Basic Principles of Distribution Channel Design Distribution Channel Strategy BA266: L. P. Bucklin

Principle I End users incur real and opportunity costs in the acquisition and preparation of products and services for production

Principle II The Commercial Channel evolves so as to provide the set of services demanded by the end user. The design of a channel requires an in- depth understanding of the set of needs possessed by end users and what they will pay for these.

Principle III Competitive channel systems seek equilibrium over time in order to balance the incremental costs of additional services against the value that these would add for the end user This leads to the ideal channel characterized by Stern

Principle IV High levels of value-added logistic service require longer channels characterized by more supply chain points to reduce inventory risk and cost at the EUI

Corollary to Principle IV Employing rapid response design transforms speculative inventories to transit inventories, reducing inventory cost but at the cost of higher transportation cost.

Principle V Higher information value added provided to the end user requires a reduced channel length as information intermediaries are eliminated to prevent information degeneration

Principle VI The presence of similar end user needs for information and logistics leads to hybrid channels with information and logistics traveling separate routes The presence of dissimilar end user needs for information and logistics leads to pure or integrated channels where information and logistics services are provided by the same organizations

Principle VII End user volume is the key determinant for the potential for a separate channel for each market segment versus a pooled-channel design across two or more segments