Defining the Channel Objectives and Constraints

Defining the Channel Objectives and Constraints

Channel objectives should be stated in terms of the desired service level of target customers. Usually, a company can identify several segments wanting different

Channel Design Decisions • 909

levels of channel service. The company should decide which segments Co serve and the best channels to use in each ease. In each segment, the company wants to minimize the total channel cost of supplying customers, while also meeting their

service requirements. The company's channel objectives are also influenced by the nature of its products, company policies, marketing intermediaries, competitors and the en­ vironment. Product characteristics greatly affect channel design. For example,

perishable products require more direct marketing to avoid delays and too much handling. Bulky products, such as building materials and soft drinks, require

channels chat minimize shipping distance and the amount of handling. Company characteristics also play an important role. For example, the company's size and financial situation determine which marketing functions it can handle itself and which it must give to intermediaries. Furthermore, a company marketing strategy based on speedy customer delivery affects the func­ tions that the company wants its intermediaries to perform, the number of its outlets and the choice of its transportation methods.

The characteristics of intermediaries also influence channel design. The company must find intermediaries that are willing and able to perform the needed tasks. In general, intermediaries differ in their abilities to handle promotion, customer contact, storage and credit. For example, manufacturers' representa­ tives who arc hired by several different firms can contact customers at a low cost

per customer because several clients share the total cost. However, the selling effort behind the product is less intense than if the company's own sales force did the selling.

When designing its channels, a company must also consider its competitors' channels. In some cases, a company may want to compete in or near outlets that carry competitors' products. Thus companies may want their brands to be displayed next to competing brands: in town or city centres. Burger King wants to locate near McDonald's; Pizzaland wants to be sited near Pizza Hut; Sony, Panasonic and Philips audio­video systems all compete for floor space in similar retail outlets; Nestle and Mars confectionery brands want to be positioned side by side, and aggressively compete for shelf space, in die same grocery outlets.

In other cases, producers may avoid the channels used by competitors. Avon, for example, decided not to compete with other cosmetics makers for scarce pos­ itions in retail stores and, instead, set up a profitable door­to­door selling oper­ ation in the home and overseas markets.

Finally, environmental factors, such as economic conditions and legal constraints, alfect channel design decisions. For example, in a depressed economy, producers want to distribute their goods in the most economical way. using shorter channels and dropping unnecded services that add to the final price of the goods. Legal regulations prevent channel arrangements that may lessen competition substantially or create a monopoly. In countries where governments are actively encouraging free competition, such regulatory restrictions have helped to keep competitive channels open, as in the case of telecommunications in the United Kingdom, where companies such as Cable & Wireless, lonica and

the privatized BT exist in parallel co supply telephone services. An effective channel strategy is based on creating a differential advantage which allows the firm to compete successfully in its target markets. Consequently, the channel or channels selected must have the knowledge and experience not only to serve these segments effectively, hut also to support and sustain the manufacturer's competitive advantage. The European construction machinery maker JCB recognized that its early problems in the French market were due to the inadequacies of its distribution outlet. It used manufacturers' agents to sell its equipment in France. These agents sold the products, but were the privatized BT exist in parallel co supply telephone services. An effective channel strategy is based on creating a differential advantage which allows the firm to compete successfully in its target markets. Consequently, the channel or channels selected must have the knowledge and experience not only to serve these segments effectively, hut also to support and sustain the manufacturer's competitive advantage. The European construction machinery maker JCB recognized that its early problems in the French market were due to the inadequacies of its distribution outlet. It used manufacturers' agents to sell its equipment in France. These agents sold the products, but were

not capable of providing the service facilities essential for competitive success in the market. JCB subsequently set up a company­owned full­service distribution network which was sufficiently competent to communicate the company's product advantages and provide the value­added services expected by customers.