Transcript of marketing channel

6 Designing
the Marketing Channel
What is Channel Design
There are variations in usage of the term
‘design’ of marketing channel:
• a noun to describe channel structure
• The formation of a new channel from scratch
• Modifications to existing channels
• ‘Selection’
What is Channel Design
• It refers to those decisions involving the
development of new marketing channels
where none had existed before, or to
modification of existing channels.
Channel Design
Key distinguished points associated with channel design:
• It is presented as a decision faced by the marketer
(same as other marketing mix).
• It is used in the broader sense to include either setting
up channels from the scratch or modifying existing
channels (reengineering).
• The management has taken a proactive role in the
development of the channel.
• The term ‘selection’ refers to only 1 phase of channel
design (selection of the actual channel members).
• It is a strategic tool for gaining a differential advantage.
Who Engages in Channel Design
Producers/
Manufacturers
Wholesalers
Retailers
Market
A Paradigm of the
Channel Design Decision
The channel design decision can be broken
down into 7 phases or steps:
1. Recognizing the need for a channel design
decision
2. Setting and coordinating distribution
objectives
3. Specifying the distribution tasks
4. Developing possible alternative channel
structures
A Paradigm of the
Channel Design Decision
The channel design decision can be broken
down into 7 phases or steps:
5. Evaluating the variables affecting channel
structures
6. Choosing the best channel structure
7. Selecting the channel members (see ch.7)
Phase 1: Recognizing the Need for a
Channel Design Decision
Many situations can indicate the need for a channel design decision.
Among them are the following:
1. Developing a new product/product line
2. Aiming an existing product at a new target market (i.e. additional
channel from b2b to b2c)
3. Making a major change in some other component of the
marketing mix (i.e. new pricing policy emphasizing lower prices)
4. Establishing a new firm
5. Adapting to changing intermediary policies (i.e. if intermediaries
begin to emphasize their own private brands, adding new
distributors for the manufacturer may be needed.)
Phase 1: Recognizing the Need for a
Channel Design Decision
Many situations can indicate the need for a channel design decision.
Among them are the following:
6. Dealing with changes in availability of particular kinds of
intermediaries (i.e. reducing number of prestigious department
stores in the U.S. affected French manufacturers of luxury goods)
7. Opening up new geographic marketing areas (territories)
8. Facing the occurrence of major environmental changes
9. Meeting the challenge of conflict or other behavioral problems
(i.e. A loss of power by a manufacturer to his/her distributors or
communication difficulties)
10. Reviewing and evaluating undertaking by a firm may point to the
need for changes in existing channels/ need for new channels
Phase 2: Setting and Coordinating
Distributing Objectives
In order to set distribution objectives that are well
coordinated with other marketing and firm
objectives and strategies, the channel manager
needs to perform 3 tasks:
1. Become familiar with the objectives and strategies
in the other marketing mix areas
2. Set distribution objectives and state them explicitly
3. Check to see if the distribution objectives set are
congruent with marketing and other general
objectives and strategies of the firm
Phase 2: Setting and Coordinating
Distributing Objectives
1. Becoming familiar with the objectives and
strategies in the other marketing mix areas
Short shelf life
Strategic emphasis on
the “Freshness”
Uses almost 13,000
drivers/salespeople to
deliver products directly
to grocery stores
Longer shelf life
Phase 2: Setting and Coordinating
Distributing Objectives
2. Set distribution objectives and state them
explicitly
Example:
IBM originally was to “have retailers displaying
PCs within driving distance of anyone in the U.S.
who wanted to buy one”.
Later, when IBM decided to use mail order
channels, its distributor objective was
broadened to “make its PCs directly available
wherever its customers are”
Phase 2: Setting and Coordinating
Distributing Objectives
3. Check to see if the distribution objectives set are
congruent with marketing and other general
objectives and strategies of the firm
Firm’s overall
objectives and
strategies
*Interrelationships
and Hierarchy of
Objectives and
Policies in the Firm
General
marketing
objectives and
strategies
Product
objectives and
strategies
Pricing
objectives and
strategies
Promotion
objectives and
strategies
Distribution
objectives and
strategies
Phase 3: Specifying the
Distribution Tasks (Functions)
• The kinds of tasks required to meet specific
distribution objectives must be precisely
stated and situationally dependent on the
firm.
