Chapter 6: Designing Marketing Channel

Channel Design
decisions involving the development of new marketing channels either where non had previously existed or to the modification of existing channels
Who engages in channel design?
Firms, wholesalers, retailers
Firms
– look down the channel toward the market
-can be producers, manufactureres, service providers, franchisors
Wholsalers
– look both up and down the channel
Retailers
– look up the channel to secure suppliers
Channel Design Phases
1. recognize the need for channel design decision
2. set and coordinate distribution objectives
3. specify distribution tasks
4. develop alternate channel structure
5. evaluate relevant variables
6. choose the “best” channel structure
7. select channel members
Phase 1. Recognizing the Need:
– develop a new product or product line
– aiming an existing product at a new market
– making a major change in some other component of the marketing mix
– adapting to changing intermediary policies that may inhibit attainment of distribution objectives
– dealing with changes in availablity of particular kinds of intermediaries
– opening up new geographic marketing areas
– facing the occurence of major environmental changes
– reviewing and evaluating
Phase 2: Distribution Objectives
Setting up distribution objectives requires knowledge of which, if any, existing objectives and strategies may impinge on these distribution objectives
Phase 3: Specifying the Distribution Tasks
Outlining distribution tasks is specific and situationally dependent on the firm

For example: distribution tasks for a manufacturer of consumer products differs from those for products sold in industrial markets = distribution tasks are a function of the distribution objectives and the types of firms invovled

Phase 4: Channel Possible Alternatives Channel Structures
Allocation Alternatives: consider
1. Number of levels in the channel
2. Intensity at the various levels
3. Types of intermediaries at each level
Number of Levels
– range from 2-5 or more
– number of alternatives is limited to two or three choices
– limitations result from the following factors
– particular industry practices
– nature and size of the market
(where are efficiencies achieved?)
– availability of intermediaries
Intensity at the Various Levels
– relationship between the intensity of distribution and dimension & number of retail intermediaries used in a given market
Types of Intermediaries
– Numerous types
– manager’s emphasis on types of distribution tasks performed by these intermediaries
– watch emerging types
– electronic online auction firms (eBay)
– Industrial products sold in B2B markets (Chemdex)
Phase 5. Variables affecting channel structure. List 6 categories of Variables
1. Market
2. Product
3. Company
4. Intermediary
5. Environmental
6. Behavioral
(under variables) Market Variables are comprised of: (4)
– Market Geography: location, geographical size, and distance from producer
– Market Size: # customers in market
-Market Density: # buying units per unit of land in area
-Market Behavior: who buys and how and when and where customers buy
(under variables) Product Variables are comprised of: (6)
– bulk and weight
– perishability
– unit value
– degree of standardization
– technical vs nontechnical
– newness
(under variables) Company Variables are comprised of: (4)
– Size: the range of options is relative to a fims size
– Financial Capacity: the greater the capital the lower the dependence on intermediaries
– Managerial Expertise: intermediaries are necessary when managerial expertise is lacking
– Objective and Strategies Intermediaries: marketing and objectives limit use
(under variables) Intermediary Variables are comprised of: (3)
– Availability: availability of intermediaries influences channel structure
– Cost: cost is always a consideration in channel structure
– Services: services that intermediaries offer are closely related to the selection of channel members
(under variables) Environmental Variables are comprised of: (5)
– Economic
– Sociocultural
– Competitive
– Technological
– Legal
(under variables) Behavioral Variables are comprised of:
-develop congruent roles for channel members
– be aware of available power bases
– attend to the influence of behavioral problems that can distort communications
Phase 6: Choosing an Optimal Channel Structure
why is choosing an optimal channel structure not possible?
1. management is incapable of knowing all possible alternatives
2. precise methods for calculating the exact payoffs associated with each alternative structures do no exist
BUTTTTT— techniques exist for developing more exact methods