Sales and Distribution

Management 2e

Tapan K. Panda
Sunil Sahadev

Oxford University Press 2012. All rights reserved.

 Chapter 16
Designing Customer-
oriented Marketing
Channels

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 Learning Objectives
Understand the concept of a customer-oriented channel

Know the process of designing a customer-oriented marketing

channel

Develop the levels of service outputs to be delivered by a

marketing channel

Discuss the concept of channel flows

Integrate the channel flows into the channel design

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Designing a Customer-Oriented Channel
The channel design is normally meant to give a clear idea about:
The number of channel entities in the channel network,
The way in which they are linked,
The roles and responsibilities of the entities in the network
The rewards for participating in the activities and also
Clear cut guidelines for the major activities to be performed
during the normal functioning of the channel.

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 The Channel Design Process
List down all service outputs that the channel needs to offer. This list has to be as exhaustive as possible.

Develop the levels at which each of the service outputs have to be offered. This can be achieved through
collection of information from the customer or benchmarking with the competitors.

Work back from each of the service output levels and conceive the activities that have to be performed to
fulfill these service output objectives. These activities are called the flows in a channel.

Calculate the cost incurred for performing these activities if they are performed by particular channel
entities including your organizations.

Design the ideal channel structure, which will consist of a network of members performing certain
functions so that the service output objectives are achieved at minimum cost.

Compare the ideal channel design within terms of the channel structure that is existing in reality so as to
modify the ideal channel structure.

Assess the ideal channel design within terms of the channel selection criteria like effectiveness, efficiency,
equity, scalability, and flexibility

Develop the channel establishment/modification plan.

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Capturing the Customer Requirements
Bulk-breaking

Spatial Convenience

Waiting Time

Assortment

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The Service Output Delivered Template
S.No. Service Dimension Service output delivered

1. Bulk-breaking Units are delivered in ones

2. Spatial convenience There is at least one outlet for almost every 3 km radius excluding,
of course, thinly populated areas

3. Waiting time Not more than two days for any model

4. Assortment Other consumer items including that of other competitors are

available at all the outlets where the products are otherwise
available

5. Installation support Available

6. After-sales support Free for first two years, but available on payment afterwards. Also
available at every city from where the product was bought

Available
7. Consumer financing

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 Conceiving the Channel Flows
Classification Schemes of Channel Flows
Flow Name Explanation
Physical possession Transportation and storage of the product in order to physically deliver the
product to the end-user
Ownership Nominally taking title to the product so that in case the product is damaged or
lost due to any reason, the loss is accounted for
Promotion Promoting the product to the customers in several ways such as advertising,
displaying, demonstrating, giving information about, etc.
Negotiating Coming down to an agreement about the terms of trade with the upstream and
downstream entities in the channel including the customer
Financing Taking care of the financial requirements (mainly working capital) of the members
of the channel
Risk-taking Underwriting the risks associated with the possession of ownership of the channel
including warranties for after-sales service
Ordering Receiving and recording the order, consolidating it, and passing it on to the
upstream
Payment Receiving payment, recording it, consolidating it, and passing it on to the
upstream

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 Distribution channel design

To consume
a product Channels

Service outputs Participates in

have to be delivered channel flows

Activities have
to be performed
Thus performs activities

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Linking the Service Output Objectives to the Flows
Channel Activities and Service Outputs
Flow Direct contribution Indirect contribution Other contribution

Physical Spatial convenience, Assortment

Possession bulk breaking, waiting
time
Ownership Spatial convenience
Promotion Spatial convenience Is a service output in
itself
Negotiation Spatial convenience, Assortment
bulk breaking
Risk taking Waiting time, bulk
breaking, spatial
convenience
Financing Spatial convenience, Assortment
waiting time, bulk
breaking
Ordering Bulk breaking, spatial
convenience, waiting
time
Payment Bulk breaking, spatial
convenience, waiting
time

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 Channel design effort decisions
The service output levels

The flows or activities that are associated with the achievement

of the service output levels

The type of entity who would be entrusted with the performance

of each of these flows

Conducting cost analysis

Designing the ideal channel

Comparing the ideal with the reality

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Parameters for comparing channel designs
Efficiency

Effectiveness

Equity

Scalability

Flexibility

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 The Channel Establishment Plan
The main purpose of the channel to be set-up
The profile of the customers who are the target market for the
channel
The needs and requirements of the target market with regard to
the identified service outputs provided by the proposed/ existing
channel:
Analysis of the operations of the existing channels that deal in
similar product/service lines
Detailed activity chart for achieving the service output objectives

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 The Channel Establishment Plan
Details about the various channel constituents who will be
performing these tasks
The cost of performing the activities
The designated roles and responsibilities of the channel
constituents
The proposed remuneration for performing these roles and
responsibilities

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 The Channel Establishment Plan
Standards for measuring the performance
Procedures for reporting and information sharing
Monitoring mechanisms
Criteria for appointing the channel members

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