Designing a marketing channel

Designing a marketing channel system involves analyzing customer needs, establishing channel objectives, identifying major channel alternatives, and evaluating major channel alternatives. Analyzing Customers desired service output levels: In designing the marketing channel, the marketer must understand this service output levels desired by target customers. Channels produce five service outputs: (a) Lot size The number of units the channels permits typical customer to purchase on one occasion. In buying cars for its fleet, Hertz prefers a channel from which it can buy a large lot size; a household wants a channel that permits buying a lot size of one. (b) Waiting and delivery time The average time customers of that channel wait for receipt of the goods. Customers increasingly prefer faster and faster delivery channels. (c) Spatial convenience The degree to which the marketing channel makes it easy for customers to purchase the product. Chevrolet, for example, offers greater spatial convenience than Cadillac, because there are more Chevrolet dealers. Chevrolets greater market decentralization helps customers save on transportation and search costs in buying ad repairing an automobile. (d) Product variety The assortment breadth provided by the marketing channel. Normally, customers prefer a greater assortment because more choices increase the chance of finding what they need. (e) Service backup the add-on services (credit, delivery, installation, repairs) provided by the channel. The greater the service backup, the greater the work provided by the channel. The marketing channel designer knows that providing greater service outputs means increased channel costs and higher process for customers. Different customers have different service needs. The success of discount stores indicates that many customers are willing to accept smaller service outputs if they can save money Establishing Objectives and Constraints: Channel objectives should be stated in terms of targeted service output levels. Under competitive conditions, channel institutions should arrange their functional tasks to minimize total channel costs and still provide desired levels of service outputs. Usually, planners can identify several market segments that want different service levels. Effective planning requires determining which segments to serve and the best channels for each. Channel objectives vary with product characteristics. Perishable products require more direct marketing. Bulky products, such as building materials, require channels that minimize the shipping distance and the amount of handling. Nonstandard products, such as custom-built machinery and specialized business forms, are sold directly by company sales representatives. Products requiring installation or maintenance services, such as heating and cooling systems, are usually sold and maintained by the company or by franchised dealers. High-unit-value products such as generators and turbines are often sold through a company sales force rather than intermediaries. Channel design must take into account the strengths and weaknesses of different types of intermediaries. For example, manufacturers reps are able to contact customers at a low cost per customers because the total cost is shared by several clients, but the selling effort per customer is less intense than if company sales reps did the selling. Channel

design is also influenced by competitors channels. Channel design must adapt to the larger environment. When economic conditions are depressed, producers want their goods to market using shorter channels and without services that add to the final price of the goods. Legal regulations and restrictions also affect channel design. US law looks unfavorably on channel arrangement that may tend to substantially lessen competition or create a monopoly. Identifying Major Channel Alternatives: Companies can choose from a wide variety of channels for reaching customers from sales forces to agents, distributors, dealers, direct mail, telemarketing, and the internet. Each channel has unique strengths as well as weaknesses. Sales forces can handle complex products and transactions, but they are expensive. The internet is much less expensive, but it cannot handle complex product. Distributors can create sales, but the company loses direct contact with customers. The problem is further complicated by the fact that most companies now use a mix of channels. Each channel hopefully reaches a different segment of buyers and delivers the right products to each at the least cost. When this does not happen there is usually channel conflict and excessive cost. A channel alternative is described by three elements: the types of available business intermediaries, the number of intermediaries needed, and the terms and responsibilities of each channel member. more at http://www.citeman.com/2756-channel-design-decisions.html#ixzz2IovSm3CW Designing a marketing channel system involves analyzing customer needs, establishing channel objectives, identifying major channel alternatives, and evaluating major channel alternatives. Analyzing Customers desired service output levels: In designing the marketing channel, the marketer must understand this service output levels desired by target customers. Channels produce five service outputs: (a) Lot size The number of units the channels permits typical customer to purchase on one occasion. In buying cars for its fleet, Hertz prefers a channel from which it can buy a large lot size; a household wants a channel that permits buying a lot size of one. (b) Waiting and delivery time The average time customers of that channel wait for receipt of the goods. Customers increasingly prefer faster and faster delivery channels. (c) Spatial convenience The degree to which the marketing channel makes it easy for customers to purchase the product. Chevrolet, for example, offers greater spatial convenience than Cadillac, because there are more Chevrolet dealers. Chevrolets greater market decentralization helps customers save on transportation and search costs in buying ad repairing an automobile. (d) Product variety The assortment breadth provided by the marketing channel. Normally, customers prefer a greater assortment because more choices increase the chance of finding what they need. (e) Service backup the add-on services (credit, delivery, installation, repairs) provided by the channel. The greater the service backup, the greater the work provided by the channel.

