Chapter 6

1. Chapter 6 Designing the Marketing Channel

2. Channel Design Objective 1: 6 • Channel Design • Decisions involving either the development of new marketing channels where none had previously existed or the modification of existing channels • Important points: • 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. Objective 2: 6 Who Engages in Channel Design • Manufacturers: • Includes also service providers and franchisors • Must look down the channel toward the market • Wholesalers • Must look both up and down the channel • Retailers • Must look up the channel to secure suppliers

4. Objective 3: 6 Channel Design Paradigm • Seven (7) Steps to Consider: • Recognize the need for channel design decision • Set & coordinate distribution objectives • Specify distribution tasks • Develop alternative channel structures • Evaluate relevant variables • Choose the “best” channel structure • Select channel members

5. When to Make aChannel Design Decision Objective 4: 6 • 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 • 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 existing members’ performance

6. Objective 5: 6 Distribution Objectives • Setting distribution objectives requires knowledge of which, if any, existing objectives & strategies may impinge on these new distribution objectives.

7. 6 The Need for Congruency • Holistic approach is needed… • Distribution is often really a facilitator for achieving the firm’s other objectives • Product marketing • Price marketing • Promotion marketing • And the firm’s marketing mix objectives are derived from the firm’s overall objectives an strategies. • A change in one area is likely to affect all other areas.

8. Objective 6: 6 Distribution Tasks • Outlining distribution tasks is highly idiosyncratic and situationally specific • i.e., Tasks are a function of the distribution objectives and the firms involved • 8 marketing functions are as specific as one can get on any generalizable scale* • Note the 8 functions though represent general categories which your text’s task all fall under*

9. Objective 7: 6 Channel Structure Dimensions • Number of levels • Intensity at each level Control (for mgmt & image) • Types of intermediaries at each level

10. Number of Levels 6 • Often ranges from two (i.e., manufacturer and customer) to five or more • Number of alternatives is often limited to two or three choices because of factors like: • Particular industry practices (e.g., automobiles) • Nature & size of market • Availability of intermediaries

11. 6 Intensity at Various Levels Positive relationship between the intensity of the distribution dimension & number of intermediaries used (in a given market area)* Intensity Dimension Intensive Selective Exclusive Numbers of Intermediaries (retail level) Many Few One

12. Types of Intermediaries 6 • Numerous types • E.g., retailers, wholesalers, A/Bs, etc. • Manager’s emphasis should be on the types of tasks performed by each & what’s needed • Must be aware of emerging types: • Electronic online auctions for consumers (e.g., eBay) • Electronic markets for industrial goods (converge.com) • Demand collection channels (priceline.com)*

13. Variables AffectingChannel Structure Objective 8: 6 • Categories of variables: • Market variables • Product variables • Company variables • Intermediary variables • Environmental variables • Behavioral variables

14. 6 Market Variables • Market geography • Location, geographical size, & distance from producer • Market size • Number of customers in a market • Market density • Number of buying units (consumers or firms) per unit of land area • Market behavior • Who buys, & how, when, and where customers buy

15. Product Variables 6 • Bulk and weight • Perishability • Unit value • Degree of standardization • Technical vs. nontechnical • Newness

16. 6 Company Variables • Size • Larger often confers greater “power bases” • Financial capacity • Greater capital lessens dependency • Managerial expertise • Increases dependency on others’ expertise • Objectives & strategies • Particulars may limit alternatives

17. 6 Intermediary Variables • Availability • Positively related to length • Cost • Negatively related to length • Services (available from intermediaries) • Positively related to use

18. 6 Environmental Variables • Economic • Sociocultural • Competitive • Technological • Legal *reference Ch. 3 for effects*

19. 6 Behavioral Variables • Develop congruent roles for all channel members • Be aware of members’ “power bases” • Manage communication channels to minimize possible conflict *reference Ch. 4 for effects*

20. Heuristics in Channel Design Objective 9: 6 • Heuristics • Rules of thumb • Benefits • Fairly simple prescriptions for channel structure • Limitations • Mostly useful as a rough guide to decision-making

21. Objective 10: 6 Choosing an Optimal Channel Structure • Why is management incapable of choosing an optimal channel structure? • All possible outcome alternatives are unknown • Precise methods for calculating the exact payoffs associated with each alternative structure do not exist • Which is why we assume with the use of heuristics & why tacit knowledge is so important…

22. Approaches for Choosinga Channel Structure Objective 11: 6 • Some techniques for enhancing our channel design decisions include the: • “Characteristics of Goods & Parallel Systems” Approach • Financial Approach • Transaction Cost Analysis Approach • Management Science Approaches • Judgmental-Heuristic Approach*

23. Objective 12: 6 Judgmental Heuristic Approaches • Assuming that management’s ability to make judgments is high, and good empirical data on costs & revenues exists then… • It’s possible to make satisfactory channel design choices using the judgmental-heuristic approach

24. 6 Judgmental Heuristic Approaches • 3 General Approaches: • Straight Qualitative Judgment Approach • Weighted Factor Score Approach • Distribution Costing Approach*