Selecting distribution channel strategies for non‐profit organizations

Abstract

PurposeThe purpose of this paper is to better understand the selection of a distribution channel strategy for a non‐profit organization selling products or services to its end customers.Design/methodology/approachTwo channel strategies are generally considered: an integrated channel where the non‐profit organization sells its products or services using its own selling departments or branches; and a decentralized channel where the non‐profit organization sells through a for‐profit retailer. The fundamental question is: how should a non‐profit organization select its distribution channel strategy under certain market conditions?FindingsIt was found that selecting a decentralized channel strategy results in an optimal retail price that is higher than that under an integrated channel strategy, which results in lower customer welfare under the decentralized channel. It was also found that a decentralized channel behaves as an integrated fully for‐profit channel. Thus, whether a non‐profit organization should choose an integrated or a decentralized channel when facing competition from an integrated or a decentralized fully for‐profit channel depends on its cost structure and the level of substitutability of the products or services offered by the two channels.Practical implicationsWhen competing with an integrated fully for‐profit channel, the non‐profit organization is better off using an integrated channel under strong competition or a decentralized channel under weak competition. When competing with a decentralized fully for‐profit channel, the selection is more complicated. It was found that a decentralized channel is the best choice if the price competition factor, where threshold value depends on the cost structure, is large.Originality/valueNon‐profit organizations have a clear (perhaps increasing) need for distribution centers or retailers in order to reach people who need their products or services. Moreover, it has been reported that the interactions between for‐profit and non‐profit sectors continue to grow, thus increasing the forms of community involvement available to reach people. It is thus clear that additional research is needed to better understand the selection of a distribution channel strategy for a non‐profit organization selling products or services to its end customers, and also the related managerial implications.