Channel-Design Decisions 241
Channel design must also take into account the limitations and constraints of work-
ing with different types of intermediaries. As one example, reps that carry more than one
firm’s product line can contact customers at a low cost per customer because the total
cost is shared by several clients, but the selling effort per customer will be less intense than
if each company’s reps did the selling. In addition, channel design can be constrained by
such factors as competitors’ channels, the marketing environment, and country-by-
country legal regulations and restrictions. U.S. law looks unfavorably upon channel
arrangements that tend to substantially lessen competition or create a monopoly.
Identifying Major Channel Alternatives
After a firm has examined its customers’ desired service outputs and has set channel
objectives, the next step is to identify channel alternatives. These are described by
(1) the types of available intermediaries, (2) the number of intermediaries needed,
and (3) the terms and responsibilities of each channel member.
Types of Intermediaries
Intermediaries known as merchants—such as wholesalers and retailers—buy, take title
to, and resell the merchandise. Agents—brokers, manufacturers’ representatives and
sales agents—search for customers and may negotiate on the producer’s behalf but do
not take title to the goods. Facilitators—transportation companies, independent ware-
houses, banks, and advertising agencies—assist in the distribution process but neither
take title to goods nor negotiate purchases or sales. The most successful companies
search for innovative marketing channels. The Conn Organ Company, for example,
sells organs through merchants such as department and discount stores, drawing
more attention than it ever enjoyed in small music stores. Similarly, Ohio-based
Provident Bank reaches new mortgage customers by selling through the lend-
ingtree.com Web site, which acts as a facilitator.
Number of Intermediaries
In deciding how many intermediaries to use, successful companies use one of three
strategies:
➤ Exclusive distributionmeans severely limiting the number of intermediaries. Firms
such as automakers use this approach when they want to maintain control over the
service level and service outputs offered by the resellers. Often it involves exclusive
dealing arrangements, in which the resellers agree not to carry competing brands.
➤ Selective distributioninvolves the use of more than a few but less than all of the
intermediaries who are willing to carry a particular product. In this way, the
producer avoids dissipating its efforts over too many outlets, and it gains adequate
market coverage with more control and less cost than intensive distribution. Nike,
for example, sells its athletic shoes and apparel through seven types of outlets:
(1) specialized sports stores, which carry a special line of athletic shoes; (2) general
sporting goods stores, which carry a broad range of styles; (3) department stores,
which carry only the newest styles; (4) mass-merchandise stores, which focus on
discounted styles; (5) Niketown stores, which feature the complete line; (6) factory
outlet stores, which stock mostly seconds and closeouts, and (7) the popular Fogdog
Sports site (www.fogdog.com), its exclusive Web retailer.^9
➤ Intensive distributionconsists of the manufacturer placing the goods or services in as
many outlets as possible. This strategy is generally used for items such as tobacco
products, soap, snack foods, and gum, products for which the consumer requires a
great deal of location convenience.