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Designing the Marketing Channel,Chapter Outline,What is Channel Design. Key Term and Definition, Channel design Those decisions involving the development of new marketing. channels where none had existed before or the modification of existing channels. Channel design is presented as a decision faced by the marketer and it includes either. setting up channels from scratch or modifying existing channels This is sometimes. referred to as reengineering the channel and in practice is more common than setting up. channels from scratch, The term design implies that the marketer is consciously and actively allocating the. distribution tasks to develop an efficient channel and the term selection means the actual. selection of channel members, Finally channel design has a strategic connotation as it will be used as a strategic tool. for gaining a differential advantage,Who Engages in Channel Design.
Producers and manufacturers wholesalers and retailers all face channel design decisions. Producers and manufacturers look down the channel Retailers look up the channel. while wholesaler intermediaries face channel design from both perspectives In this. chapter we will be concerned only from the perspective of producers and manufacturers. A Paradigm of the Channel Design Decision, The channel design decision can be broken down into seven phases or steps These are. 1 Recognizing the need for a channel design decision. 2 Setting and coordinating distribution objectives. 3 Specifying the distribution tasks, 4 Developing possible alternative channel structures. 5 Evaluating the variable affecting channel structure. 6 Choosing the best channel structure,7 Selecting the channel members. Marketing Channels 7e, Phase 1 Recognizing the Need for a Channel Design Decision. Many situations can indicate the need for a channel design decision Among them are. 1 Developing a new product or product line, 2 Aiming an existing product to a new target market.
3 Making a major change in some other component of the marketing mix. 4 Establishing a new firm,5 Adapting to changing intermediary policies. 6 Dealing with changes in availability of particular kinds of intermediaries. 7 Opening up new geographic marketing areas, 8 Facing the occurrence of major environmental changes. 9 Meeting the challenge of conflict or other behavioral problems. 10 Reviewing and evaluating, Phase 2 Setting and Coordinating Distribution Objectives. In order to set distribution objectives that are well coordinated with other marketing and. firm objectives and strategies the channel manager needs to perform three tasks. 1 Become familiar with the objectives and strategies in the other marketing mix. areas and any other relevant objectives and strategies of the firm. 2 Set distribution objectives and state them explicitly. 3 Check to see if the distribution objectives set are congruent with marketing and. the other general objectives and strategies of the firm. 1 Become Familiar with Objectives and Strategies, Whoever is responsible for setting distribution objectives should also make an effort to. learn which existing objectives and strategies in the firm may impinge of the distribution. objectives In practice often the same individual s who set s objectives for other. components of the marketing mix will do so for distribution. 2 Setting Explicit Distribution Objectives, Distribution objectives are essentially statements describing the part that distribution in.
expected to play in achieving the firm s overall marketing objectives. 3 Checking for Congruency, A congruency check verifies that the distribution objectives do not conflict with the other. areas of the marketing mix,Designing the Marketing Channel. Phase 3 Specifying the Distribution Tasks, The job of the channel manager in outlining distribution functions or tasks is a much. more specific and situationally dependent one The kinds of tasks required to meet. specific distribution objectives must be precisely stated. In specifying distribution tasks it is especially important not to underestimate what is. involved in making products and services conveniently available to final consumers. Phase 4 Developing Possible Alternative Channel Structures. The channel manager should consider alternative ways of allocating distribution. objectives to achieve their distribution tasks Often the channel manager will choose. more than one channel structure in order to reach the target markets effectively and. efficiently, Whether single or multiple channel structures are chosen the allocation alternatives. possible channel structures should be evaluated in terms of the following three. dimensions 1 number of levels in the channel 2 intensity at the various levels 3. type of intermediaries at each level,1 Number of Levels.
The number of levels in a channel can range from two levels which is the most direct. up to five levels and occasionally even higher,2 Intensity at the Various Levels. Intensity refers to the number of intermediaries at each level of the marketing channel. Intensive sometimes called saturation means that as many outlets as possible are used. at each level of the channel, Selective means that not all possible intermediaries are used but rather those. included in the channel have been carefully chosen. Exclusive a way of referring to a very highly selective pattern of distribution. The intensity of distribution dimension is a very important aspect of channel structure. because it is often a key factor in the firm s basic marketing strategy and will reflect the. firm s overall corporate objectives and strategies. 3 Types of Intermediaries, The third dimension of channel structure deals with the particular types of intermediaries. to be used if any at the various levels of the channel. The channel manager should not overlook new types of intermediaries that are emerging. such as Internet companies,Marketing Channels 7e, 4 Number of Possible Channel Structure Alternatives. Given that the channel manager should consider all three structural dimensions level. intensity and type of intermediaries in developing channel structures there are in. theory a high number of possibilities, Fortunately in practice the number of feasible alternatives for each dimension is often.
