1. Designing Marketing Channels
Part 2: Developing the Marketing Channel
Designing Marketing Channels

2. Channel Design Distinguishing points of the definition include:
A decision made by the marketer
The creation or modification of channels
The active allocation of distribution tasks in an attempt to develop an efficient structure
The selection of channel members
A strategic tool for gaining a differential advantage

3. Channel Design Paradigm3
Recognize the need for
channel design decision
7. Select
channel members
2. Set & coordinate
distribution objectives
6. Choose the “best”
channel structure
3. Specify
distribution tasks
5. Evaluate
relevant variables
4. Develop alternative
channel structures

4. When to Make a Channel Design Decision4
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

5. The Need for Congruency
Firm’s
overall
objectives
&
strategies
General
marketing
objectives &
strategies
Product
marketing
objectives &
strategies
Pricing
marketing
objectives &
strategies
Promotion
marketing
objectives &
strategies
Distribution
marketing
objectives &
strategies

6. = Distribution Tasks 6 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.

7. Channel Structure Dimensions7
1. Number of levels in the channel
2. Intensity at the various levels
Allocation Alternatives
3. Types of intermediaries at each level – divide by the task, be aware of emerging types

8. 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

9. 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

10. Variables Affecting Channel Structure8
Market Variables (geography, size, density, behaviors)
Product Variables (bulk, perishable, unit value, standardization, newness)
Company Variables (size, financial capacity, managerial expertise, strategies)
Intermediary Variables (availability, cost, services)
Environmental Variables (see Chapter 3)
Behavioral Variables (member roles, power structure, communication)

11. Choosing an Optimal Channel Structure10
Choosing an optimal channel structure is not always possible?
Because…
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.
BUT
Techniques exist for developing
more exact methods.

12. 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.