Channel Design

Channel Design
Definition: Channel design is a plan for the distribution and movement of products
and services from the producer to the customer. A channel is defined as “a chain of
linked businesses or individuals through which a product or service passes from
one person or firm to another.”
Channel design is also understood as the process involved in the development

of new marketing channels that no one had tried before or it can also refer to
the strategy of modifying existing channels.
Elements of a Marketing Channel Design
1. Channel Flow
Channel flow is the path that products and services take from the producer
to the customer. Channel flow is important because it determines how
products and services will be delivered to customers. Channel flow also
affects the cost of goods and services. Channel flow can be direct or indirect.
Direct channel flow is when products and services are delivered to
customers without going through any intermediaries. Indirect channel flow
is when products and services are delivered to customers through
intermediaries such as retailers or distributors.
2. Channel Members
Channel members are the businesses or individuals who are involved in
the distribution of products and services. A channel member can be
categorized as upstream or downstream. Upstream channel members are
businesses or individuals who are involved in the production of goods and
services. Downstream channel members are businesses or individuals
who are involved in the marketing and sale of goods and services.
3. Channel Objectives
Channel objectives are the goals that a company wants to achieve through
its marketing channels. Marketing channel objectives can include
increasing sales, reaching new customers, and improving customer
service.
4. Channel Alternatives
Channel alternatives are the
different ways that a company can distribute its products and services.
Major channel alternatives can include direct marketing,
selective distribution, and exclusive distribution. While identifying
major alternatives, it is important to recognize that the most effective
Channel Strategy rests on a Channel design that
Is customer-focused
Delivers a superior customer experience
Provides an integrated customer view
Uses Channel Insights to enable 1:1 marketing
Builds relationships through loyalty programs
5. Channel Strategy
Channel strategy is the overall plan that a company uses to determine which
marketing channels to use. Channel strategy should be aligned with business
objectives while designing marketing channels.
Steps involved in Channel Design
1. Recognizing the need for a channel design decision
Channel design decisions need to be made when there is a change in the
business environment or when a company wants to enter a new market.
2. Defining the Channel Flow

The first step in channel design is to define the channel flow. Channel
flow is the path that products and services take from the producer to
the customer. Channel flow can be direct or indirect.
3. Setting and coordinating distribution objectives

Channel objectives should be aligned with business objectives.
Channel objectives can include increasing sales, reaching new
customers, and improving customer service.
4. Specifying the distribution tasks
The next step in channel design is to specify the distribution tasks.
Distribution tasks are the activities that need to be performed in order to
deliver products and services.
5. Developing possible alternative channel structures

Channel alternatives are the different ways that a company can
distribute its products and services. Channel alternatives can include
direct marketing, selective distribution, and exclusive distribution.
6. Evaluating the variable affecting channel structure

There are several variables that can affect channel structure. These
variables include the type of product, the target market, and the
distribution channels that are available.
7. Selecting the final channel structure

The final step in channel design is to select the final channel structure.
The Channel structure should be aligned with business objectives.
Channel structure can be direct or indirect.
8. Selecting the channel members
Channel members are the businesses or individuals who are involved in the
distribution of products and services. Channel members can be categorized as
upstream or downstream.
9. Implementing and coordinating the channel structure

