1. Channel Design Strategy
Chapter 8
Target Markets &
Channel Design Strategy

2. Objective 1:
Market Variables 8
Channel manager decisions regarding the design of the firm’s marketing channel…
MUST be a function of the firm’s target markets’ needs and wants
Remember customer value is the driver of design.

3. Framework for Market Analysis
Objective 2:
Framework for
Market Analysis 8
Market Geography The Four
Market Size Dimensions
Of All
Market Density Markets
Market Behavior

4. Market Geography Market Geography Channel Manager’s Task…
Objective 3:
Market Geography 8
Market Geography
Refers to the geographical extent of markets and where they are located.
Channel Manager’s Task…
To evaluate market geography relative to channel structure to ensure that the structure is able to serve the markets effectively and efficiently.

5. Locating Markets 8
Channel managers ascertain the geographical locations of target markets through the use of…
The Bureau of Census (
Regions, States, counties, MSAs (x > 50k*), secondary markets (x < 50k)*, etc.
Postal Zip Codes
GIS*
Computerized systems that combine physical geography with cultural geography* (Dunne, Lusch, & Carver 2010)

6. Tracking Changes in Market Geography8
In the U.S.
A high degree of mobility means markets change frequently
Globally
Southeast Asian countries & former Eastern Bloc countries of Europe have become key locations

7. Market Size Market Size Bucklin’s Model of Channel Structure
Objective 4:
Market Size 8
Market Size
Refers to the number of buyers or potential buyers in a given market
Can be either end-users or industrial buyers
Bucklin’s
Model of
Channel
Structure
Cost per unit Cd Cm Ue
Number of Buyers (U)

8. Market Size Channel Manager’s Task…8
Channel Manager’s Task…
When using Bucklin’s model for market size data, it is important to consider the particulars of certain situations
For Example:
Will an increase in buyers increase or decrease average cost of serving customers?
If an increase in average cost is likely, can channel structure be changed to reduce costs before market reaches its increased size?

9. Market Density Market Density Efficient Congestion
Objective 5:
Market Density 8
Market Density
Refers to the number of buyers or potential buyers per unit of geographical area.
Efficient Congestion
Congested, high-density, markets can promote efficiency in the performance of several basic distribution tasks (e.g., transportation, storage, communication, and negotiation.)

10. Strategic Implication of Density8
“Density offers efficiency”
Opportunity to achieve high levels of customer contact at lower average costs
Manufacturers often seek out intermediaries (wholesalers & retailers) operating in dense markets

11. Market Behavior “Market Behavior” is characterized by, or encompasses…
Objective 6:
Market Behavior 8
“Market Behavior” is characterized by, or encompasses…
When the market buys
Where the market buys
How the market buys, and
Who buys

12. When the Market Buys Buying Patterns Seasonal Weekly Daily8
Buying Patterns
Seasonal
Weekly
Daily
Implications
Variance creates peaks and valleys in production
Should seek members who are in tune with changes in patterns
How could a “Category Killer” help the manufacturer?*

13. Where the Market Buys A “Function” of:8
A “Function” of:
The types of intermediaries from which buyers make a purchase
The location of these intermediaries
Implications
Particular types of products are typically purchased where?
What product categories align well with one’s product(s)?
Are these patterns likely to change?

14. How the Market Buys Large vs. Small Quantities?8
Large vs. Small Quantities?
Self-Serve vs. Assisted Shopping?
One-Stop vs. Multi-Store Shopping?
Impulse vs. Planned Purchases?
Cash vs. Credit?
Shop at home vs. Prefer Traditional Store?
Shopping vs. Non-Shopping Good
(i.e., search level)

15. Who Buys Who makes the actual purchase?8
Who makes the actual purchase?
Affects type of retailer chosen
May alter channel members
for industrial goods
Who decides whether to purchase?
Who in “family unit”
Buying centers for industrial goods

16. Buying Centers Definition: Typical Participants (or Roles Performed):8
Buying Centers
Definition:
a set of people who participate in industrial buying decisions & who are responsible for the consequences resulting from those decisions.
Typical Participants (or Roles Performed):
Users
Influencers
Deciders
Approvers
Buyers
Gatekeepers
Note: Individuals may perform more than one.

17. Changes in Market Behavior
Objective 8:
Changes in Market Behavior 8
Channel Managers must be attune to:
Changes likely to occur in the targeted markets’ shopping behavior
Whether these changes are likely to remain (i.e., permanent) or are more likely fleeting (i.e., short-term)

18. Implications of Changes
in Market Behavior 8
Increased demand for…
Knowledgeable & helpful sales assistance:
Increase in personal selling in department/specialty stores
Minimum service with very low prices
Increase in retailers w/ sparse surroundings & aesthetics (e.g., warehouse clubs like Sam’s)
Convenience & no crowds of shoppers
Increase in firms offering mail order & catalog services to avoid crowds & shop from home

19. Implications of Changes
in Market Behavior 8
Increased demand for…
Efficiency in information gathering & purchasing
Increase in Internet shopping, especially for B2B
Innovation in service, selection, or effectiveness
Department stores featuring different layouts (e.g., the “loop” vs. “free flow”), kiosks, and specialty stores adopting “fast turn” (e.g., Zara)*