The marketing channel designer knows that providing greater service outputs means increased channel costs and higher process for customers. Different customers have different service needs. The success of discount stores indicates that many customers are willing to accept smaller service outputs if they can save money Establishing Objectives and Constraints: Channel objectives should be stated in terms of targeted service output levels. Under competitive conditions, channel institutions should arrange their functional tasks to minimize total channel costs and still provide desired levels of service outputs. Usually, planners can identify several market segments that want different service levels. Effective planning requires determining which segments to serve and the best channels for each. Channel objectives vary with product characteristics. Perishable products require more direct marketing. Bulky products, such as building materials, require channels that minimize the shipping distance and the amount of handling. Nonstandard products, such as custom-built machinery and specialized business forms, are sold directly by company sales representatives. Products requiring installation or maintenance services, such as heating and cooling systems, are usually sold and maintained by the company or by franchised dealers. High-unit-value products such as generators and turbines are often sold through a company sales force rather than intermediaries. Channel design must take into account the strengths and weaknesses of different types of intermediaries. For example, manufacturers reps are able to contact customers at a low cost per customers because the total cost is shared by several clients, but the selling effort per customer is less intense than if company sales reps did the selling. Channel design is also influenced by competitors channels. Channel design must adapt to the larger environment. When economic conditions are depressed, producers want their goods to market using shorter channels and without services that add to the final price of the goods. Legal regulations and restrictions also affect channel design. US law looks unfavorably on channel arrangement that may tend to substantially lessen competition or create a monopoly. Identifying Major Channel Alternatives: Companies can choose from a wide variety of channels for reaching customers from sales forces to agents, distributors, dealers, direct mail, telemarketing, and the internet. Each channel has unique strengths as well as weaknesses. Sales forces can handle complex products and transactions, but they are expensive. The internet is much less expensive, but it cannot handle complex product. Distributors can create sales, but the company loses direct contact with customers. The problem is further complicated by the fact that most companies now use a mix of channels. Each channel hopefully reaches a different segment of buyers and delivers the right products to each at the least cost. When this does not happen there is usually channel conflict and excessive cost. A channel alternative is described by three elements: the types of available business intermediaries, the number of intermediaries needed, and the terms and responsibilities of each channel member. Push Strategy

Involves the manufacturer using its sales forceand trade promotion money to induceintermediaries to carry, promote and sell theproduct to end users.2. Pull Strategy Involves the manufacturer using advertisingand promotion to induce consumers to askintermediaries for the product, thus inducingthe intermediaries to order it. v Our Distribution Network Our products are brought to market through DSD, customer warehouse and foodservice and vending distribution networks. The distribution system used depends on customer needs, product characteristics and local trade practices. Direct-Store-Delivery We, our independent bottlers and our distributors operate DSD systems that deliver snacks and beverages directly to retail stores where the products are merchandised by our employees or our bottlers. DSD enables us to merchandise with maximum visibility and appeal. DSD is especially well-suited to products that are restocked often and respond to in-store promotion and merchandising. Customer Warehouse Some of our products are delivered from our manufacturing plants and warehouses to customer warehouses and retail stores. These less costly systems generally work best for products that are less fragile and perishable, have lower turnover, and are less likely to be impulse purchases. Foodservice and Vending Our foodservice and vending sales force distributes snacks, foods and beverages to thirdparty foodservice and vending distributors and operators. Our foodservice and vending sales force also distributes certain beverages through our independent bottlers. This distribution system supplies our products to restaurants, businesses, schools, stadiums and similar locations. Our Competition Our businesses operate in highly competitive markets. We compete against global, regional, local and private label manufacturers on the basis of price, quality, product variety and distribution. In U.S. measured channels, our chief beverage competitor, The Coca-Cola Company, has a larger share of CSD consumption, while we have a larger share of liquid refreshment beverages consumption. In addition, The Coca-Cola Company has a significant CSD share advantage in many markets outside the United States. Further, our snack brands hold significant leadership positions in the snack industry worldwide. Our snack brands face local, regional and private label competitors,

as well as national and global snack competitors, and compete on the basis of price, quality, product variety and distribution. Success in this competitive environment is dependent on effective promotion of existing products, the introduction of new products and the effectiveness of our advertising campaigns, marketing programs and product packaging. We believe that the strength of our brands, innovation and marketing, coupled with the quality of our products and flexibility of our distribution network, allow us to compete effectively. We are organized into four business units, as follows: 1) PepsiCo Americas Foods (PAF), which includes Frito-Lay North America (FLNA), Quaker Foods North America (QFNA) and all of our Latin American food and snack businesses (LAF), including our Sabritas and Gamesa businesses in Mexico; 2) PepsiCo Americas Beverages (PAB), which includes PepsiCo Beverages Americas and Pepsi Beverages Company; 3) PepsiCo Europe, which includes all beverage, food and snack businesses in Europe; and 4) PepsiCo Asia, Middle East and Africa (AMEA), which includes all beverage, food and snack businesses in AMEA.