CHAPTER 6Designing Marketing Channels

Part 2: Developing the Marketing Channel

Channel Design

1. A decision made by the marketer

2. The creation or modification of channels

3. The active allocation of distribution tasks in an attempt to develop an efficient structure

4. The selection of channel members

5. A strategic tool for gaining a differential advantage

Distinguishing points of the definition include:

Objective Channel Design Paradigm

1. Recognize the need forchannel design decision

1. Recognize the need forchannel design decision

7. Selectchannel members

7. Selectchannel members

5. Evaluaterelevant variables

5. Evaluaterelevant variables

6. Choose the “best”channel structure

6. Choose the “best”channel structure

2. Set & coordinatedistribution objectives

2. Set & coordinatedistribution objectives

3. Specifydistribution tasks

3. Specifydistribution tasks

4. Develop alternative channel structures

4. Develop alternative channel structures

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Objective When to Make a Channel

Design Decision• Developing a new product/product line (or a new firm)

• Aiming an existing product at a new market (or expanding geographic marketing areas)

• Making a major change in some other component of the marketing mix

• Adapting to changing intermediary policies that may inhibit attainment of distribution objectives (or in availability of intermediaries)

• Facing major environmental changes

• Meeting the challenge of conflict or other behavioral problems

• Reviewing and evaluating

• Developing a new product/product line (or a new firm)

• Aiming an existing product at a new market (or expanding geographic marketing areas)

• Making a major change in some other component of the marketing mix

• Adapting to changing intermediary policies that may inhibit attainment of distribution objectives (or in availability of intermediaries)

• Facing major environmental changes

• Meeting the challenge of conflict or other behavioral problems

• Reviewing and evaluating

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The Need for Congruency

Firm’s overall

objectives&

strategies

Firm’s overall

objectives&

strategies

Generalmarketing

objectives &strategies

Generalmarketing

objectives &strategies

Pricingmarketing

objectives &strategies

Pricingmarketing

objectives &strategies

Productmarketing

objectives &strategies

Productmarketing

objectives &strategies

Promotionmarketing

objectives &strategies

Promotionmarketing

objectives &strategies

Distributionmarketing

objectives &strategies

Distributionmarketing

objectives &strategies

Objective 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 component parts sold

in industrial markets.

Distribution tasks are a function of the

distribution objectives and the types of firms

involved.

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Objective Channel Structure Dimensions

Allocation Alternatives

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3. Types of intermediaries at each

level – divide by the task, be aware

of emerging types

1. Number of levels

in the channel

2. Intensity at the

various levels

Number of Levels

• Range from two to five or more

• Number of alternatives is limited to two or three choices

• Limitations result from the following factors: Particular industry practices Nature & size of the market Availability of intermediaries

Intensity at the Various Levels

Intensive Selective Exclusive

Many Few One

Intensity Dimension

Numbers of Intermediaries (retail level)

Relationship between the intensity of

distribution dimension & number of retail

intermediaries used in a given market

area.

Objective Variables Affecting Channel Structure8 1. Market Variables (geography, size, density,

behaviors)

2. Product Variables (bulk, perishable, unit value,

standardization, newness)

3. Company Variables (size, financial capacity,

managerial expertise, strategies)

4. Intermediary Variables (availability, cost,

services)

5. Environmental Variables (see Chapter 3)

6. Behavioral Variables (member roles, power

structure, communication)

Objective Choosing an Optimal Channel Structure

Choosing an optimal channel structure is not always possible?

Because…1. management is incapable of knowing all

possible alternatives, and

2. precise methods for calculating the exact payoffs associated with each alternative structures do not always exist.

Techniques exist for developing more exact methods.

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BUT

Channel Structure Approaches

• “Characteristics of Goods & Parallel Systems” Approach – based on key product variables such as replacement rate, searching time, gross margin, product standardization.

• Financial Approach – examining revenue and costs of alternative structures.

• Transaction Cost Analysis Approach – vertical integration versus independent intermediaries based on opportunistic behaviors.

• Management Science Approaches – using mathematical modeling to consider channel alternatives.

• Judgmental-Heuristic Approach – managerial judgment – requires previous knowledge of key variables.