limited due to industry or the number of current channel members. Phase 5 Evaluating the Variables Affecting Channel Structure. Having laid out alternative channel structures the channel manager should then evaluate. a number of variables to determine how they are likely to influence various channel. structures,These six basic categories are most important. 1 Market variables,2 Product variables,3 Company variables. 4 Intermediary variables,5 Environmental variables. 6 Behavioral variables,1 Market Variables, Market variables are the most fundamental variables to consider when designing a. marketing channel, Four basic subcategories of market variables are particularly important in influencing.
channel structure They are A market geography B market size C market density. and D market behavior,A Market Geography, Market geography refers to the geographical size of the markets and their physical. location and distance from the producer and manufacturer. A popular heuristic rule of thumb for relating market geography to channel design is. The greater the distance between the manufacturer and its markets the higher the. probability that the use of intermediaries will be less expensive than direct. distribution,B Market Size, The number of customers making up a market consumer or industrial determines the. market size,Designing the Marketing Channel, From a channel design standpoint the larger the number of individual customers the. larger the market size, A heuristic about market size relative to channel structure is. If the market is large the use of intermediaries is more likely to be needed because. of the high transaction costs of serving large numbers of individual customers. Conversely if the market is small a firm is more likely to be able to avoid the use of. intermediaries,C Market Density, The number of buying units per unit of land area determines the density of the market In.
general the less dense the market the more difficult and expensive is distribution. A heuristic for market density and channel structure is as follows. The less dense the market the more likely it is that intermediaries will be used Stated. conversely the greater the density of the market the higher the likelihood of eliminating. intermediaries,D Market Behavior, Market behavior refers to the following four types of buying behaviors. 1 How customers buy,2 When customers buy,3 Where customers buy. 4 Who does the buying, Each of these patterns of buying behavior may have a significant effect on channel. 2 Product Variables, Product variables such as bulk and weight perishability unit value degree of. standardization custom made versus standardized technical versus nontechnical and. newness affect alternative channel structures,A Bulk and Weight.
Heavy and bulky products have very high handling and shipping costs relative to their. value Therefore a producer should attempt to minimize these costs by shipping only in. large lots to the fewest possible points, Consequently the channel structure should be as short as possible usually from producer. B Perishability, Products subject to rapid physical deterioration and those of rapid fashion obsolescence. require rapid movement from production to consumption. Marketing Channels 7e, The following heuristic is appropriate in these situations. When products are highly perishable channel structures should be designed to. provide for rapid delivery from producers to consumers. C Unit Value, The lower the unit value of the product the longer the channel should be This is because. low unit value leaves a small margin for distribution costs. When the unit value is high relative to its size and weight direct distribution is feasible. because the handling and transportation costs are low relative to the product s value. D Degree of Standardization, Custom made products should go from producer to consumer while more standardized.
products allow opportunity to lengthen the channel. E Technical versus Nontechnical, In the industrial market a highly technical product will generally be distributed through a. direct channel This is because the manufacturer may need sales and service people. capable of communicating the product s technical features to the user. In the consumer market relatively technical products are usually distributed through. short channels for the same reasons, New products both industrial and consumer require extensive and aggressive promotion. in the introductory stage to build demand Usually the longer the channel of distribution. the more difficult it is to achieve this kind of promotional effort from all channel. Therefore a shorter channel is generally viewed as an advantage for new products as a. carefully selected group of intermediaries is more likely to provide aggressive promotion. 3 Company Variables, The most important company variables affecting channel design are A size B. financial capacity C managerial expertise and D objectives and strategies. In general the range of options for different channel structures is a positive function of a. firm s size Larger firms have more options available to them than smaller firms do. B Financial Capacity, Generally the greater the capital available to a company the lower its dependence on. intermediaries,Designing the Marketing Channel,C Managerial Expertise.
For firms lacking in the managerial skills necessary to perform distribution tasks channel. design must of necessity include the services of intermediaries who have this expertise. Over time as the firm s management gains experience it may be feasible to change the. structure to reduce the amount of reliance on intermediaries. D Objectives and Strategies, The firm s marketing and general objectives and strategies such as the desire to exercise. a high degree of control over the product may limit the use of intermediaries. Strategies emphasizing aggressive promotion and rapid reaction to changing markets will. constrain the types of channel structures available to those firms employing such. strategies,4 Intermediary Variables, The key intermediary variables related to channel structure are A availability B costs. and C the services offered,A Availability, The availability number of and competencies of adequate intermediaries will influence. channel structure, The cost of using intermediaries is always a consideration in choosing a channel. structure If the cost of using intermediaries is too high for the services performed then. the channel structure is likely to minimize the use of intermediaries. C Services, This involves evaluating the services offered by particular intermediaries to see which.
ones can perform them most effectively at the lowest cost. 5 Environmental Variables, Economic sociocultural competitive technological and legal environmental forces can. have a significant impact on channel structure,6 Behavioral Variables. The channel manager should review the behavioral variables discussed in Chapter 4. Designing the Marketing Channel 6 4 Phase 3 Specifying the Distribution Tasks The job of the channel manager in outlining distribution functions or tasks is a much more specific and situationally dependent one The kinds of tasks required to meet specific distribution objectives must be precisely stated

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