Marketing Channels

• Channel Design


  Decisions involving the development of new marketing channels either where none had previously existed or to the modification of existing channels
• Channel Design


  • 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
• Who engages in channel design

  • Producers
  • Manufacturers
  • Service providers
  • Franchisors
  • Firms
  • Wholesalers
  • Retailers
• Channel Design Paradigm


  1. Recognize the need for channel design decision

  2. Set & coordinate distribution objectives

  3. Specify distribution tasks

  4. Develop alternative channel structures

  5. Evaluate relevant variables

  6. Choose the "best" channel structure

  7. Select channel members
• When to make a channel design decision

  • 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
• Distribution Objectives


  Setting distribution objectives requires knowledge of which, if any, existing objectives & strategies may impinge on these distribution objectives
• The Need for Congruency

  • Firm's overall objectives & strategies
  • General marketing objectives & strategies
  • Pricing marketing objectives & strategies
  • Product marketing objectives & strategies
  • Promotion marketing objectives & strategies
  • Distribution marketing objectives & strategies
• Distribution Tasks


  Outlining distribution tasks is specific and situationally dependent on the firm. Distribution tasks are a function of the distribution objectives and the types of firms involved.
• Channel Structure Dimensions


  • Number of levels in the channel
  • Intensity at the various levels
  • Types of intermediaries at each level
• Number of Levels


  • Range from two to five or more
• Intensity at the Various Levels


  • Intensive
  • Selective
  • Exclusive
• Types of Intermediaries


  • Numerous types
  • Electronic online auction firms (eBay)
  • Industrial products sold in B2B markets (Chemdex, Converge.com)
• Variables Affecting Channel Structure

  • Market Variables
  • Product Variables
  • Company Variables
  • Intermediary Variables
  • Environmental Variables
  • Behavioral Variables
• Market Variables


  • Market Geography
  • Market Size
  • Market Density
  • Market Behavior
• Product Variables


  • Bulk & Weight
  • Perishability
  • Unit Value
  • Degree of Standardization
  • Technical versus Nontechnical
  • Newness
• Company Variables


  • Size
  • Financial Capacity
  • Managerial Expertise
  • Objectives & Strategies
• Intermediary Variables


  • Availability
  • Cost
  • Services
• Environmental Variables


  • Competitive Forces
  • Economic Forces
  • Sociocultural Forces
  • Technological Forces
  • Legal Forces
• Behavioral Variables


  • Develop congruent roles for channel members
  • Be aware of available power bases
  • Attend to the influence of behavioral problems that can distort communications
• Heuristics in Channel Design

  • Fairly simple prescriptions for channel structure
  • Mostly useful as rough guide to decision making
• Choosing an optimal channel structure is not possible because management is incapable of knowing all possible alternatives and precise methods for calculating the exact payoffs associated with each alternative structures do not exist
• Marketing Channel Strategy


  The broad principles by which the firm expects to achieve its distribution objectives for its target market(s)
• Approaches for Choosing Channel Structure

  • "Characteristics of Goods & Parallel Systems" Approach
  • Financial Approach
  • Transaction Cost Analysis Approach
  • Management Science Approaches
  • Judgmental-Heuristic Approach
• Judgmental-Heuristic Approaches


  IF Management's ability to make sharp judgments is high AND Good empirical data on costs and revenues is available, THEN it's possible to make highly satisfactory channel-choice decisions using judgmental-heuristic approaches
• 6 Distribution Decisions for Firms to Address

  • The role of distribution in the firm's overall objectives & strategies
  • The role distribution should play in the marketing mix
  • The design of the firm's marketing channels
  • The selection of channel members
  • The management of the marketing channel in order to implement the firm's channel design effectively & efficiently on a continuing basis
  • The evaluation of channel member performance
• Channel Strategy as Overall Corporate Objective

  The higher the priority given to distribution, the higher the level at which it should be considered in formulating the organization's overall objectives and strategies
• Companies that use Distribution Strategically

  • Dell Computer
  • BMW
  • Amazon.com
  • Apple Computer
  • Edward Jones
  • Rayovac Corporation
  • Proctor & Gamble Company
• Peter Drucker: 'Changes in distributive channels may not matter much to GNP and macroeconomics. But they should be a major concern to every business and industry … Everyone knows how fast technology is changing. Everyone knows about markets becoming global and about shifts in the work force and in demographics. But few people pay attention to changing distribution channels.'
• Channel Strategy & the Marketing Mix

  The essence of modern marketing management – to develop an appropriate and complementary marketing mix
• Elements of the Marketing Mix

  • Product Strategy
  • Pricing Strategy
  • Promotional Strategy
  • Distribution Strategy
• Emphasis on Distribution Strategy

  • Distribution is the most relevant variable for satisfying target market demands
  • Parity exists among competitors in the other three variables of the marketing mix
  • A high degree of vulnerability exists because of competitors' neglect of distribution
  • Distribution can enhance the firm by creating synergy from marketing channels
• If

  The firm should choose distribution strategy for strategic emphasis
• Target Market Demand

  Firms should stress distribution when it serves customers' needs in the target market
• Competitive Parity

  Distribution advantages are not easily copied by competitors
• Distribution Neglect

  Competitors' neglect of distribution strategies provides excellent opportunities
• Distribution and Synergy

  "Hooking up" with a mix of cooperative channel members will strengthen the channel
• Differential Advantage

  Also called sustainable competitive advantage, occurs when a firm attains a long-term, advantageous position in the market relative to competitors
• Positioning the Channel

  The reputation a manufacturer acquires among distributors [channel members] for furnishing products, services, financial returns, programs, and systems that are in some way superior to those offered by competing manufacturers
• Positioning the Channel


  A firm that plans the channel and makes decisions by viewing the relationship with channel members as a partnership or strategic alliance that offers recognizable benefits to the manufacturer & channel members on a long-term basis
• Selection of Channel Members

  • Reflect channel strategies the firm has developed to achieve its distribution objectives
  • Be consistent with the firm's broader marketing objectives & strategies
  • Reflect the objectives & strategies of the organization as a whole