240 CHAPTER13 SELECTING ANDMANAGINGMARKETINGCHANNELS
CHANNEL-DESIGN DECISIONS
A new firm typically starts as a local operation selling in a limited market through exist-
ing intermediaries. The problem at this point is not deciding on the best channels, but
convincing the available intermediaries to handle the firm’s line. If the firm is success-
ful, it might enter new markets and select different channels in response to the oppor-
tunities and conditions in the different markets.
In designing the firm’s channel system, management must carefully analyze cus-
tomer needs, establish channel objectives, and identify and evaluate the major chan-
nel alternatives.Analyzing Customers’ Desired Service Output Levels
Because the point of a marketing channel is to make a product available to customers,
the marketer must understand what its target customers actually want. Channels pro-
duce five service outputs:- Lot size:The number of units the channel permits a typical customer to purchase on
one occasion. In buying cars for its fleet, Hertz prefers a channel from which it can
buy a large lot size; a household wants a channel that permits buying a lot size of one. - Waiting time:The average time customers of that channel wait for receipt of the goods.
Customers normally prefer fast delivery channels. - Spatial convenience:The degree to which the marketing channel makes it easy for cus-
tomers to purchase the product. Chevrolet, for example, offers greater spatial conve-
nience than Cadillac, because there are more Chevrolet dealers. - Product variety:The assortment breadth provided by the channel. Normally, customers
prefer a greater assortment, which increases the chance of finding what they need.
Relentless expansion of product variety is the special edge that has helped
Amazon.com maintain its lead in Internet retailing. - Service backup:The add-on services (credit, delivery, installation, repairs) provided by
the channel. The greater the service backup, the greater the work provided by the
channel.^7
Smart marketers recognize that providing greater service outputs means increased
channel costs and higher prices for customers, just as a lower level means lower costs
and prices. The success of discount stores and Web sites indicates that many con-
sumers will accept lower outputs if they can save money.
Establishing Objectives and Constraints
Once it understands what customers want, the company is ready to establish channel
objectives related to the targeted service output levels. According to Bucklin, under
competitive conditions, channel institutions should arrange their functional tasks to
minimize total channel costs with respect to desired levels of service outputs.^8
Producers can usually identify several market segments that desire differing service
output levels. Thus, effective planning means determining which market segments to
serve and the best channels to use in each case.
Channel objectives vary with product characteristics. For instance, perishable
products such as Ben & Jerry’s ice cream require more direct channels, whereas
bulkier products such as Owens Corning Fiber Glass insulation require channels that
minimize the shipping distance and the amount of handling in the movement from
producer to consumer. In contrast, nonstandardized products, such as custom-built
machinery, typically are sold directly by company sales representatives.