Distribution System Decision Making in Marketing Channels

Study Notes

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.

Description

Explore the challenges faced by manufacturers in making channel-decision problems and designing marketing channels. Learn how a new firm typically starts as a local operation selling in a limited market using existing middlemen. Understand the struggles between ideal, feasible, and available distribution options.