Designing the Marketing

Channel
 Channel Design

• Definition

– Channel Design refers to those decisions involving

the development of new marketing channels where
none had existed before, or to the modification of
existing channel
 Channel Design?

• Channel design is presented as a decision faced by the

marketer

• It include either setting up new channels or modifying existing

channels

• Management takes a proactive role in the development of the

channel

• The selection of actual channel members

• Gaining differential advantage should be uppermost when

designing marketing channels
Who Engages in Channel Design?

• Producers
• Manufacturers
• Wholesalers
• Retailers
Paradigm of Channel Design Decision

• Recognize need for channel design decision

• Set and coordinate distribution objectives
• Specify the distribution tasks
• Develop alternative channel structures
• Evaluating the relevant variables
• Choose the “best” channel structure
• Select the channel members
Recognize need for channel design
decision

• Develop new product or product line

• Aim an existing product a new target market
• Make major change in some other component of
marketing mix
• Establish a new firm
• Adapt to changing intermediary policies
Recognize need for channel design
decision

• Deal with changes in availability of particular kinds

of intermediaries
• Opening up new geographic marketing areas
• Facing major environmental changes
• Meeting the challenge of conflict or other
behavioral problems
• Reviewing and evaluating
 Setting and coordinating
Distribution Objectives

• Becoming familiar with Objectives and Strategies

– Person setting the distribution objective should know

about the existing objectives and strategies which may
impinge on the distribution objective.
– Objectives should be set by same person

• Setting Explicit Distribution Objectives

 Setting and coordinating
Distribution Objectives
• Checking for Congruency
Firm’s overall objectives
and Strategies

General Marketing Objectives

and Strategies

Product Pricing Promotion Distribution

objectives objectives & objective & objective &
strategies strategies strategies strategies
Specifying Distribution Tasks
(Consumer Products)

• Shopping Patterns
• Promote product availability
• Maintain inventory storage to assure timely
availability
• Compile information about product features
• Provide for hands-on tryout of products
• Sell against competitive products
Specifying Distribution Tasks
(Consumer Products)

• Process and fill specific customer orders

• Transport
• Arrange for credit provisions
• Provide product warranty service
• Provide repair and restringing service
• Establish product return procedure
Specifying Distribution Tasks
(Industrial Markets)

• Maintain readily available inventory

• Provide rapid delivery
• Offer credit
• Provide emergency service
• Supply semifabrication functions
• Packaging and special handling
Specifying Distribution Tasks
(Industrial Markets)

• Provide technical assistance

• Maintain market information
• Offer storage space
• Allow for absorption of size and grade
obsolescence
• Process orders and bill
• Offer return provisions
Developing Possible Alternative
Channel Structures

• Number of levels in the channel

• Intensity at various levels
• Types of intermediaries at each level
Developing Possible Alternative
Channel Structures

• Number of levels in the channel

– Can range from two levels upto five levels

– Occassionally even higher
 Developing Possible Alternative
Channel Structures

• Intensity

– Intensive – as many outlets as possible are used

– Selective – carefully chosen channels eg consumer shopping

goods

– Exclusive – highly selective pattern of distribution, e.g.

speciality goods
 Developing Possible Alternative
Channel Structures

• Types of Intermediaries

– Census of wholesale
– Census of retail
– Ebay
– B2B markets
Evaluating the variables affecting
Channel Structures
• Market variables
– Geography
– Size
– Density
– Behavior

• Product variables
– Bulk and weight
– Perishability
– Unit value
– Degree of standardization
– Technical versus nontechnical
– Newness
Evaluating the variables affecting
Channel Structures

• Company variables
– Size
– Financial capacity
– Managerial expertise
– Objectives and strategies

• Intermediary variables
– Availability
– Cost
– services
Evaluating the variables affecting
Channel Structures

• Environmental variables
– Economic
– Sociocultural
– Competitive
– Technological
– Legal

• Behavioral variables
 Choosing the Best
Channel Structure

• Characteristics of Goods and Parallel Systems Approach

• Financial Approach
• Transaction Cost Analysis Approach
• Management Science Approach
• Judgmental – Heuristic Approach
– Straight Qualitative Judgment Approach
– Weighted Factor Score Approach
– Distribution Costing Approach
 Choosing the Best
Channel Structure

• Characteristics of Goods and Parallel Systems

(Aspinwall) Approach
– Replacement Rate
– Gross Margin
– Adjustment
– Time of consumption
– Searching time

• Using Aspinwall’s approach

– Provides a neat way of describing and relating a number of
heuristics about how product characteristics might affect channel
structure
– Lays too much empahsis on product characteristics as the
determinant of channel structure
 Choosing the Best
Channel Structure

• Financial Approach (Lambert)

– Involves comparing estimated earnings on capital resulting from
alternative channel structures in light of cost of capital to determine
the most profitable channel
– Use of capital for distribution must be compared to the alternative of
using the funds in manufacturing operations.

• Using Lambert’s approach

– Serves a useful reminder of the importance of financial variables in
choosing a channel structure
– Major problem of the approach lies in the difficulty of making it
operational in a channel decision making context
 Choosing the Best
Channel Structure

• Transaction Cost Analysis Approach (Williamson)

– Main focus on cost of conducting the transactions necessary to
accomplish distribution tasks.
– Transaction specific assets

• Using TCA approach

– Deals only with most general structure
– Assumption of opportunistic behavior may not be accurate
– No real distinction made between long term and short terms issues
in channel structure relationship
– Concept of asset specificity is very difficult to operationalise
– TCS is one dimensional
 Choosing the Best
Channel Structure

• Management Science Approach

– Simulation Model
– Mathematical model
– Bayesian Statistics
– Operations research model etc

• Using MS approach
– These approaches still need more development
 Choosing the Best
Channel Structure

• Judgmental-Heuristic Approaches
– Straight Qualitative Judgement approach
– Weighted Factor Score Approach
– Distribution Costing Approach