CHAPTER 6

DESIGNING
MARKETING
CHANNELS
CARL KENNETH P. MARQUESES
BSBA Marketing Management
Googles
Nexus One
Channel
Design
 Google is one of the smartest and most
successful companies in history. In fact the
company made a big one when it designed
its marketing channel for its Nexus One
Smartphone. Google thought it could
revolutionize the cellphone market by
selling the phones directly to consumers
online through its own web store. After five
months, Google announced it would be
closing its web store. The channel failed to
provide the kind of experience customers
were looking for. Most customers wants a
hands-on experience before buying a
smartphone and they also want a wide
range of service plans to choose from that
are clearly explained by a real person. The
direct web store channel did not deliver
these services. So sales turned out to be so
 Refers to decisions
associated with developing
Channel new marketing channels
Design where none had existed
before, or no to modifying
existing channels.
Who Producers
engages in Manufacturers

Channel Wholesalers

Design? Retailers
 6

Who Engages in Channel Design?*

Firms Retailers
Wholesalers
(Manufacturers)

Producers,
manufacturers, service Look up the
providers, franchisors Look both up and channel
down to secure
Look down the the channel suppliers
channel
toward the market
 1. RECOGNIZE NEED FOR CHANNEL DESIGN DECISION
A
2. SET AND COORDINATE DISTRIBUTION OBJECTIVES
PARADIGM 3. SPECIFY THE DISTRIBUTION TASKS
OF THE 4. DEVELOP ALTERNATIVES CHANNEL STRUCTURES
CHANNEL 5. EVALUATE THE RELEVANT VARIABLES
DESIGN 6. CHOOSE THE BEST CHANNEL STRUCTURE
DECISION 7. SELECT THE CHANNEL MEMBERS
 When to Make a Channel
Design Decision

Developingaanew
Developing newproduct
productoror Dealingwith
withchanges
changesinin
Dealing
productline
product line availabilityofofparticular
particularkinds
kindsofof
availability
Aimingan
Aiming anexisting
existingproduct
productatataa intermediaries
intermediaries
newmarket
new market Openingup upnew
newgeographic
geographic
Opening
Makingaamajor
Making majorchange
changeininsome
some marketingareas
marketing areas
othercomponent
other componentofofthethemarketing
marketing Facing the occurrence of major
Facing the occurrence of major
mix
mix environmentalchanges
changes
environmental
Establishingaanew
Establishing newfirm
firm Meetingthethechallenge
challengeofofconflict
conflict
Meeting
Adaptingtotochanging
Adapting intermediary ororother
changingintermediary otherbehavioral
behavioralproblems
problems
policiesthat
policies thatmay
mayinhibit
inhibitattainment
attainment Reviewing and evaluating
Reviewing and evaluating
of distribution objectives
of distribution objectives
 Distribution Objectives

Setting distribution objectives

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

Firms
Firms
overall
overall
objectives
objectives
&&
strategies
strategies

General
General
marketing
marketing
objectives&&
objectives
strategies
strategies

Product
Product Pricing
Pricing Promotion
Promotion Distribution
Distribution
marketing
marketing marketing
marketing marketing
marketing marketing
marketing
objectives&&
objectives objectives&&
objectives objectives&&
objectives objectives&&
objectives
strategies
strategies strategies
strategies strategies
strategies strategies
strategies
The firms distribution system is one of the most well planned and executed
compared to all other drinks of the same category. It has such an impact on
consumers and is so successful that even wholesalers and distributers need
the product for their business success. Cokes position on consumers mind
makes it essential to retailers and wholesalers. They have achieved their goal
due to this high visibility, and to the availability of their products all over the
world, even remote places.
Exclusive distributionis an agreement between a
supplier and a retailer granting the retailerexclusive
rights within a specific geographical area to carry the
supplier's product.
Distribution Tasks
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.
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26, 2016
 6
Number of Levels

Range from two to five or more

Number of alternatives is limited to
two or three choices
Limitations result from the following
factors:
Particular industry practices
Nature & size of the market
Availability of intermediaries
 6
Intensity at the Various Levels

Relationship between the intensity of distribution

dimension & number of retail intermediaries used in a
given market area

Intensity Dimension

Intensive Selective Exclusive

Numbers of Intermediaries (retail level)

Many Few
One
 6

Types of Intermediaries

Numerous types
Managers emphasis on types of
distribution tasks performed by these
intermediaries
Watch emerging types
Electronic online auction firms (LAZADA)
Industrial products sold in B2B markets
(Chemdex, Converge.com)
 Variables Affecting Channel Structure
Categories of Variables

1. Market Variables
2. Product Variables
3. Company Variables
4. Intermediary Variables
5. Environmental Variables
6. Behavioral Variables
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 industrial firms)
per unit of land area

Market Behavior Who buys, & how, when, and

where customers buy
Product Variables

Bulk & Weight

Perishability
Unit Value
Degree of Standardization
Technical versus Nontechnical
Newness
 Company Variables

Size The range of options is

relative to a firms 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
 6
Environmental Variables

Competitive
Economic
Sociocultural

The impact of environmental forces is

a common reason for making
channel design decisions.

Technological Legal
 6
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.
 Choosing an Optimal
Channel Structure

Why is choosing an optimal channel structure

not possible?

1. Management is incapable of knowing all

possible alternatives.

2. Precise methods for calculating the

exact payoffs associated with each
alternative structures do not exist.

BUT Techniques exist for developing

more exact methods.
 The Continuum of Interfirm
Exchange Format*

Franchise
Systems
Hierarchy Buying Market Setting
(Make) Groups (Buy)

* My latest thought on continuum

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 Three Steps To Take for Selecting
the Best Channel Design*
1. Analyze Channel Objectives and
Product Characteristics:

2. Analyze Desired Channel (Service)

Output Utilities:

3. Analyze Market Behaviors and

Segments
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 1. Analyzing Channel Objectives and
Product Characteristics
Channel Objectives
Product Characteristics
Unit value: length
Standardization: length, intensity
Bulkiness: length
Complexity: length, intensity
Stage of Product Life Cycle: intensity,
ownership

Implications for level, intensity, and

ownership
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2002 function
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2. Analyzing Desired Channel Output
Utilities
Lot size utility

Convenience (time/spatial)
utility

Assortment/Variety Utility

Service utility
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3. Analyzing Market Behaviors and
Segments

Current and potential buyer behaviors:

Who is doing the buying?
Where,when and how end users buy:
Seasonal
Shopping from home
Knowledge of industry (and its language)

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