Distribution System Decision Making in Marketing Channels

Designing an Appropriate Distribution System

• A new firm typically starts as a local operation selling in a limited market, using existing middlemen due to limited capital.
• The number of middlemen in a local market is limited, including manufacturers' sales agents, wholesalers, retailers, trucking companies, and warehouses.

Channel Decision Problems

• Convincing available middlemen to handle the firm's line can be a challenge.
• As the firm expands to new markets, it tends to work through existing intermediaries, using different marketing channels in different areas.

Channel System Evolution

• The manufacturer's channel system evolves in response to local opportunities and conditions.
• In smaller markets, the firm might sell directly to retailers, while in larger markets, it sells through distributors.
• In rural areas, it might work with general-goods merchants, while in urban areas, it works with limited-line merchants.

Designing a Channel System

• Analyzing customer needs is the first step in designing a marketing channel.
• The marketer must understand the service output levels desired by target customers.
• Channels produce five service outputs:
  • Lot size: the number of units a marketing channel permits a typical customer to buy on a buying occasion.
  • Waiting time: the average time customers wait for receipt of goods.
  • Product variety: the assortment breadth provided by the marketing channel.
  • Service backup: the add-on services (credit, delivery, installation, repairs) provided by the channel.
• Providing increased levels of service outputs means increased costs for the channel and higher prices for customers.