Notes
41
(e.g., a distributor has expanded its coverage into another region or may
have gained or lost access to certain retail chains). Finally, the extent to
which compensation is awarded in proportion
to performance should be
reassessed—e.g., a distributor that ends up holding inventory longer or
taking on more returns may need additional compensation.
Channel Design
A firm must become involved in the channel design process when
it is considering entering the market with a new
product or when existing
supply chains are falling short of performance objectives.
The design process consists of the following steps:
1. Establish objectives.
2. Formulate a strategy.
3. Determine structure alternatives.
4. Evaluate structure alternatives.
5. Select structure.
6. Determine alternatives for individual channel members.
7. Evaluate and select individual members.
8. Measure and evaluate channel performance.
9. Evaluate alternatives when performance objectives are not met, or
attractive new options become available.
Development of the Channels of Distribution
The emergence of channels of distribution
has been explained in
terms of the following factors:
1. Intermediaries evolve in the process of exchange because they can
increase the efficiency of the process by creating time, place, and
possession utility.
2. Channel intermediaries enable the adjustment of the discrepancy
of assortment by performing the functions of sorting and assorting.
Discrepancy of assortment will be described shortly.
3. Marketing agencies form channel arrangements
to make transactions
routine.
Notes
42
4. Channels facilitate the searching process by consumers.
Marketing channels develop because intermediaries (e.g.,
wholesalers and retailers) make the marketing process more efficient
by reducing the number of market contacts. In primitive cultures, for
example, most household needs are met by family members.
By many household needs can be met more efficiently by exchange.
Specialization in production creates efficiency for this reason; it has
become a way of life. A household must exchange
goods and services to
provide for all of its needs.
The advantage of an intermediary is greater as the number of
specialized producers increases.
Intermediaries provide possession, time, and place utility. They
create possession utility through
the process of exchange, the result of
the buying and selling functions. They provide time utility by holding
inventory available for sale.
And they provide place utility by physically moving goods to the
market. The assortment of goods and services
held by a producer and the
assortment demanded by the customer often differ. The primary function
of channel intermediaries is to adjust this discrepancy by performing the
following “sorting” processes:
1. Sorting out.
2. Accumulating.
3. Allocation.
4. Assorting.
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