Part 2: Developing the Marketing Channel. Designing Marketing Channels. Channel Design Who engages in channel design Channel design paradigm When to make a channel design Distribution objectives Distribution tasks Channel structure decisions
Channel Design:Decisions involving the development of new marketing channels either where none had previously existed or to the modification of
Distinguishing points of the definition include:
• Look down the
toward the market
• Look both up
• Look up the
Recognize the need for
channel design decision
2. Set & coordinate
6. Choose the “best”
4. Develop alternative
Setting distribution objectives
requires knowledge of which,
if any, existing objectives
& strategies may impinge
on these distribution objectives.
Outlining distribution tasks is specific
and situationally dependent on the firm.
For example: Distribution tasks for a
manufacturer of consumer products
differs from those for products sold
in industrial markets.
Distribution tasks are a function of the distribution objectives and the types of firms involved.
1. Number of levels in the channel
2. Intensity at the various levels
3. Types of intermediaries at each level
Relationship between the intensity of distribution dimension & number of retail intermediaries used in a given market area.
Intensive Selective Exclusive
Numbers of Intermediaries (retail level)
Many Few One
Categories of Variables
Market Geography Location, geographical size,
& distance from producer
Market Size Number of customers in a
Market Density Number of buying units
(consumers or industrial firms) per unit of land area
Market Behavior Who buys, & how, when, and
where customers buy
Bulk & Weight
Degree of Standardization
Technical versus Nontechnical
Size The range of options is
relative to a firm’s size
Financial The greater the capital, the
Capacity lower the dependence on intermediaries
Managerial Intermediaries are necessary
Expertise when managerial experience is lacking
Objectives Marketing & objectives may
& Strategies limit use of intermediaries
Availability Availability of intermediaries
influences channel structure.
Cost Cost is always a consideration in channel structure.
Services Services that intermediaries offer are closely related to the
selection of channel members.
The impact of environmental forces is
a common reason for making
channel design decisions.
Develop congruent roles for channel members.
Be aware of available power bases
Attend to the influence of behavioral problems
that can distort communications.
Fairly simple prescriptions for channel structure
Mostly useful as rough guide to decision making
2. Precise methods for calculating the exact payoffs associated with each alternative structures do not exist.
Techniques exist for developing
more exact methods.
Management’s ability to make sharp judgments is high
Good empirical data on costs
and revenues is available
It’s possible to make highly satisfactory channel-choice decisions using judgmental-heuristic approaches
Best Buy Co., the largest consumer electronics retailer in the world, is famous for its giant 40,000 square-foot “big-box” stores. This channel has served Best Buy well over the years as consumers wandered through the giant product displays in the cavernous stores, and competitors such as Circuit City were literally driven out of business by Best Buy’s dominant stores. But by the end of the first decade of the Twenty-first century, Best Buy made a channel design decision that focused on adding a retail channel consisting of much smaller 3,000 square-foot stores to its large-store channel. The new smaller stores will be located in shopping malls as well as in urban downtown venues. Best Buy designed this new small-store channel structure mainly to do a better job of reaching the still-growing market for mobile phones, especially smartphones. These smaller stores will sell almost one hundred different phones as well as the services of nine carriers.
Do you think Best Buy’s channel design decision is a good one? What other channel design options might Best Buy have pursued to accomplish its distribution objective?
Vending machines have existed as a mechanical channel for distributing a variety of products for many decades. Traditionally the typical products found in vending machines were soft drinks, candy, cigarettes, and snack foods. But in recent years the variety of products sold through vending machine channels has broadened dramatically. Consumers can now buy digital cameras, DVDs, iPods, baby diapers, and in Germany, even solid gold bars for which the price charged changes every two minutes with the ups and downs of the price of gold.
From a channel design standpoint, what do you see as the key variables to consider in determining whether vending machines could be a feasible channel choice for any given product of your choice?
Marketing channels should be designed to make products and services conveniently available to customers, how, when, and where they want them. This is exactly what several franchises such as Cousins Submarines Inc., Tasti D-Lite LLC frozen yogurt, and Toppers Pizza Inc. intend to do by changing their channel structures to include mobile channels consisting of fully equipped trucks and vans that can bring many of the products sold in their bricks and mortar stores right to customers where they work and play. How will potential customers know when and where these truck and van mini-restaurants will appear? Simple customers can track the whereabouts of the vendors by going to Facebook, Twitter, and FourSquare.
Do you think this type of mobile channel is just a novelty in fast-food channels or does it have the potential to be a major force for change in the channel structure of fast-food and other product and service distribution channels?