Example:
A manufacturer of high-quality tennis racquets
aimed at serious amateur tennis players
would need to specify distribution tasks as the
following:
Phase 3: Specifying the
Distribution Tasks (Functions)
Example:
1. Gather info. on target market shopping patterns
2. Promote product availability in the target
market
3. Maintain inventory storage to assure timely
availability
4. Compile info. about product features
5. Provide for hands-on tryout of product
6. Sell against competitive products
Phase 3: Specifying the
Distribution Tasks (Functions)
Example:
7. Process and fill specific customer orders
8. Transport the product
9. Arrange for credit provisions
10.Provide product warranty service
11.Provide repair and restringing service
12.Establish product return procedure
Phase 4: Developing Possible
Alternative Channel Structures
1. Number of
levels in the channel
2. Intensity at the
various levels
Allocation Alternatives
3. Types of
intermediaries
at each level
Phase 4: Developing Possible
Alternative Channel Structures
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
Phase 4: Developing Possible
Alternative Channel Structures
Intensity at the Various Levels
• Relationship between the intensity of distribution dimension
& number of retail intermediaries used in a given market area
Intensity Dimension
Intensive
Selective
Exclusive
Numbers of Intermediaries (retail level)
Many
Few
One
Phase 4: Developing Possible
Alternative Channel Structures
Types of Intermediaries
• Numerous types
• Manager’s emphasis on types of distribution tasks
performed by these intermediaries
• Should not overlook new emerged intermediary types:
– Electronic online auction firms (eBay)
– Industrial products sold in B2B markets
(Chemdex, Converge.com)
Phase 5: Evaluating the Variables
Affecting Channel Structure
Categories of Variables
1.
2.
3.
4.
5.
6.
Market Variables
Product Variables
Company Variables
Intermediary Variables
Environmental Variables
Behavioral Variables
Phase 5: Evaluating the Variables
Affecting Channel Structure
1.
Market Variables
Market Geography
Location, geographical size,
& distance from producer
Market Size
Number of customers in a
market
Market Density
Number of buying units
(consumers or industrial firms)
per unit of land area
Market Behavior
Who buys, & how, when, and
where customers buy
Phase 5: Evaluating the Variables
Affecting Channel Structure
2.
Product Variables
Bulk & Weight -> heavy & bulky product -> high handling & shipping costs ->
minimize costs by shipping in large lots to fewest possible points
Perishability (fresh products) -> channel structure should be designed to provide
for rapid delivery from producers to consumers
Unit Value -> lower unit value product (convenience goods) -> create small margin
for distribution costs -> should use the longer channel
Degree of Standardization -> can lengthen the channel by increase intermediaries
unlike the custom-made products (i.e. industrial machinery) often sold directly
from manufacturer to the user
Technical versus Nontechnical –> highly technical product -> needed the
technical advice, after sales service from the expert -> generally be distributed
through a direct channel
Newness -> new product -> require extensive & aggressive promotion in the
introduction stage -> a shorter channel will enable such promotional effort
Phase 5: Evaluating the Variables
Affecting Channel Structure
3.
Company Variables
Size
The range of options is
relative to a firm’s size
Financial
Capacity
The greater the capital, the
lower the dependence on
intermediaries
Managerial
Expertise
Intermediaries are necessary
when managerial experience
is lacking
Objectives
& Strategies
Marketing & objectives may
limit use of intermediaries
Phase 5: Evaluating the Variables
Affecting Channel Structure
4.
Intermediary Variables
Availability
Cost
Services
Availability of intermediaries
influences channel structure.
Cost is always a consideration
in channel structure.
Services that intermediaries
offer are closely related to the
selection of channel members.
Phase 5: Evaluating the Variables
Affecting Channel Structure
5.
Environmental Variables
Economic
Competitive
Sociocultural
The impact of environmental forces is
a common reason for making
channel design decisions.
Technological
Legal
Phase 5: Evaluating the Variables
Affecting Channel Structure
6.
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.
Phase 6: Choosing the “Best”
Channel Structure
Heuristics in Channel Design
Benefit
Fairly simple prescriptions
for channel structure
Limitation
Mostly useful as rough
guide to decision
making
Phase 6: Choosing the “Best”
Channel Structure
Approaches for Choosing Channel Structure
• “Characteristics of Goods & Parallel Systems”
Approach
• Financial Approach
• Transaction Cost Analysis Approach
• Management Science Approaches
• Judgmental-Heuristic Approach
Phase 6: Choosing the “Best”
Channel Structure
Judgmental-Heuristic Approach
IF
Management’s ability to
make sharp judgments is high
+
Good empirical data on costs
and revenues is available
It’s possible to make highly satisfactory channel-choice decisions
using judgmental-heuristic approaches