What are the steps involved in designing a marketing channel?

A marketing channel not designed effectively fails to make an excellent product successful. The firms usually follow the below steps for designing a marketing channel-

Analysis –
A channel design starts with analysing the market requirements. Basis the customer, product category, and marketing environment, the organisation has to follow the matching channel strategy – Exclusive distribution, Intensive distribution and Selective distribution. The availability of the intermediary also influences the selection of the channel member. The intermediary that the organisation wishes to sell through should be available in the target market. In their absence, the organisation will have to opt for an intermediary that is available to them. Or the organisation will have to invest to open their own stores, opt for direct selling, etc. Sometimes the intermediary is unwilling to distribute the organisations products. In such cases the firm should be ready to involve channel alternatives.

The firm should take into account the functions necessary to ensure the availability of product to end users. These functions should be clearly defined as to which functions that the firm can itself perform like storage, transportation, after sales service, etc. The organisation can choose intermediaries from wholesaler, retailer, sales personal, agents and brokers, etc. The availability and capabilities of different intermediaries, number of intermediaries, and their services to competitors should be carefully analysed.

Evaluation –
The evaluation process involves study of costs involved, time constraints relevant to channel development, availability of channel members, political and legal constraints, functions and control of the channel members. This process is very critical and requires expert planning. For example, in intensive distribution at retail outlets, the costs may go up but there is also a great possibility of high sales turnover. In contrast, in the presence of a broker, the organisation will need to invest in promotion activities to create awareness of the product. Personal selling gives the organisation control on its selling efforts.

The channel implementation usually takes a long time to generate the desired results. The firm has to decide on a channel that can be developed in the shortest period and is effective. A good product of customer’s choice lying in the stores just adds to costs and losses to the organisation.

The organisation also needs to consider the control factor over the channel members. In VMS (vertical marketing system) the member which has authority over all the member can be the manufacturer, wholesaler or the retailer. As independent members try to force their influence to meet their objectives, there is always a possibility of conflict and powerful channel member influencing the other. The manufacturer controlled channel gives the manufacturer control over the prices, customer service, market coverage, etc. Sometimes the market leaders (competitor) control the intermediaries, and threaten to withdraw their products for selling competitor products. An organization has to closely study the intermediaries of the competitors. If both the rival firms sell through the same retailer, intermediaries often influence sale of a product that gives them higher profit margin.

Legal and political constrains need careful consideration for channel development. Every state and region has local laws that can interfere with the channel functions. Similarly the firm has to outline the terms and conditions on various aspects of rights that can be given to the intermediaries.

Channel selection-
An organisation can select one or more channel alternatives. The firm can do market testing and experiment with the channel alternatives. Two factors that affect the final selection are – the reach of the intermediaries to the customers in the target market and economic viability in the channel.

Intermediaries consider the some or all of the below factors before getting into a relationship with a producer-

• Profit margin
• Effect on or reaction from other channel members
• The new product category relative to the other products the intermediary helps distribute
• Manufacturers brand image and relationship with other members in the market
• Costs involved in functions like storage, promotion, etc.

A firm can choose one or more channels basis its objectives and geographic location of the target markets. Lesser the conflicts between channel members helps in efficient and effective distribution network. There could be situations that a conflict arises when a manufacturer opens a factory outlets in addition to other channel network. Here the customers benefit from a reduced price and manufacturer can increase the profit margin to the intermediaries because of increase in sales.

It requires careful consideration of various factors before final channel selection. After all the intermediaries represent the manufacturer. Customers create an image about the manufacturer through the service they receive from the intermediaries.

An organisation has to constantly revise its channel strategies and make changes with the change in needs and wants of customers.