242 CHAPTER13 SELECTING ANDMANAGINGMARKETINGCHANNELS
Terms and Responsibilities of Channel Members
The producer must also determine the rights and responsibilities of participating
members when considering channel alternatives. From an ethical perspective, each
channel member must be treated respectfully and given the opportunity to be prof-
itable.^10 Other key rights and responsibilities include:
➤ Price policy.The producer establishes a price list and a schedule of discounts and
allowances that intermediaries see as equitable and sufficient.
➤ Conditions of sale.The producer sets payment terms and guarantees for each sale.
Most producers grant cash discounts to distributors for early payment; they may also
offer guarantees against defective merchandise or price declines.
➤ Territorial rights.The producer defines the distributors’ territories and the terms
under which it will enfranchise other distributors. Distributors normally expect to
receive full credit for all sales in their territory, whether or not they did the
selling.
➤ Mutual services and responsibilities.The producer must carefully lay out each party’s
duties, especially in franchised and exclusive-agency channels. McDonald’s provides
franchisees with a building, promotional support, a record-keeping system, training,
and technical assistance. In turn, its franchisees are expected to satisfy company
standards regarding physical facilities, cooperate with new promotional programs,
and buy supplies from specified vendors.Evaluating the Major Alternatives
Once the company has identified its major channel alternatives, it must evaluate each
alternative against appropriate economic, control, and adaptive criteria.➤ Economic criteria.Each channel alternative will produce a different level of sales and
costs, so producers must estimate the fixed and variable costs of selling different
volumes through each channel. For example, in comparing a company sales force
to a manufacturer’s sales agency, the producer would estimate the variable cost of
commissions paid to representatives and the fixed cost of rent payments for a sales
office. By comparing its costs at different sales levels, the company can determine
which alternative appears to be the most profitable.
➤ Control criteria.Producers must consider how much channel control they require,
since they will have less control over members they do not own, such as outside sales
agencies. In seeking to maximize profits, outside agents may concentrate on
customers who buy the most, but not necessarily of the producer’s goods.
Furthermore, agents might not master the details of every product they carry.
➤ Adaptive criteria.To develop a channel, the members must make some mutual
commitments for a specified period of time. Yet these commitments invariably lead
to a decrease in the producer’s ability to respond to a changing marketplace. In a
volatile or uncertain environment, smart producers seek out channel structures and
policies that provide high adaptability.CHANNEL-MANAGEMENT DECISIONS
After a company has chosen a channel alternative, it must select, train, motivate, and
evaluate the individual intermediaries. Then, because neither the marketing environ-
ment nor the product life cycle remains static, the company must be ready to modify
these channel arrangements over time.