Introduction
Before even evaluating specific marketing channel options, marketers must:
- Analyze the customer;
- Establish channel objectives; and
- Specify distribution tasks.
Once the specific channel tasks have been determined, the evaluation and selection process can begin.
There are four bases for channel alternatives:
- Number of levels;
- Intensity at the various levels;
- Types of intermediaries at each level; and
- Application of selection criterion to channel alternatives.
Number of Levels
Channels can range in levels from two to several (five being typical). The two-level channel (producer to consumer) is a direct channel and is possible only if the producer or customer are willing to perform several of the tasks performed by intermediaries.
The number of levels in a particular industry might be the same for all the companies in that industry by virtue of tradition. In some industries, this dimension is more flexible and subject to rapid change.
The type of product dictates the number of marketing channels to use. For example, a perishable item must get to the consumer on a timely basis, therefore the marketing channels would have be as short and direct as possible.
Intensity at Each Level
Once the number of levels is decided, the channel manager must determine the actual number of channel components involved at each level. How many retailers and wholesalers in a particular market should be included in the distribution network? Although there are limitless possibilities, the categories below describe the general alternatives:
- Exclusive distribution (Ethan Allen and Drexel Heritage Furniture);
- Intensive distribution (candy);
- Selective distribution (Baskin-Robbins).
Types of Intermediaries
There are several types of intermediaries that operate in a particular channel system. The objective is to gather enough information to have a general understanding of the distribution tasks these intermediaries perform. Based on this background information, several alternatives will be eliminated.
Having identified several possible alternative channel structures, the channel manager is now at a place where he or she can evaluate these alternatives with respect to a set of criteria. Company factors, environmental trends, reputation of the reseller, experience of reseller are few examples.
Who Should Lead
Regardless of the channel framework selected, channels usually perform better if someone is in charge, providing some level of leadership. Essentially, the purpose of this leadership is to coordinate the goals and efforts of channel institutions. The level of leadership can range from very passive to quite active-verging on dictatorial. The style may range from very negative, based on fear and punishment, to very positive, based on encouragement and reward. In a given situation, any of these leadership styles may prove effective.
Given the restrictions inherent in channel leadership, the final question is always "who should lead the channel? " Two important trends are worth noting, since they influence the answer. First, if we look at the early years of marketing, i.e. pre-1920, the role of the wholesaler (to bring the producer and consumer together) was most vital. Consequently, during this period, the wholesaler led most channels. This is no longer true.
A second trend is the apparent strategy of both manufacturers and retailers to exert power through size. In a type of business cold war, manufacturers and retailers are constantly trying to match each other's size. The result has been some serious warfare to gain channel superiority.
Under which conditions should the manufacturers lead? The wholesaler? The retailer? While the answer is contingent upon many factors, in general, the manufacturer should lead if control of the product (merchandising, repair) is critical and if the design and redesign of the channel is best done by the manufacturer.
The wholesaler should lead where the manufacturers and retailers have remained small in size, large in number, relatively scattered geographically, are financially weak, and lack marketing expertise. The retailer should lead when product development and demand stimulation are relatively unimportant and when personal attention to the customer is important.
Evaluating Channel Member Performance
The need to evaluate the performance level of the channel members is just as important as the evaluation of the other marketing functions. Clearly, the marketing mix is quite interdependent and the failure of one component can cause the failure of the whole. There is one important difference; the channel member is dealing with independent business firms, rather than employees and activities under the control of the channel member, and their willingness to change is lacking.
Sales is the most popular performance criteria used in channel evaluation. Sales might further be subdivided into current sales compared with historical sales, comparisons of sales with other channel members, and comparisons of the channel member's sales with predetermined quotas. Other possible performance criteria include maintenance of adequate inventory, selling capabilities, attitudes of channel intermediaries toward the product, competition from other intermediaries and from other product lines carried by the manufacturer's own channel members.