Channel Design PDF

# Channel Design ## What is Channel Design? Designing a channel system calls for analyzing customer needs, establishing channel objectives, and identifying and evaluating major channel alternatives. ## Analyzing The Service Output Levels Desired by The Customers * In designing the marketing ch...

# Channel Design ## What is Channel Design? Designing a channel system calls for analyzing customer needs, establishing channel objectives, and identifying and evaluating major channel alternatives. ## Analyzing The Service Output Levels Desired by The Customers * In designing the marketing channels, marketers must understand the output levels desired by target customers. * Channels produce **five** service outputs: - **Lot Size:** the number of units a channel permits a typical customer to purchase on one occasion. - **Spatial Convenience:** the degree to which the marketing channel makes it easy for customers to purchase the product. - **Waiting Time & Delivery Time:** the average time customers of that channel wait for receipt of the 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. ## Identify the Major Channel Alternatives After the channel objective is determined, every company should identify its major channel alternatives in terms of: * **Types of Intermediaries:** * **Agent:** an independent individual or company whose main function is to act as the primary selling arm of the producer and represent the producer to users. Agents take possession of products but do not actually own them. Agents usually make profits from commissions or fees paid for the services they provide to the producer and users. * **Wholesaler:** independently owned firms that take title to the merchandise they handle. They own the products they sell. They purchase product in bulk and store it until they can resell it. They generally sell to other intermediaries, usually retailers, for a profit. * **Distributor:** similar to wholesalers but with one key difference: they carry only complimentary product lines. Distributors usually maintain close relationships with suppliers and customers and they take title to products and store them until they are sold. * **Retailer:** takes title to, or purchases, products from another market intermediary. They can be independently owned and operated (like small “mom and pop” stores), or they can be part of a large chain (like 7-ELEVEN). They sell the products they have purchased directly to the end user for a profit. * **The Number of Intermediaries Needed:** * **Exclusive Distribution:** a situation in which only certain dealers are allowed to sell a certain product. This involves an exclusive dealing arrangement in which resellers agree not to carry competing brands. It helps producers to obtain more dedicated and knowledgeable selling. * **Selective Distribution:** only some available outlets in an area are chosen to distribute a product. This helps companies to: 1) not dissipate its efforts over too many outlets, 2) gain adequate market coverage with more control and less cost than intensive distribution. (Example: Nike) * **Intensive Distribution:** the use of all available outlets to distribute a product. It is suitable for convenience products (like soft drinks, bread, candy, newspapers, etc.) because they have high replacement rates and require almost no service. They use multiple channels to sell these products (like convenience stores, service stations, supermarkets, discount stores). (Availability of products is more important than the nature of the outlet.) ## Importance of Channel Management * **Increased Sales Efficiency:** understanding specific needs and preferences of each distribution channel can help tailor sales strategies accordingly to improve conversion rates and sales volume. * **Expanded Marketing Reach:** different channels cater to diverse demographic segments, allowing businesses to reach a wider audience and expand their market presence. * **Enhanced Customer Engagement:** channel management enables businesses to personalize marketing messages and provide a more seamless customer experience, fostering stronger customer relationships and loyalty. * **Improved Competitive Advantage:** businesses that excel in channel management are better equipped to adapt to changing market conditions, including shifts in consumer preferences or the emergence of new competitors. * **Cost Efficiency:** optimizing channel performance can help reduce redundancies and operational costs. ## Principles of Effective Channel Management 1. **Understand Your Customer:** Knowing your customer's needs, preferences, and buying behaviors is paramount. This can be achieved through market research, customer interviews, and data analytics. 2. **Choose the Right Channels:** Not all channels serve the same purpose or audience. Businesses must carefully evaluate the potential of each channel in terms of reach, customer preference, and return on investment (ROI). 3. **Establish Clear Objectives:** Without specific, measurable, achievable, relevant, and time-bound (SMART) goals for each channel, it's difficult to measure success or make necessary adjustments. 4. **Monitor Key Performance Indicators (KPIs):** KPIs provide valuable insights into the performance of each channel. Common KPIs include sales volume, customer acquisition costs, and customer lifetime value. 5. **Align with Partners:** For businesses utilizing indirect channels, alignment with partners is crucial for delivering a consistent customer experience. Regular communication, training sessions, and incentives can help ensure shared goals and a cohesive approach. 6. **Optimize Inventory Management:** Inventory issues can disrupt channel performance and customer satisfaction. Businesses should utilize inventory management software and just-in-time delivery methods to ensure product availability. 7. **Adapt and Evolve:** Markets, customer behavior, and technologies are constantly changing. Businesses must continuously evaluate channel performance and adapt their strategies as needed. 8. **Foster Relationship Management:** Long-term relationships with channel partners and customers can offer significant competitive advantages. Customer relationship management (CRM) and partner relationship management (PRM) systems can be valuable tools for building and maintaining these relationships. 9. **Invest in Technology:** Advanced tools can simplify channel management by automating tasks and providing valuable analytics. Investing in channel management software, CRM systems, and analytics tools can significantly improve efficiency and effectiveness. 10. **Prioritize Training and Development:** A well-­trained sales force can significantly enhance channel effectiveness. Businesses should conduct regular training sessions, webinars, and workshops focused on channel management best practices.