Chapter 06 - Rosenbloom 8ed

Marketing Channels
Part 2: Developing the Marketing Channel
A Management View
8e
Rosenbloom
Part 2:CHAPTER 6
Developing the Marketing Channels
6
CHAPTER
Designing Marketing
Channels
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① Channel Design
② Who engages in channel design
Learning Objectives
③ Channel design paradigm

④ When to make a channel design
⑤ Distribution objectives
⑥ Distribution tasks
⑦ Channel structure decisions
⑧ Variables affecting channel structure
⑨ Heuristics in channel design
⑩ Choosing an optimal channel structure 2
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Objective
Channel Design
1
Channel Design: Decisions

involving the development of new
marketing channels either where
none had previously existed or to
the modification of
existing channels
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Channel Design
Distinguishing points of the definition include:
1. A decision made by the marketer

2. The creation or modification of channels
3. The active allocation of distribution tasks in an
attempt to develop an efficient structure
4. The selection of channel members

5. A strategic tool for gaining a differential
advantage
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Objective
Who Engages in Channel Design?
2
Wholesalers Retailers
Firms
• Producers,
manufacturers, service
• Look both up • Look up the
providers, franchisors
and channel
down to secure
• Look down the
the channel suppliers
channel
toward the market

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Objective
Channel Design Paradigm
3
1. Recognize
1. Recognizethe
theneed
needfor
for
channeldesign
channel designdecision
decision
7.Select
7. Select 2.Set
2. Set&&coordinate
coordinate
channelmembers
channel members distributionobjectives
distribution objectives
6.Choose
6. Choosethe
the“best”
“best” 3.Specify
3. Specify
channelstructure
channel structure distributiontasks
distribution tasks
5.Evaluate
5. Evaluate 4.Develop
Developalternative
alternative
4.
relevantvariables
relevant variables channelstructures
structures
channel
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Objective
When to Make a Channel
4 Design Decision
•• Developing
Developing aa new
new product
product or
or product
product line
line
•• Aiming
Aiming an
an existing
existing product
product at
at aa new
new market
market
•• Making
Making aa major
major change
change in
in some
some other
other component
component
of the
of the marketing
marketing mix
mix
•• Establishing
Establishing aa new
new firm
firm
•• Adapting
Adapting to
to changing
changing intermediary
intermediary policies
policies that
that
may inhibit
may inhibit attainment
attainment of
of distribution
distribution objectives
objectives

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When to Make a Channel
Design Decision
•• Dealing
Dealing with
with changes
changes in
in availability
availability of
of particular
particular
kinds of
kinds of intermediaries
intermediaries
•• Opening
Opening up
up new
new geographic
geographic marketing
marketing areas
areas
•• Facing
Facing the
the occurrence
occurrence of
of major
major environmental
environmental
changes
changes
•• Meeting
Meeting the
the challenge
challenge of
of conflict
conflict or
or other
other
behavioral problems
behavioral problems
•• Reviewing
Reviewing and
and evaluating
evaluating
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Objective
Distribution Objectives
5
Setting distribution objectives

requires knowledge of which,
if any, existing objectives
& strategies may impinge
on these distribution objectives.

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The Need for Congruency
Firm’s
Firm’s
overall
overall
objectives
objectives
&&
strategies
strategies
General
General
marketing
marketing
objectives&&
objectives
strategies
strategies
Product
Product Pricing
Pricing Promotion
Promotion Distribution
Distribution
marketing
marketing marketing
marketing marketing
marketing marketing
marketing
objectives&&
objectives objectives&&
objectives
strategies
strategies strategies
strategies
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Objective
Distribution Tasks
6
Outlining distribution tasks is specific
and situationally dependent on the firm.
For example: Distribution tasks for a

manufacturer of consumer products
differs from those for products sold
in industrial markets.
=
Distribution tasks are a function of the distribution
objectives and the types of firms involved.
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Objective
Channel Structure Dimensions
7
1. Number of levels in 2. Intensity at the

the channel various levels
Allocation Alternatives
3. Types of
intermediaries at each
level
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Number of Levels
• Range from two to five or more

• Number of alternatives is limited to two or
three choices
• Limitations result from the following
factors:
 Particular industry practices
 Nature & size of the market
 Availability of intermediaries
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Intensity at the Various Levels
Relationship between the intensity of

distribution dimension & number of retail
intermediaries used in a given market area.
Intensity Dimension
Intensive Selective Exclusive
Numbers of Intermediaries (retail level)

Many Few One
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Types of Intermediaries
• Numerous types
• Manager’s emphasis on types of distribution
tasks performed by these intermediaries
• Watch emerging types
– Electronic online auction firms (eBay)
– Industrial products sold in B2B markets
(Chemdex, Converge.com)
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Objective
Variables Affecting Channel Structure
8
Categories of Variables
1. Market Variables
2. Product Variables
3. Company Variables
4. Intermediary Variables
5. Environmental Variables
6. Behavioral Vari
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Market Variables
Market Geography Location, geographical size,

& distance from producer
Market Size Number of customers in a

market
Market Density Number of buying units

(consumers or industrial
firms) per unit of land area
Market Behavior Who buys, & how, when, and

where customers buy
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Product Variables
Bulk & Weight

Perishability
Unit Value
Degree of Standardization
Technical versus Nontechnical
Newness
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Company Variables
Size The range of options is
relative to a firm’s size
Financial The greater the capital, the

