Channel Design

Role of the Marketing Channel (manufacturers

viewpoint)
• Offers manpower and physical facilities
• Provides personal selling, advertising and display to aid in selling
• Interprets consumer demand and transfers this information back
• Breaks the bulk
• Offers storage
• Shares risk of the manufacturer
• Information provider of all other sought
Role of Channel (consumers view point)
• Product decision
• Brand decision
• Consideration set formation
• Information search
• Evaluation of alternatives
• Purchase
• Form utility
• Time utility
• Place utility
• Possession utility
CHANNEL DESIGN

• THE OBJECTIVE FUNCTION: TO GIVE EASE OF AVAILABILITY – DEPTH

AS WELL AS WIDTH.
• CONSTRAINT LINE 1: GEOGRAPHIC DISPERSION IS HIGH.
• CONSTRAINT LINE 2: LARGE NUMBER OF OUTLETS, LOW SALES.

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IMPLICATION

• THE CHANNEL HAS MANY LAYERS AND MANY INTERMEDIARIES.

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INTERMEDIARIES
• CLEARING & FORWARDING AGENTS.

• THIRD PARTY GODOWN FACILITY.

• DOES NOT TAKE TITLE OF GOODS.
• PAID HANDLING CHARGES.
• PERFORMS “BULK BREAKING”.

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INTERMEDIARIES
• STOCKIST/DISTRIBUTOR

• THIRD PARTY BRANCH OFFICE.

• ON A COMMERCIAL CONTRACT.
• A SYMBIOTIC RELATIONSHIP.
• PROTECTING HIS ROI IS IMPORTANT.

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INTERMEDIARIES
• WHOLESALER

• A FREE BIRD IN THE CHANNEL WHO SELLS TO RETAILERS.

• THIN MARGINS, HIGH TURNOVER.
• USES PRICE BUNDLING.
• USES CREDIT TO ENSURE DEBT TRAPS.

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INTERMEDIARIES
• RETAILER

• SELLS TO END CONSUMER.

• SMALL PARTIES – USUALLY IN A BIND FOR WORKING CAPITAL.
• LOW BARGAINING POWER – UNLESS YOU ARE A SUPERMARKET.

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TYPES OF SALES

• PRIMARY SALE = SALE BY COMPANY TO STOCKIST.

• THIS IS WHAT COMES IN THE COMPANY FINANCIAL STATEMENTS.

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TYPES OF SALES

• SECONDARY SALE = SALE BY THE STOCKIST TO WHOLESALER OR

RETAILER. THIS TRANSACTION APPEARS IN THE BOOKS OF THE
STOCKIST – NOT THE COMPANY.

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TYPES OF SALES

• OFFTAKE = SALE BY THE RETAILER TO CONSUMER. THIS TRANSACTION

APPEARS IN THE BOOKS OF THE RETAILER – NOT THE COMPANY.

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Functions to be performed
• Prospecting: Creating awareness/ensuring brand enters awareness set
• Promoting: Information search/Evaluation
• Bulk breaking & assortment: Form utility
• Storage: Time utility
• Credit and Service: Possession utility
• Availability: Place utility
• Feedback
 Designing a Distribution Channel
WELL-
DESIGNED
DISTRIBUTION
Specify CHANNEL
Select Determine
the role of Choose
type of appropriate
distribution specific
distribu- intensity
within the channel
tion of distri-
marketing members
channel bution
mix
Decisions Involved
• New channel Design
• Modification of the existing channel
Channel Design Includes
• The number of channel to employ
• The number of levels to be included
• The type of intermediaries
• The number of channel intermediaries at each level
Channel Design decision
• Is based upon target segment
• Positioning of the company
• Product category
• Alternatives available
• Goals of the channel member
Factors Affecting Choice of Channels
• Market Considerations
• Type of market
• Number of potential customers
• Geographic concentration of the market
• Order size
• Product Considerations
• Unit Value
• Perishability
• Technical nature
• Legal Requirements
Factors Affecting Choice of Channels Cont…

• Middlemen Considerations
– Services provided by middlemen
– Availability of desired middlemen
– Producer’s and middleman’s policies
• Company Considerations
– Desire for channel control
– Services provided by seller
– Ability of management
– Financial resources
Framework for meeting Buyers needs to Channel
Design

Grocers & Supermarkets Chemists

General
Merchant
Target Middle income Middle income Middle income &
Segment group upwards group upwards floating population

Buyers Monthly Trial and variety Impulse buying

behavior shopping seeking behavior
satisfied
 Way of Evaluation

Channel Cost Middlemen Control Adaptability

Strategy Profitability

Company High NA High Low

showroom

Franchisee Medium Moderate High High

 Framework for designing the channel

Target Group

Buyers Needs

Product Features Retailers Needs

Legal issues

Functions to be
Reach Distribution Needs performed by the
Channel

Feasible alternative
Case
• Dell Computers started selling computers through Retail distribution
channel in addition to online channel.
Views?
Channel Design Online Channel Retail channel
Parameters
Target Group Tech Savy consumers General Consumers
Buyers needs Recent up to date features Novice people looking for
and a chance to customize brand comparison and
retailers advice
Retailers Needs Supply chain partners Technical specifications
Margins
Brand Pull
Selling support
Reach Accessibility to net/phone etc Tier 1 & Tier II towns (medium
to high)
Functions to be Information, timely supply etc. Availability
performed by the Explaining the product factors
channel Push the product
Provide brand comparison
Feasible & Distinct Yes yes
Group Exercise:
Identification & Evaluation of Channels

• Madura Fashion & life Style uses 3 different channels for selling
its various Brands of apparels (Traditional Stores, Exclusive
showrooms and Multi-brand modern retail outlets). Evaluate
the benefits and distinctiveness of these channels.

Time: 15 min
• Lets discuss pros and cons of each one of them and their
utility.
Channel Modification (issues involved)
• Assess the suitability of the existing channel (channel evaluation)
• Determine does it need complete makeover or make over of certain
components
• Identify the components to be modified
• Establish the objective for modification
• Identify the change agent & Change target
• Undertake/undergo the change process
• Carry out evaluation/feedback
Few Other considerations in Channel Design
• Reverse/Inverse Logistics
• Cost of Distribution and transportation
• Kind of Infrastructure available
Example of a service output delivered template

Sl.No. Service dimension Service output delivered

1. Bulk-Breaking Units are delivered in ones

2. Spatial convenience There is at least one outlet for almost every
3 km radius excluding of course thinly
populated areas
3. Waiting time Not more than 2 days for any model
4. Assortment Other consumer goods items including that
of other competitors are available at all the
outlets where the products are otherwise
Available
5. Installation support Available
6. After sales support Free for first two years, but available on
payment afterwards. Also available at every
city from where the product was bought.
7. Consumer financing Available
8. Others