Designing the marketing
channel
Week 6
Instructor: Jungwan Lee
What is channel design?
…refers to those decisions involving
the development of new marketing
channels where none had existed
before, or to the modification of
existing channels.
 ..is a key factor to gain a differential
advantage

Paradigm of the channel
design decision
1. Recognizing the need for a channel design
decision
 2. Setting and coordinating distribution objectives
 3. Specifying the distribution tasks
 4. Developing possible alternative channel
structures
 5. Evaluating the variables affecting channel
structure
 6. Choosing the best channel structure
 7. Selecting channel members

Setting and coordinating
distribution objectives
Firm’s overall objectives and
strategies
 General marketing objectives and
strategies
 Marketing mix’s objectives and
strategies (product, price, promotion,
distribution)

Developing possible
alternative channel structures
1. Number of levels: two ~ five levels
 2. Intensity at the various levels





3. Types of intermediaries


Intensive:consumer convenience goods
Selective: consumer shopping goods
Exclusive: specialty goods
Wholesale trade, Retail trade
Number of possible channel alternatives

3 x 3 x 5 = 45 possible structures
Six basic variables affecting
channel structure
Market variables
 Product variables
 Company variables
 Intermediary variables
 Environmental variables
 Behavioral variables

Six variables (cont.)

Market variables


Product variables


market geography, market size, market density,
market behavior
bulk and weight, perishability, unit value,degree of
standardization, technical versus nontechnical,
newness
Company variables

size, financial capacity, managerial expertise,
objectives and strategies
Six variables (cont.)

Intermediary variables


Environmental variables


Availability, costs, services
Economic, sociocultural, competitive,
technological, legal environment
Behavioral variables

Differential goals, language differences,
tendency of channel member
Choosing the best channel
structure




Aspinwall’s approach: characteristic of goods
theory
Financial approach
Transaction cost analysis approach
Management science approach:


simulation model, mathematical model, bayesian
statistics, comprehensive operations research
model…etc.
Judgmental-heuristic approaches

Straight qualitative judgment approach, weighted factor
score approach, distribution costing approach