Channel Design

• Channel design decisions includes:

– The number of channels to employ.
– The number of levels to be included in each
channel.
– The type of intermediaries to employ.
– The number of channel intemediaries at each
level
A typical channel for the FMCGs
Company

Co. Godown /
C& F agent

Stockist

Wholesalers

Retailers

Consumers
Services: Mutual Funds
Company

Mutual Fund
Management
company

Brokers
Replaceable market-Industrial goods

Company

Regional Co. Godowns

Dealers
• Channel design involves the development
of new marketing channels where none
existed before, or to the modification of
existing channels
• Channels need to be adopted depending on
the target segment and positioning
• It may not possible for a company to have a
common channel for all its products and
markets
Conceptual framework

Distribution
needs
• Thus the process of identifying the feasible
alternatives uses a bottom’s up approach
• In case the above process suggests more
than one alternative then the alternatives
have to be evaluated. The criteria for
evaluation include (a) cost, (b) middleman
profitability, (c) adaptability and (d) control
 Buyers’ needs
• As seen in the last session a consumer is willing to
travel a certain distance to satisfy his requirements
(or not travel if the consumer is looking for
Convenience).
• So, the last point of the channel should be those
outlets which satisfy the buyers’ needs.
– For example: A consumer buying a TV may visit a multi-
brand outlet to satisfy his (her) need of comparison.
– A traditional landlord may purchase his FMCG
requirements from the town outlet as it could be satisfying
his requirement of variety, credit etc. Moreover it also
satisfies his Status requirement. He may consider it below
his dignity to buy from a village outlet.
• So, the selection of the last point in the
channel has to be decided after
understanding the requirements of the target
segment.
• Therefore, if a product caters to two
segments with different needs, then there is
a need to have different channels catering to
the different segments.
 Bread
Habitual buyers Others
Prefer minimizing effort in Emergency purchase
purchase. Requirement: Odd hours
Prefer home delivery Not willing to travel far. If
product not available,
substituted by other
products.

Ideal channel HAWKERS Ideal channel

KIOSKS CLOSE TO
RESIDENTIAL AREA
 Similarly, behaviour of consumers in a segment may vary. So, different channels
would be required to satisfy different needs.
Type of Grocers & Super Chemists Pan Bidi
outlet General markets outlets
Merchants
Target Middle income Middle Middle All groups
segment groups upwards. income income
groups groups
upwards upwards and
floating
population.
Buyers’ Monthly Trial and Impulse Emergency
behaviour shopping variety buying purchases of
satisfied seeking middle
behaviour. income
group and
trial
purchases by
lower income
groups.
Outlets which do not satisfy the buyers’ needs are
likely to fail.
• Tea City, the exclusive outlets of Godfrey Philips
– Tea City brands which were essentially low to
moderately priced failed to attract the connoisseurs who
bought premium loose tea. The ambience of the
exclusive showrooms scared away the price conscious
loose tea buyers as well as the branded and packaged
tea buyers
• Vareli Textiles
– Vareli decided to sell readymade garments through
Garden outlets. But the existing set up was not suitable
for readymade garments as consumers failed to
associate Garden to premium readymade garments
 Retailers’ requirements
• The retailers’ considerations would depend
on (a) nature of the product (b) servicing
requirements.
• Nature of the product
– Bulky
– Perishable
• Servicing requirements
– Time utility
 Legal Requirements
• Type of outlet
– Liquor
– Pharma
• Tax implications
• Sole Selling Agents
 Distribution Needs

• The role of the channel as defined by the

selling strategy
• Reach- This determines the width of the
channel.
 Rovey Case
Rovey
• For many decades, Rovey has been a leading
manufacturer of typewriters. Over the years, it has
expanded the company’s product mix to include
computers.
• Until 1990, Rovey employed only a direct channel of
distribution. A company sales force visited large and
medium-size business accounts. Rovey had no store
outlets and it did not market through channel
members. The small business and home office
markets were virtually ignored.
 Rovey Case
• The first Rovey store was opened in a Mumbai
shopping center in 1990 with Rovey announcing plans
to add 10 new stores each year. The stores carried the
company’s full product mix: typewriters and
computers.
• At the end of October 1993, Rovey decided to sell off
its retail stores as operating costs were higher than
anticipated. The company decided to start distributing
their products through independent channel members.

• R
 Rovey Case
• In 1990 Rovey introduced a dual channel of distribution to increase the market
to include doctors, lawyers, accountants and other small businesses, including
many people with home offices. The Rovey sales force continued to visit larger
consumers, and company-owned stores were planned to attract small-business
customers (doctors, lawyers, accountants and other small businesses).
• Reason for going for dual distribution
• Can the products be treated similarly for the purpose of the channel decisions.
 Buying behaviour
• Need: Present or absent
– If absent the selling strategy has to identify how
it would take the consumer through this stage.
• Product: Is it a standardized product or has
to be customized.
– If the product needs to be customized. Which is
the most credible source.
• Place utility
 Typewriter Computer

Need Present. Absent. Need to be

initiated by salesperson.

Product Standardized prod. No Can be customized

need of information. depending on the need.
Evaluation based on Information and
brand image. credibility important.
Ideal Salesperson.

Place Co. owned outlets or Salesperson who initiates

utility exclusive outlets need and suggests
specific uses has to
guarantee performance
 3Cs
• Customer: A channel has to satisfy the
customers needs
• Competition: Serve the consumers and
channel better than the competitor.
• Company: Only if alternatives available
look at company variables.
Exclusive outlets Multibrand outlets
Strong Pull is essential. Advertising has to create a
Brand decision has to be quality perception.
made
Cannot guarantee against Can guarantee against
brand failure brand/ product failure
Consumer is forced to Consumer benefits from
choose amongst the comparison.
available models. If Store loyalty v/s brand
variety low then the loyalty.
shopping experience not
satisfied