Channel Design for Industries and Consumer Products

Channel Design Decisions

We'll now examine some of the channel decisions that manufacturers must make. When creating marketing channels, producers must choose between ideal and realistic aspects. Selling in a small, specific market area is typically how a startup business with limited money gets started. Choosing the appropriate routes might not be a challenge; instead, the challenge would be in persuading one or a few reliable middlemen to handle the line. If the new business is successful, it may use existing intermediaries to expand into new markets. In smaller markets, the company might sell to stores directly; in bigger markets, it might sell through distributors. It could provide exclusive franchises in one region of the country while selling through all channels in another. A web store that sells directly to customers who are difficult to approach may then be added. Channel systems typically change in this way to adapt to opportunities and market conditions. For greatest effectiveness, channel analysis and decision-making should be more deliberate. Analysis of consumer demands, channel objectives, the identification of key channel alternatives, and evaluation of those alternatives are all required for marketing channel design.

Analyzing Consumer Needs

One of the parts of the whole customer value delivery network is thought to be the marketing channels. Every channel member and level contributes to the customer's value in some way. As a result, learning what the target customer wants from the marketing channel is the first step in developing it. Do customers prefer to purchase goods locally or are they willing to go to a more central area to make their purchases? Would customers prefer to make in-person, telephone, or internet purchases? Do clients require a lot of supplementary services (installation, delivery, repairs), or could they find these services elsewhere? The higher the service level of the channel, the quicker the delivery, the wider the selection, and the more supplemental services offered.

It might not be practical or viable to offer the most services, the widest selection, or the quickest delivery. It's possible that the company and its channel partners lack the tools or expertise needed to offer all the necessary and desired services. Increased service standards translate into higher expenses for the channel and higher prices for customers.

Setting Channel Objectives

Businesses must specify their marketing channel objectives based on targeted customer service standards. Typically, a business may identify numerous sectors that want varied degrees of service. The company must choose which markets to target and the most effective distribution methods for each. By satisfying the demands for customer service, the company seeks to reduce the total cost of the channel in each segment. The organization, its goods, its marketing intermediaries, its competitors, and the environment all have an impact on the firm's channel ambitions. For instance, the size and financial health of the business will determine which marketing tasks it can undertake internally and which it should outsource to intermediaries. To prevent delays and excessive handling, businesses that sell perishable goods might need to engage in more direct marketing. In some instances, a business would prefer to compete in or close to the same stores that sell its rivals' products.

Identifying Major Alternatives

The company should then identify its main channel options after defining its channel objectives, taking into account the various intermediary types, the number of intermediaries, and the roles played by each channel member.

Types of Intermediaries

A company should determine the different channel members who are qualified to perform its channel work. Most businesses have a wide selection of channel members. For instance, Dell formerly relied only on its sophisticated phone and internet marketing channels to sell directly to end users and business purchasers. It has also used its direct sales team to make direct sales to significant corporate, institutional, and government buyers. However, Dell now sells indirectly through merchants like Staples, Best Buy, and Walmart in order to reach more people and keep up with rivals like HP. Additionally, indirect sales are made through value-added resellers, independent distributors, and dealers that create computer programs and systems specifically for the requirements of small- and medium-sized business clients. Using different kinds of resellers in a channel has advantages and disadvantages. For instance, Dell may reach more and different types of customers by selling through retailers and value-added resellers in addition to its own direct channels. However, it gets harder to monitor and regulate the new channels. For many of the same customers, the direct and indirect channels will compete with one another, possibly leading to conflict.

Number of Marketing Intermediaries

Businesses should decide how many channel members to employ at each level. Intensive distribution, exclusive distribution, and selective distribution are the possible three tactics. Producers of common raw materials and convenience goods often aim for intense distribution. Marketers who use intensive distribution stock their goods in as many retailers as they can. These goods ought to be accessible when and when buyers need them. For optimum brand exposure and consumer convenience, commodities like candy, toothpaste, and others of a similar nature are offered in millions of locations.

On the other hand, some producers purposefully restrict the number of middlemen who handle their goods. Exclusive distribution is the most extreme variation of this approach, in which manufacturers grant exclusive distribution rights for their products to a small number of dealers alone. Distribution of luxury brands frequently includes exclusive distribution. For instance, in every particular market region, there are only a few number of authorized dealers selling the unique Bentley cars. Selective distribution is in between intensive and exclusive distribution. Selective distribution makes use of many intermediaries, fewer than all of them, who are willing to carry a firm's products. This is how the majority of television, appliance, and furniture brands are distributed. As an illustration, Whirlpool and GE sell their appliances through dealer networks and particular big-box stores. They can obtain a better-than-average selling effort and solid working relationships with selected channel members by using selective distribution. In comparison to intensive distribution, selective distribution offers firms better market reach, more control, and lower costs.

Responsibilities of Channel Members

The conditions and obligations of each channel member must be agreed upon between the manufacturer and the middlemen. Prices, territory rights, sales terms, and the precise services that must be rendered by each partner must all be agreed upon. A list price and a fair set of discounts for the middlemen must be established by the producer. Each channel member's territory should be specified, and new reseller placement must be taken into consideration. In franchise and exclusive distribution channels, in particular, mutual obligations and services must be clearly stated. For instance, McDonald's provides its franchisees with general management support, training at Hamburger University, a record-keeping system, and promotional help.

Evaluating the Major Alternatives

Let's say a company wishes to select the channel that will most effectively and efficiently help it achieve its long-term goals and objectives. It may have found several different channels. It was necessary to assess each alternative according to its economic, controllability, and adaptability. Using economic criteria, a corporation assesses the potential sales, costs, and profitability of various channel possibilities. What investments each alternative channel will take, and what profits may be expected? The company must take control difficulties into account. Utilizing intermediaries typically entails giving them some control over how the product is marketed, however some intermediaries exercise greater control than others. If all else is equal, the company would rather maintain maximum control. The business must then use adaptation criteria. Although channels typically imply long-term commitments, the company aims to keep them flexible so they may adjust to changes in their environment. A long-term commitment channel must therefore be significantly superior on an economic and control level in order to be taken into consideration.

References :

Kotler, P., & Armstrong, G. (2013). Principles of Marketing. Chennai: Pearson India Education Services Pvt Ltd.

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