Channel-DesignDecisionsTo design a

Channel-Design
Decisions
To design a marketing channel system, marketers analyze customer
needs and wants, establish channel objectives and constraints, and
identify and evaluate major channel alternatives.
Analyzing Customer Needs and Wants
Consumers may choose the channels they prefer based on price,
product assortment, and convenience, as well as their own shopping
goals (economic, social, or experiential).17 As with products,
segmentation exists, and marketers must be aware that different consumers have different needs
during the purchase process.
One study of 40 grocery and clothing retailers in France, Germany, and the United Kingdom
found that they served three types of shoppers: (1) service/quality customers who cared most about
the variety and performance of products and service, (2) price/value customers who were most concerned
about spending wisely, and (3) affinity customers who primarily sought stores that suited
people like themselves or groups they aspired to join. As Figure 15.3 shows, customer profiles
differed across the three markets: In France, shoppers stressed service and quality, in the United
Kingdom, affinity, and in Germany, price and value.18
Even the same consumer, though, may choose different channels for different functions in a
purchase, browsing a catalog before visiting a store or test driving a car at a dealer before ordering
online. Some consumers are willing to “trade up” to retailers offering higher-end goods such as
TAG Heuer watches or Callaway golf clubs and “trade down” to discount retailers for private-label
paper towels, detergent, or vitamins.19
Channels produce five service outputs:
1. 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 a lot size of one.
2. Waiting and delivery time—The average time customers wait for receipt of goods. Customers
increasingly prefer faster delivery channels.
3. Spatial convenience—The degree to which the marketing channel makes it easy for customers
to purchase the product. Toyota offers greater spatial convenience than Lexus because there are
In entering new markets, firms often closely observe what other firms are doing. France’s
Auchan considered the presence of its French rivals Leclerc and Casino in Poland as key to its decision
to also enter that market.23 Apple’s channel objectives of creating a dynamic retail experience
for consumers was not being met by existing channels, so it chose to open it own stores.24
Apple Stores When Apple stores were launched in 2001, many questioned
their prospects and BusinessWeek published an article titled, “Sorry Steve, Here’s Why Apple
Stores Won’t Work.” Fast-forward five years, and Apple was celebrating the launch of its
spectacular new Manhattan showcase store. With almost 275 locations by the end of 2009,
net revenue from stores totaled $6.6 billion and represented roughly
20 percent of total corporate revenue. Annual sales per square foot of an
Apple store have been estimated at $4,700—the Fifth Avenue
location is reported to do a staggering $35,000 of business per square
foot–compared to Tiffany’s $2,666, Best Buy’s $930, and Saks’s $362.
Any way you look at it, Apple stores have been an unqualified success.
Designed to fuel excitement for the brand, they let people see and touch
Apple products—and experience what Apple can do for them—making it
more likely they’ll become Apple customers. They target tech-savvy customers
with in-store product presentations and workshops; a full line of
Apple products, software, and accessories; and a “Genius Bar” staffed by
Apple specialists who provide technical support, often free of charge.
Although the stores upset existing retailers, Apple has worked hard to
smooth relationships, in part justifying the decision as a natural evolution
of its existing online sales channel.
Identifying Major Channel Alternatives
Each channel—from sales forces to agents, distributors, dealers, direct mail, telemarketing, and the
Internet—has unique strengths and weaknesses. Sales forces can handle complex products and transactions,
but they are expensive. The Internet is inexpensive but may not be as effective with complex products.
Distributors can create sales, but the company loses direct contact with customers. Several clients
can share the cost of manufacturers’ reps, but the selling effort is less intense than company reps provide.
Channel alternatives differ in three ways: the types of intermediaries, the number needed, and
the terms and responsibilities of each. Let’s look at these factors.
TYPES OF INTERMEDIARIES Consider the channel alternatives identified by a consumer
electronics company that produces satellite radios. It could sell its players directly to automobile
manufacturers to be installed as original equipment, auto dealers, rental car companies, or satellite
radio specialist dealers through a direct sales force or through distributors. It could also sell its players
through company stores, online retailers, mail-order catalogs, or mass merchandisers such as Best Buy.
As Netflix did, companies should search for innovative marketing channels. Columbia House
has successfully merchandised music albums through the mail and Internet. Harry and David and
Calyx & Corolla have creatively sold fruit and flowers, respectively, through direct delivery.
Sometimes a company chooses a new or unconventional channel because of the difficulty, cost,
or ineffectiveness of working with the dominant channel. One advantage is often reduced competition,
at least at first. Years ago, after trying to sell its inexpensive Timex watches through jewelry
stores, the U.S. Time Company placed them instead in fast-growing mass-merchandise outlets.
Frustrated with a printed catalog it saw as out-of-date and unprofessional, commercial lighting
company Display Supply & Lighting developed an interactive online catalog that drove down costs,
speeded the sales process, and increased revenue.25
NUMBER OF INTERMEDIARIES Three strategies based on the number of intermediaries are
exclusive distribution, selective distribution, and intensive distribution.
Exclusive distribution means severely limiting the number of intermediaries. It’s appropriate
when the producer wants to maintain control over the service level and outputs offered by the
resellers, and it often includes exclusive dealing arrangements. By granting exclusive distribution,
the producer hopes to obtain more dedicated and knowledgeable selling. It requires a closer
partnership between seller and reseller and is used in the distribution of new automobiles, some
major appliances, and some women’s apparel brands.
Exclusive deals are becoming a mainstay for specialists looking for an edge in markets