Channel Design Decisions

• Channel design is a strategy for moving and distributing goods and services from the producer to the consumer.
• Manufacturers face several channel design decisions.
• Manufacturers often struggle between what is ideal & what is practical in the designing marketing channels.
• Having limited capital offer limited sales in a limited market area of a firm.  In these cases, this firm needs to
choose the best channel that’s more effective. Problem- how to convince one or few good intermediaries to
handle the line.
• In smaller markets- producer directly sells to retailers 
• In large markets- producer chooses distributors to persuade consumers.
• This channel design calls on (1) analyzing consumer needs, (2) setting channel objectives, (3) identifying major
alternatives, (4) evaluating those alternatives.
(1)Analyzing Consumer Needs

Previously we learned that marketing channels are the part of the overall customer value delivery network. In
this case, designing a marketing channel, the producer needs to find out some questions like-
 What the target consumers want from the channel members?
 Does the consumer want to buy from nearby locations? Or are they willing to travel to more distant?
 Do they want to buy-in person, by phone, or online?
 Do they value breadth of assortment or do they prefer specialization?
 Do consumers want many add-on services like delivery, warranty, repair, installation, and credit terms?
Firm must balance needs against costs and consumer price preferences.
(2) Setting Channel Objectives
• Objectives are stated in terms of targeted levels of customer service.
• The company should decide which segments to serve and the best channels to use in each case.
• Channel objectives are also influenced by the nature of the company, its products, marketing
intermediaries, competitors & environment. For example, companies selling perishable products may
require more direct marketing to avoid delays.
• In some cases, a company may want to compete in or near the same outlets that carry competitors’
products.
• In other cases, companies may avoid the channels used by competitors.
• Finally environmental factors such as economic conditions and legal constraints may affect channel
objectives and design. For example, in a depressed economy, producers will want to distribute their goods
using shorter channels and dropping unneeded services that add to the final price of the goods.
(3) Identifying Major Alternatives
It has too many major alternatives. Here are three major alternatives.

 Types of Intermediaries
• At first, a company identifies the different channel members who can work for the producer to carry out its
channel work.
• For example: at first, Dell directly sold to final consumers as well as business buyers. Dell uses the phone
call or internet marketing channel to sell directly to the customer. However, to reach more customers and
match competitors, Dell now sells indirectly through  retailers, value-added resellers and independent
distributors.
• Using many types of resellers in a channel provides both benefits and drawbacks. These are more difficult
to manage and control. In addition, the direct and indirect channels compete with each other for many of
the same customers, causing potential conflict.
 The number of marketing intermediaries:
At each level of marketing intermediaries, a company must determine the numbers of channel members.
There’re three strategies available;
1. Intensive distribution- a strategy in which sellers stock their products in as many outlets as possible. These
products must be available where and when customers want them.( e.g., toothpaste, candy, etc.)
2. Exclusive distribution- a strategy in which the producer gives the right to a limited number of dealers to
distribute the company’s products.(e.g., The distribution of luxury brands)
3. Selective distribution- a marketing strategy focusing on selling certain types of products via a select network
of retailers, resellers, or wholesalers. Distributors take this approach as a middle role between intensive and
exclusive forms of distribution.(e.g., clothing from different bands)

 Responsibilities of channel members:

 All the channel members should agree on the terms & conditions with the producer. They should maintain their
responsibilities & agree on price policies, territory rights & sale conditions. At first, producer fixed a list price for
channel members than the channel members set discount price for customers. These members are much
concern about their territory & their customers.
(4)Evaluating the major alternatives
Imagine, after identified of all major channel alternatives, a company wants to select one segment that
will best satisfy in the long-run objectives. There’re three core factors that will affect the channel –
(1)Economic-  Using economic criteria, a company compares the likely sales, costs & profitability of
different channel alternatives. Like, how much investment will need in the future? What’ll be the results
in the near future?
(2)Control- All companies must consider the control issues. Using intermediaries usually means giving
them some control over the marketing of the product, and some intermediaries take more control than
others.
(3)Adaptability criteria- Channels often involve long-term commitments, so the company wants to keep
the channel flexible enough so that it can adapt to environmental changes.
 Designing International Channels

 Channel design for international markets can be very challenging, because:

 Each country has its own unique distribution system, which is sometimes hard
to penetrate.
 Distribution systems can be very complex with many layers and a large number
of intermediaries.
 Distribution systems in developing countries may be scattered or inefficient.
 Customs and government regulation can restrict distribution in global markets.