Once a channel structure is created and channel members are put in place and channel compensations are streamlined, it will be difficult for the firm to exit from that structure and put an alternative in its place. Therefore, as a general rule, an eye on the future is essential while adopting a channel system and structure. Exhibit illustrates this point with the ‘example of P&G. The example clearly illustrates the difficulties involved in altering an ongoing channel structure.
One Unified System
We saw in the preceding chapter that for the optimization of the physical distribution task, all elements of physical distribution/marketing logistics, such as transportation, warehousing and inventory management, must be handled as a single, unified system. In the same way the firm has to handle wholesaling, retailing and other forms of selling as one unified system and not as separate entities. The linkage among them in terms of functions, costs and efficiency being quite strong, looking at them as independent entities will lead to sub- optimization of the channel management task as a whole. Compensation provided to the different tiers has also to be properly intertwined, since the functions performed by the different tiers are inter. twined.
Building Channel System by Bottom-up Method
The purpose of having marketing channels is to serve customer needs effectively. This means that the prime task in channel design is to determine the type of retailers who are best suited to serve customer needs in the specific context and develop the distribution system by the bottom-up method. Once the type of retailers suited for the context is determined, the wholesaling arrangement that would best suit the chosen retail arrangement can be chosen and put in place.
Creating and Administering the Channel
Fixing the channel design is only one part of channel management. Creating the channel and administering it effectively is the other, and bulkier, part of the job. After deciding the design of the channel and the number of tiers in the channel, the firm has to decide the number of members needed in each tier and their locations. It has to select suitable person’s establishments and appoint them as stockiest, distributors and dealers, as the case may be. It has to administer them, service them and motivate them.
