Chapter 6: Designing the Marketing Channel

Channel Design
Decisions involving the development of new marketing channels either where none had previously existed or to the modification of existing channels
Choosing a channel
1. Provide best coverage for target market
2. Satisfy the buying requirements of the target market
3. Maximize potential revenues and minimize costs
Who engages in channel design
1. Firms
2. Wholesalers
3. Retailers
Channel Design Phases
1. Recognize the need
2. Set & coordinate distribution objectives
3. Specify distribution tasks
4. Develop alternative channel structures
5. Evaluate relevant variables
6. Choose the “best” channel structure
7. Select channel members
Specifying distribution tasks
– Outlining distribution tasks is specific and situationally dependent on the type of firm
– Distribution tasks are a function of the distribution objectives and the types of firms involved
Developing alternative channel structures
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 2 or 3 choices
Limitations in number of levels
– Particular industry practices
– Nature & size of the market
– Availability of intermediaries
Intensity at the various levels
Relationship between intensity of distribution dimension & number of retail intermediaries used in a given market area
Categories of Variables
1. Market
2. Product
3. Company
4. Intermediary
5. Environmental
6. Behavioral
Market Variables
1. Geography (location, size, distance from producer)
2. Size (number of customers)
3. Density (number of buying units per unit of land area)
4. Behavior (who, how, when, and where)
Product Variables
1. Bulk & Weight
2. Perishability
3. Unit Value
4. Degree of Standardization
5. Technical vs. Nontechnical
6. Newness
Company Variables
1. Size
2. Financial Capacity
3. Managerial Expertise
4. Objectives & Strategies
Intermediary Variables
1. Availability
2. Cost
3. Services
Environmental Variables
1. Economic
2. Sociocultural
3. Competitive
4. Technological
5. Legal
Behavioral Variables
– Develop congruent roles for channel members
– Be aware of available power bases
– Attend to the influence of behavioral problems that can distort communications
Challenges with choosing the “best” channel structure
1. Management is incapable of knowing all possible alternatives
2. Precise methods for calculating the exact payoffs of each alternative structures do not exist
Decision Criteria
1. Setup
2. Risk
3. Profit
4. Ability to grow