Channel Design ManagementChannel Design Management

Distribution Channel Design ProcessDistribution Channel Design Process Determining channel objectives Service output

– Lot size– Market decentralization– Delivery speed– Product variety– Service back-up

Assessing channel requirements of – Length

• Short channel• Long channel

– Width• Exclusive distribution• Intensive distribution• Selective distribution

Factors Affecting Choice of Factors Affecting Choice of Distribution ChannelsDistribution Channels

Market considerations– Type of market– Size of the customer base– Geographic market concentration – Sales gestation period– Average order size

Product considerations– Unit value– Bulk– Perishability– Product standardization– Technical nature of the product– Gross margin

Factors Affecting Choice of Factors Affecting Choice of Distribution ChannelsDistribution Channels

Middlemen/intermediary considerations– Services provided by the middlemen– Horizontal, vertical or intertype competition– Availability of desired middlemen– Attitude of middlemen towards producer’s policies– Cost and quality of intermediaries

Company considerations– Size– Desire for channel control– Customer knowledge– Managerial competence– Financial resources

Factors Affecting Channel LengthFactors Affecting Channel Length

Product information Product customization Product quality assurance Lot size Assortment Availability After sales service Logistics

Channel selectionChannel selection

Types of intermediaries– Horizontal competition– Intertype competition

• Multiple channels of distribution• Dual channels of distribution

– Vertical competition• Forward vertical integration• Backward vertical integration

Evaluating factors affecting Evaluating factors affecting channel lengthchannel length

Characteristics of Goods

Red Goods

Orange Goods

Yellow goods

Replacement rate High Medium Low

Gross margin Low Medium High

Adjustment Low Medium High

Time of consumption Low Medium High

Searching time Low Medium High

Ideal channel length Long Medium Short

Allocating Channel Tasks Among Allocating Channel Tasks Among Channel MembersChannel Members Listing channel member responsibilities

– Selling– Channel support– Physical distribution– Product modification/after sales service– Risk assumption

Allocating responsibilities among channel participants-Criteria in responsibility allocation– Reducing distribution costs– Maximizing market share– Optimizing return on distribution-specific investment risks– Meeting customer needs for technical information, product

availability and ASS– Maintaining sources of market information