Designing the Marketing Channel

1
Designing the Marketing Channel

• Chapter 6

2
Channel Design

• Channel design refers to decisions associated
  with the formation of new marketing channels of
  the alteration of existing channels.
• Differential Advantage Sustainable Competitive
  Advantage (SCA).
• SCAs offer long-term market advantages relative
  to competitors.

3
(No Transcript)
4
Who Engages in Channel Design?
6
Objective 2
Firms
Wholesalers
Retailers


Look up the channel to secure suppliers
Producers, manufacturers, service providers,
franchisors Look down the channel toward the
market
Look both up and down the channel
5
Channel Design Paradigm

Objective 3
6

• 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
6
When to Make a ChannelDesign Decision
6
Objective 4

• Dealing with changes in availability of
  particular kinds of intermediaries
• Opening up new geographic marketing areas
• Facing the occurrence of major environmental
  changes
• Meeting the challenge of conflict or other
  behavioral problems
• Reviewing and evaluating

• Developing a new product or product line
• Aiming an existing product at a new market
• Making a major change in some other component of
  the marketing mix
• Establishing a new firm
• Adapting to changing intermediary policies that
  may inhibit attainment of distribution objectives

7
Channel Structure Dimensions
6
Objective 7
1. Number of levels in the channel
2. Intensity at the various levels
Allocation Alternatives
3. Types of intermediaries at each level
8
Distribution Intensity

• Number of Intermediaries
• Intensive Distribution.
• Location Demand, Low Involvement
• Gum, Coke, Gasoline
• Exclusive Distribution.
• Producer maintains control of the quality and
  consistency of service. Often required to not
  carry competing demands
• Prestige-Rolex
• Selective Distribution.
• Between Intensive and exclusive
• Carefully selected
• Car sales

9
Intensity at the Various Levels
6
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
Other Variables Affecting Channel Structure

• Market variables
• Market geography, market size and density, market
  behavior
• Product variables
• Bulk and weight, Perishability, unit value
  (e-commerce implications too)
• Company variables
• Intermediary variables
• Environmental Variables
• Behavioral variables
• Relationships with other channel members

11
Product Variables

• Bulk and Weight the bigger and heavier things
  are, the more you are going to want to ship in
  big bundles direct to the user.
• Perishability Obviously want a quick delivery
  usually long channels, think cut flower, fruits
  and veggies.
• Unit Value The lower the value, the longer the
  channel (because of low margins for distribution,
  very large economies of scales are necessary

12
Selecting the Best Channel Design

• The best channel design is one that offers the
  highest performance effectiveness, and the lowest
  possible cost.
• Next well discuss means and techniques for
  choosing the best channel structure

13
Characteristics of Goods Parallel Systems Approach

• Five Factors or Dimensions of Products
• Replacement Rate
• Gross Margin (on products)
• Adjustments (service requirements to meet
  consumer needs)
• Time of consumption (how long do you use it)
• Search Time (How long does it take to get to the
  store/distance)
• Book pages 207, 208

14
Color Classification Scheme
From Textbook, p. 207-208
Aspinwalls scheme from Lazer and Kelly (1962)
15
Relationship Between Product Characteristics and
Channel Length
Red Orange Yellow
Products
Channels
Long Medium Short
From Textbook
16
Financial Approach

• Look at channel as an investment
• Which channel has the highest return
• HIGHEST NPV
• Calculate estimated returns on the investment
• Problemwhat financial indicators do you use?

17
Transactional Cost Analysis Approach

• Transaction Specific Assets, both tangible (e.g.,
  special machinery) and intangible (e.g.,
  training)
• Opportunism
• Vertical integration
• Problem ignores relationship marketing and
  focuses only on a narrow aspect of channel design

18
Management Science Approaches

• Mathematical models that estimate the outcomes
  for various channel designs
• Example
• ln (SALESi) d g ln (SPEOPi) - mi
• for every district i
• mi gt 0 for every district i.
• Problem Can only use in limited applications to
  date, limited by the ability of the designer of
  the model

19
Judgment-Heuristic Approach

• Qualitative (Seat of the Pants)
• Weighted factor