CHAPTER 6 DESIGNING THE MARKETING CHANNEL

Classification of Channel Systems Conventional (Classical) Vertical Marketing Systems (VMS) Administered Contractual Corporate (Vertical Integration) Franchises Retail Cooperative WSVC * Wholesale Sponsored Voluntary Chain

What is Channel Design? Decisions about the development of new marketing channels or the modification of existing channels Part of the marketer’s marketing strategy decisions New or existing channels Allocation of tasks Selection of channel members

Rationale for the Design Process New products or product lines New target market Change in other parts of the marketing mix Incorporation of new firm into the organization Changing policies of intermediaries Changing availability of intermediaries New geographic markets Environmental changes Conflict in the channel Response to evaluation process

Setting and Coordinating Distribution Objectives What are the overall objectives of the company? What is the strategy in the other marketing mix elements? Set and State the distribution objectives Reaffirm that all marketing mix objectives are compatible.

What distribution tasks are needed to accomplish the objectives? Examples of tasks in the consumer market: Research shopping behaviors Promote the product Maintain inventory Provide product samples Transport the product Provide credit, warranty work, etc. Examples of tasks in the business market: Maintain inventory Provide storage space Provide technical assistance Monitor quality Process orders Manage packaging and special handling

Develop Alternative Channel Structures Determine levels and intensity Intensive, selective, exclusive Decide on types of intermediaries Decide on possible alternatives of channel structure

Attempt to evaluate all variables affecting the channel structure Market variables Product variables Company variables Intermediary variables Environmental variables Behavioral variables

Market Variables Market Geography Market Size Market Density Market Behavior

Product Variables Bulk and weight Perishability Unit value Degree of standardization Technical versus non-technical Degree of newness

Company Variables Size Financial capacity Managerial expertise Objectives and desired strategies

Intermediary Variables Availability Cost Services

Environmental Variables Review chapter 3 Economic, sociocultural, competitive, technological, legal

Behavioral Variables Communications flow Power relationship Control issues Conflict potential

Choose the “Best” Channel Structure Aspinwall’s Characteristics of Goods and Parallel Systems approach Financial approach Transaction Cost analysis approach Management Science approach Judgmental-Heuristic approaches

Zero Based Channel Design A zero-based channel design is one that meets the target market segment’s demands for service outputs at minimum cost of performing the necessary channel flows that produce those service outputs.

To move toward that goal, consider… What flows/tasks are being offered that could be eliminated? Are there tasks/flows being performed that are duplications of effort? Could any flows/tasks be reorganized to improve efficiency? Could we reduce costs by modifying any tasks/flows?

Channel Gaps Anything within the channel structure that is preventing the channel from being a zero-based design.