Designing the marketing channel

Week 6

Instructor: Jungwan Lee

What is channel design?

…refers to those decisions involving the development of new marketing channels where none had existed before, or to the modification of existing channels.

..is a key factor to gain a differential advantage

Paradigm of the channel design decision

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 variables affecting channel

structure 6. Choosing the best channel structure 7. Selecting channel members

Setting and coordinating distribution objectives

Firm’s overall objectives and strategies

General marketing objectives and strategies

Marketing mix’s objectives and strategies (product, price, promotion, distribution)

Developing possible alternative channel structures

1. Number of levels: two ~ five levels 2. Intensity at the various levels

Intensive:consumer convenience goods Selective: consumer shopping goods Exclusive: specialty goods

3. Types of intermediaries Wholesale trade, Retail trade

Number of possible channel alternatives 3 x 3 x 5 = 45 possible structures

Six basic variables affecting channel structure

Market variablesProduct variablesCompany variablesIntermediary variablesEnvironmental variablesBehavioral variables

Six variables (cont.)

Market variables market geography, market size, market density, market

behavior Product variables

bulk and weight, perishability, unit value,degree of standardization, technical versus nontechnical, newness

Company variables size, financial capacity, managerial expertise, objectives

and strategies

Six variables (cont.)

Intermediary variables Availability, costs, services

Environmental variables Economic, sociocultural, competitive, technolo

gical, legal environmentBehavioral variables

Differential goals, language differences, tendency of channel member

Choosing the best channel structure

Aspinwall’s approach: characteristic of goods theory Financial approach Transaction cost analysis approach Management science approach:

simulation model, mathematical model, bayesian statistics, comprehensive operations research model…etc.

Judgmental-heuristic approaches Straight qualitative judgment approach, weighted factor score

approach, distribution costing approach