The final step in channel design is to implement and coordinate the channel
structure.
Variables that affect Channel Structure
1. Product Variables
The type of product can affect channel structure. Different product
variables include bulk and weight, unit value, perishability, technical
versus nontechnical, newness, etc.
2. Market Variables
The target market can also affect channel structure. Some markets
require a direct channel, while others can be reached through an indirect
channel. Common market variables are market geography, market
density, market size, and market behavior.
3. Company Variables
The size of the company can also affect channel structure. Some companies
are too small to support a direct channel, while others may not have the
resources to support an indirect channel. Common company variables are
size, managerial expertise, financial capacity, and objectives and strategies.
4. Intermediary Variables
The type of intermediary can also affect channel structure. Some
intermediaries are more willing to work with a direct channel, while others
may prefer an indirect channel. The key intermediary variables related here
are availability, services offered, and costs.
5. Environmental Variables
The final variable that can affect channel structure is the environment. The
environment includes factors such as government regulations, social trends,
and economic conditions. Channel structure should be designed to respond to
environmental changes.
Types of Channel Structures
1. Direct Channel
A direct channel is a channel in which the producer sells directly to the
customer. Direct channels can be used to reach large markets quickly. The
disadvantage of a direct channel is that it can be costly to set up and
maintain.
2. Indirect Channel
An indirect channel is a channel in which the producer sells through an
intermediary. Indirect channels can be used to reach small markets quickly.
The disadvantage of an indirect channel is that it can be difficult to control.
Channel members
1. Upstream Channel Members
Upstream channel members are businesses or individuals who are
involved in the production of products and services. Upstream
channel members can include suppliers, manufacturers, and
wholesalers.
2. Downstream Channel Members
Downstream channel members are businesses or individuals who
are involved in the distribution of products and services.
Downstream channel members can include retailers, distributors,
and dealers.
Factors to Consider When Selecting Channel Members
1. Compatibility
The channel members should be compatible with each other. They should
have similar business philosophies and be able to work together to
achieve the objectives of the channel.
2. Capability
The channel members should have the capability to perform their
roles in the channel. They should have the necessary resources and
skills to support the channel.
3. Commitment
The channel members should be committed to the success of the
channel. They should be willing to invest the time and resources
necessary to support the channel.
4. Cooperation
The channel members should be willing to cooperate with each other.
They should be able to work together to achieve the objectives of the
channel.
5. Communication
The channel members should be able to communicate with each other. They
should be able to share information and ideas in a way that is clear and concise.
6. Coordination
The channel members should be able to coordinate their activities. They should
be able to work together to achieve the objectives of the channel.
Approaches you may use to choose the Best Channel Structure:

1. “Characteristics of Goods and Parallel Systems” Approach
According to this approach, the decision on which type of channel structure
to use is based on the characteristics of the goods. The Aspinwall model was
first developed in the 1950s by Aspinwall.
The main consideration for channel structure selection should be product
variables, according to this design. Each item characteristic is labeled with
a distinct hue on the spectrum. Different variables involved in this are
replacement rate, adjustment, gross margin, time of consumption,
searching time, etc.
2. Financial Approach
The financial approach is based on the idea that the best channel structure is
the one that minimizes costs and maximizes profits. Channel structures should
be evaluated based on their ability to generate revenue and control costs.
3. Transaction Cost Analysis (TCA) Approach
The transaction cost analysis approach is based on the idea that the best
channel structure is the one that minimizes transaction costs. Transaction
costs can include search costs, information costs, negotiation costs, and
monitoring costs.
The crux of TCA is on the expenditures incurred by a corporation in order to
complete its distribution operations.
4. Management Science Approaches

Management science approaches to channel structure selection are
based on the idea that the best channel structure is the one that
maximizes efficiency.
Channel structures should be evaluated based on their ability to optimize
resources and minimize waste.
5. Marketing Mix Approach
The marketing mix approach is based on the idea that the best channel
structure is the one that maximizes the effectiveness of the marketing mix.
Channel structures should be evaluated based on their ability to reach the
target market, communicate with the target market, and sell to the target
market.
6. Judgmental-Heuristic Approaches
Judgmental-heuristic approaches to channel structure selection are based
on the idea that the best channel structure is the one that best meets the
needs of the company. Channel structures should be evaluated based on
their ability to support the company’s business objectives.

Channel Design

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Channel Design

Channel design is also understood as the process involved in the development

2. Defining the Channel Flow

3. Setting and coordinating distribution objectives

5. Developing possible alternative channel structures

6. Evaluating the variable affecting channel structure

7. Selecting the final channel structure

9. Implementing and coordinating the channel structure

Approaches you may use to choose the Best Channel Structure:

4. Management Science Approaches

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