How well does it meet the customer requirements we identified? |
A tidy way to lay this out is a comparison table - one row per segment-and-channel option, carrying both the qualitative fit and a first cut at the numbers:
| Segment | Product | Channel type | Functions performed | Expected sales | Expected costs | Opportunities | Threats |
|---|---|---|---|---|---|---|---|
| Pro tradespeople | Heavy-duty tools | Big retail chain | Service, delivery, returns | High | Med (margin to chain) | Volume, credibility | Chain owns the customer |
| DIY / home | Mid-range tools | Own web shop (direct) | Advice online, delivery | Med | Low | High margin, control, data | Conflict with the chain |
| Trade abroad | Full range | Local distributor | Import, stock, local service | Med | Med | Fast market entry | Little control abroad |
This single table does a lot: it forces you to be explicit about what each route gives up and gains, and it surfaces the opportunities and threats you’ll manage in the next step.
2.6 Step 6 - Define strategy and set targets
Section titled “2.6 Step 6 - Define strategy and set targets”Finally, commit. Pick the channel mix, and attach concrete targets - sales volumes, cost-to-serve, coverage, service levels - so you can tell later whether it worked. And if the table above flagged conflicts (it usually does), build a mitigation plan now rather than firefighting later. That’s the bridge to the next topic.
3 · Channel conflict - spotting it and defusing it
Section titled “3 · Channel conflict - spotting it and defusing it”Add a new route and you rarely add it into empty space - it lands on top of relationships that already exist. Channel conflict is what happens when two routes to the same customer start fighting: the classic case is a new online channel undercutting the retail partners who’ve carried your product for years.
For CERMEDES this is very live. If it opens a direct web shop selling the same drills the big retail chain sells - often cheaper, because there’s no retailer margin to pay - the chain will notice immediately. And the chain is CERMEDES’s main route to market, so a fight there is dangerous.
- Same product, same customer, two channels
- Direct/online price undercuts the partner
- Partner feels its margin or role is threatened
- Different products or SKUs per channel
- Online serves segments the partner doesn’t
- Web-exclusive or premium lines
- Hold price parity across channels
- Route online leads back to partners
- Give the partner a role in fulfilment
- Be transparent about the online plan
- Phase it in; protect key accounts
- Frame it as growing the whole pie
The honest reading is that conflict isn’t automatically a reason not to add a channel - it’s a cost to be weighed against the benefit. Disintermediating through e-business could win CERMEDES higher margins, direct customer data and real control. The question is whether those gains outweigh the risk of damaging the relationship that currently carries most of its sales - and whether a mitigation plan (different SKUs, price parity, a role for the retailer) can shrink that risk enough.
4 · Bringing it back to CERMEDES
Section titled “4 · Bringing it back to CERMEDES”The case asks us to advise the CEO on two fronts. Routes to market gives us the structure for both.
Does today’s distribution serve customers, with enough control and coverage?
Run the six steps on CERMEDES’s current setup:
- Coverage - selling mainly through one big retailer gives broad reach, but it’s concentrated: the chain is a single point of dependence, and any segment the chain doesn’t serve well (say, online-first DIY buyers) is left uncovered.
- Control - this is the weak spot. With the retailer owning the shelf, the customer relationship and often the pricing, CERMEDES has little control over how its tools are presented, priced and serviced. The retailer, effectively, owns the customer.
- Customer fit - for the pro segment buying in-store, fine. For buyers who now research and purchase online, the current route may simply not meet them where they are.
Is adding e-business worth the conflict risk? Very possibly - it directly attacks the control and coverage gaps, and disintermediation lifts margin. But it must be introduced with a mitigation plan (Section 3), not as a naive price war against the firm’s own main partner. My recommendation: pursue e-business, but segment the offer and hold price parity so the chain isn’t undercut.
Is going abroad feasible - and if so, how?
Feasibility depends on the entry-mode ladder (Section 1). CERMEDES doesn’t have to leap to a greenfield subsidiary; it can start low-commitment (export, or a local distributor) to test a market, then step up control only where the market proves worth it.
Two things the CEO asked, in method terms:
- How to approach market selection? This is exactly the job of the market-selection method - screen candidate countries on attractiveness (size, growth, demand for power tools) and on fit/access (barriers, competition, distance), then shortlist.
- How to assess opportunities vs risks abroad? Weigh the upside (market size, growth, unmet demand) against the risks (tariffs, local competition, weak control through a distant partner, currency). The chosen entry mode is the lever that manages that risk - low commitment where risk is high, higher commitment where the opportunity is proven and strategic.
Revision summary
Section titled “Revision summary”Next: Strategic Pricing & Performance → - setting price between the cost floor and the value ceiling, and checking the profit maths.