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Chapter5DesigningtheMarketingChannelChannelDesign6Objective1:DecisionsinvolvingthedevelopmentofnewmarketingchannelseitherwherenonehadpreviouslyexistedortothemodificationofexistingchannelsChannelDesign:6ChannelDesign1.Adecisionmadebythemarketer2.Thecreationormodificationofchannels3.Theactiveallocationofdistributiontasksinanattempttodevelopanefficientstructure4.Theselectionofchannelmembers5.AstrategictoolforgainingadifferentialadvantageDistinguishingpointsofthedefinitioninclude:6WhoEngagesinChannelDesign?Objective2:•Producers,manufacturers,serviceproviders,franchisors•Lookdownthechanneltowardthemarket•Lookupthechanneltosecuresuppliers•LookbothupanddownthechannelFirmsWholesalersRetailers6ChannelDesignParadigm1.Recognizetheneedforchanneldesigndecision7.Selectchannelmembers5.Evaluaterelevantvariables6.Choosethe“best”channelstructure2.Set&coordinatedistributionobjectives3.Specifydistributiontasks4.DevelopalternativechannelstructuresObjective3:6WhentoMakeaChannelDesignDecisionObjective4:•Developinganewproductorproductline•Aiminganexistingproductatanewmarket•Makingamajorchangeinsomeothercomponentofthemarketingmix•Establishinganewfirm•Adaptingtochangingintermediarypoliciesthatmayinhibitattainmentofdistributionobjectives•Dealingwithchangesinavailabilityofparticularkindsofintermediaries•Openingupnewgeographicmarketingareas•Facingtheoccurrenceofmajorenvironmentalchanges•Meetingthechallengeofconflictorotherbehavioralproblems•Reviewingandevaluating6DistributionObjectivesObjective5:Settingdistributionobjectivesrequiresknowledgeofwhich,ifany,existingobjectives&strategiesmayimpingeonthesedistributionobjectives.6TheNeedforCongruencyFirm’soverallobjectives&strategiesGeneralmarketingobjectives&strategiesPricingmarketingobjectives&strategiesProductmarketingobjectives&strategiesPromotionmarketingobjectives&strategiesDistributionmarketingobjectives&strategiesDistributionTasks6Objective6:Outliningdistributiontasksisspecificandsituationallydependentonthefirm.Forexample:Distributiontasksforamanufacturerofconsumerproductsdiffersfromthoseforproductssoldinindustrialmarkets.Distributiontasksareafunctionofthedistributionobjectivesandthetypesoffirmsinvolved.=6ChannelStructureDimensionsObjective7:1.Numberoflevelsinthechannel2.Intensityatthevariouslevels3.TypesofintermediariesateachlevelAllocationAlternatives6NumberofLevels•Rangefromtwotofiveormore•Numberofalternativesislimitedtotwoorthreechoices•Limitationsresultfromthefollowingfactors:–Particularindustrypractices–Nature&sizeofthemarket–AvailabilityofintermediariesIntensityattheVariousLevels6IntensiveSelectiveExclusiveManyFewOneIntensityDimensionNumbersofIntermediaries(retaillevel)Relationshipbetweentheintensityofdistributiondimension&numberofretailintermediariesusedinagivenmarketarea6TypesofIntermediaries•Numeroustypes•Manager’semphasisontypesofdistributiontasksperformedbytheseintermediaries•Watchemergingtypes–Electroniconlineauctionfirms(eBay)–IndustrialproductssoldinB2Bmarkets(Chemdex,Converge.com)6VariablesAffectingChannelStructureObjective8:1.MarketVariables2.ProductVariables3.CompanyVariables4.IntermediaryVariables5.EnvironmentalVariables6.BehavioralVariablesCategoriesofVariables6MarketGeographyLocation,geographicalsize,&distancefromproducerMarketSizeNumberofcustomersinamarketMarketDensityNumberofbuyingunits(consumersorindustrialfirms)perunitoflandareaMarketBehaviorWhobuys,&how,when,andwherecustomersbuyMarketVariablesProductVariables6Bulk&WeightPerishabilityUnitValueDegreeofStandardizationTechnicalversusNontechnicalNewnessCompanyVariables6SizeTherangeofoptionsisrelativetoafirm’ssizeFinancialThegreaterthecapital,theCapacitylowerthedependenceonintermediariesManagerialIntermediariesarenecessaryExpertisewhenmanagerialexperienceislackingObjectivesMarketing&objectivesmay&StrategieslimituseofintermediariesIntermediaryVariables6AvailabilityAvailabilityofintermediariesinfluenceschannelstructure.CostCostisalwaysaconsiderationinchannelstructure.ServicesServicesthatintermediariesofferarecloselyrelatedtotheselectionofchannelmembers.6EnvironmentalVariablesTheimpactofenvironmentalforcesisacommonreasonformakingchanneldesigndecisions.EconomicSocioculturalCompetitiveTechnologicalLegalBehavioralVariables6Developcongruentrolesforchannelmembers.Attendtotheinfluenceofbehavioralproblemsthatcandistortcommunications.Beawareofavailablepowerbases.HeuristicsinChannelDesign6BenefitFairlysimpleprescriptionsforchannelstructureLimitationMostlyusefulasroughguidetodecisionmakingObjective9:ChoosinganOptimalChannelStructureObjective10:6Whyischoosinganoptimalchannelstructurenotpossible?1.Managementisincapableofknowingallpossiblealternatives.2.Precisemethodsforcalculatingtheexactpayoffsassociatedwitheachalternativestructuresdonotexist.Techniquesexistfordevelopingmoreexactmethods.BUTObjective11:ApproachesforChoosingChannelStructure6•“CharacteristicsofGoods&ParallelSystems”Approach•FinancialApproach•TransactionCostAnalysisApproach•ManagementScienceApproaches•Judgmental-HeuristicApproachAspinwall’s“CharacteristicsofGoodsand