8.1 Channel Design and Selection

Distribution channels are the backbone of getting products from manufacturers to consumers. They involve a network of organizations working together to make goods available. This topic explores the types, structures, and strategies used in channel design.

Channel selection is crucial for creating competitive advantage. Companies must consider direct vs. indirect channels, channel length and width, and multi-channel approaches. Effective channel management involves balancing efficiency, conflict resolution, and performance evaluation to optimize distribution.

Channel Types and Structures

Distribution Channel Fundamentals

Top images from around the web for Distribution Channel Fundamentals

• 

  The Nature and Functions of Distribution (Place) | OpenStax Intro to Business View original

  Is this image relevant?

• 

  Place: Distribution Channels | Introduction to Business View original

  Is this image relevant?

• 

  Marketing distribution channel | TikZ example View original

  Is this image relevant?

• 

  The Nature and Functions of Distribution (Place) | OpenStax Intro to Business View original

  Is this image relevant?

• 

  Place: Distribution Channels | Introduction to Business View original

  Is this image relevant?

1 of 3

Top images from around the web for Distribution Channel Fundamentals

• 

  The Nature and Functions of Distribution (Place) | OpenStax Intro to Business View original

  Is this image relevant?

• 

  Place: Distribution Channels | Introduction to Business View original

  Is this image relevant?

• 

  Marketing distribution channel | TikZ example View original

  Is this image relevant?

• 

  The Nature and Functions of Distribution (Place) | OpenStax Intro to Business View original

  Is this image relevant?

• 

  Place: Distribution Channels | Introduction to Business View original

  Is this image relevant?

1 of 3

• Distribution channels move products and services from producers to consumers
• Include a set of interdependent organizations involved in the process of making a product or service available for use or consumption
• Serve as a key external resource for creating competitive advantage and value for customers (product availability, lot size, waiting and delivery time, spatial convenience, product variety, service backup)
• Help bridge the major time, place, and possession gaps that separate goods and services from those who need or want them

Direct and Indirect Channel Structures

• Direct channels have no intermediary involvement and consist of a manufacturer selling directly to a consumer (door-to-door sales, mail order, telemarketing, TV selling, company-owned retail stores)
• Indirect channels contain one or more intermediaries, such as a retailer or wholesaler, that help move products from the manufacturer to the end user
  • One-level channel contains one selling intermediary, such as a retailer (manufacturers to large retailers to consumers)
  • Two-level channel contains two intermediaries, typically a wholesaler and a retailer (manufacturers to wholesalers to retailers to consumers)
  • Three-level channel contains three intermediaries that perform a variety of functions (manufacturers to wholesalers to jobbers to small retailers to consumers)

Channel Length and Width Considerations

• Channel length refers to the number of intermediaries in the distribution channel
  • Shorter channels provide greater control over the marketing mix but may limit market coverage
  • Longer channels provide less control but offer more opportunities for intensive distribution and market coverage
• Channel width refers to the number of intermediaries at each level of the distribution channel
  • Intensive distribution aims to provide maximum market coverage by using many intermediaries at each level (convenience products)
  • Selective distribution relies on fewer intermediaries who are willing to feature a company's products (shopping products)
  • Exclusive distribution involves severely limiting the number of intermediaries and is often characterized by exclusive dealing arrangements (specialty products)

Multi-Channel Strategy

Multichannel Distribution Benefits and Challenges

• Multichannel distribution involves using multiple channels simultaneously to reach different customer segments and give customers multiple purchase options
• Benefits include increased market coverage, lower channel cost, and more customized selling
• Challenges include channel conflict, where different members' goals and objectives clash, and the need for greater coordination across channels

Managing Channel Conflict

• Channel conflict can arise from differences in goals, roles, perceptions, and intermediaries carrying competing products
• Strategies to minimize channel conflict include clearly defining roles and goals, establishing clear communication, creating differentiated product versions for different channels, and providing channel incentives

Channel Integration Strategies

• Channel integration involves coordinating goals, strategies, and tactics across channels to create a seamless customer experience
• Strategies include defining channel roles and boundaries, creating direct and indirect channel incentives, developing multi-channel performance metrics, and building cross-channel information systems
• Effective multi-channel integration can lead to a sustainable competitive advantage through improved customer loyalty, higher sales, and lower costs

Channel Performance

Channel Power Dynamics

• Channel power refers to the ability of one channel member to influence or control the decisions and behaviors of other members
• Types of channel power include reward, coercive, legitimate, expert, and referent power
• The balance of power in a channel often depends on the relative size, expertise, and brand equity of each member
• Manufacturers can enhance their power through strong consumer pull, unique product offerings, and effective supply chain management

Evaluating Channel Efficiency

• Channel efficiency refers to how well the distribution channel performs its intended function while minimizing cost
• Metrics for evaluating channel efficiency include inventory turnover, stockout rates, order fill rates, on-time delivery, and cost per unit sold
• Strategies for improving channel efficiency include implementing just-in-time inventory systems, using third-party logistics providers, adopting automation technologies, and streamlining order fulfillment processes
• Regular channel performance reviews and benchmarking against industry best practices can help identify areas for improvement and ensure the distribution channel remains efficient and effective over time