Capacity lower the dependence on
intermediaries
Managerial Intermediaries are necessary

Expertise when managerial experience is lacking
Objectives Marketing & objectives may

& Strategies limit use of intermediaries
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Intermediary Variables
Availability Availability of intermediaries

influences channel structure.
Cost Cost is always a consideration

in channel structure.
Services Services that intermediaries

offer are closely related to the
selection of channel members.
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Environmental Variables
The impact of environmental forces is
a common reason for making
channel design decisions.
Economic Forces
Competitive Forces
Legal Forces
Technological Forces
Sociocultural Forces
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Behavioral Variables
Develop congruent roles for

channel members.
Be aware of available power

bases
Attend to the influence of behavioral problems

that can distort communications.
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Objective
Heuristics in Channel Design
9
Benefit Limitation
Fairly simple Mostly useful as

prescriptions for rough guide to
channel structure decision making

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Objective
Choosing an Optimal
10 Channel Structure
Why is choosing an optimal channel structure
not possible?
1. Management is incapable of knowing all

possible alternatives.
2. Precise methods for calculating the exact

payoffs associated with each
alternative structures do not exist.
BUT
Techniques exist for developing
more exact methods.
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Approaches for Choosing
Channel Structure
• “Characteristics of Goods &

Parallel Systems” Approach
• Financial Approach
• Transaction Cost Analysis
Approach
• Management Science Approaches
• Judgmental-Heuristic Approach
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Judgmental-Heuristic Approaches
IF Management’s ability to make

sharp judgments is high
+ Good empirical data on costs

and revenues is available
It’s possible to make highly satisfactory

channel-choice decisions using
judgmental-heuristic approaches
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Discussion Question #1
Best Buy Co., the largest consumer electronics retailer in the
world, is famous for its giant 40,000 square-foot “big-box” stores.
This channel has served Best Buy well over the years as consumers
wandered through the giant product displays in the cavernous stores,
and competitors such as Circuit City were literally driven out of
business by Best Buy’s dominant stores. But by the end of the first
decade of the Twenty-first century, Best Buy made a channel design
decision that focused on adding a retail channel consisting of much
smaller 3,000 square-foot stores to its large-store channel. The new
smaller stores will be located in shopping malls as well as in urban
downtown venues. Best Buy designed this new small-store channel
structure mainly to do a better job of reaching the still-growing
market for mobile phones, especially smartphones. These smaller
stores will sell almost one hundred different phones as well as the
services of nine carriers.
Do you think Best Buy’s channel design decision is a good one?

What other channel design options might Best Buy have pursued to
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accomplish its distribution objective?
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Vending machines have existed as a mechanical channel
for distributing a variety of products for many decades.
Traditionally the typical products found in vending machines
were soft drinks, candy, cigarettes, and snack foods. But in
recent years the variety of products sold through vending
machine channels has broadened dramatically. Consumers
can now buy digital cameras, DVDs, iPods, baby diapers, and
in Germany, even solid gold bars for which the price charged
changes every two minutes with the ups and downs of the
price of gold.
From a channel design standpoint, what do you see as

the key variables to consider in determining whether
vending machines could be a feasible channel choice for any
given product of your choice?
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Marketing channels should be designed to make products
and services conveniently available to customers, how, when,
and where they want them. This is exactly what several
franchises such as Cousins Submarines Inc., Tasti D-Lite LLC
frozen yogurt, and Toppers Pizza Inc. intend to do by changing
their channel structures to include mobile channels consisting of
fully equipped trucks and vans that can bring many of the
products sold in their bricks and mortar stores right to customers
where they work and play. How will potential customers know
when and where these truck and van mini-restaurants will
appear? Simple customers can track the whereabouts of the
vendors by going to Facebook, Twitter, and FourSquare.
Do you think this type of mobile channel is just a novelty in

fast-food channels or does it have the potential to be a major
force for change in the channel structure of fast-food and other
product and service distribution channels?
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Marketing Channels

Part 2: Developing the Marketing Channel

③ Channel design paradigm

Channel Design: Decisions

©2013 Cengage Learning.

1. A decision made by the marketer

4. The selection of channel members

©2013 Cengage Learning.

©2013 Cengage Learning.

Setting distribution objectives

©2013 Cengage Learning.

For example: Distribution tasks for a

1. Number of levels in 2. Intensity at the

• Range from two to five or more

Relationship between the intensity of

Numbers of Intermediaries (retail level)

Market Geography Location, geographical size,

Market Size Number of customers in a

Market Density Number of buying units

Market Behavior Who buys, & how, when, and

Bulk & Weight

Financial The greater the capital, the

Managerial Intermediaries are necessary

Objectives Marketing & objectives may

Availability Availability of intermediaries

Cost Cost is always a consideration

Services Services that intermediaries

Develop congruent roles for

Be aware of available power

Attend to the influence of behavioral problems

Fairly simple Mostly useful as

©2013 Cengage Learning.

1. Management is incapable of knowing all

2. Precise methods for calculating the exact

• “Characteristics of Goods &

IF Management’s ability to make

+ Good empirical data on costs

It’s possible to make highly satisfactory

Do you think Best Buy’s channel design decision is a good one?

From a channel design standpoint, what do you see as

Do you think this type of mobile channel is just a novelty in

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