This question is well worth asking, given the great expense of establishing (or changing) marketing channel and the high cost of poor decision making in this area. The marketing channel challenge involves two major tasks: (1) to design the right channel and (2) to implement that design. The design step involves segmenting the market, identifying optimal position- ing responses to segments’ demands, targeting the segments on which to focus the channel’s efforts, and establishing (in the absence of a preexisting channel) or refining (in the presence of a preexisting channel) the channels to manage in the market- place. The implementation step requires an understanding of each channel member’s sources of power and dependence, an understanding of the potential for channel conflict, and a resulting plan for creating an environment ‘where the optimal channel design can be effectively executed on an ongoing basis. This outcome is called channel coordination.
We have observed that a firm can take its product to the user in more ways than one. It can use different types of intermediaries; it can also structure its channel in different ways. For example, it can have a single-tier or a two-tier or a three-tier channel structure. It can reach different market segments with different channel arrangements or with the same channel arrangement. It can also use different channel arrangements for reaching a single market segment. The options are indeed many.
- How does the firm make the choice? How does it determine which one is the best?
- Should it go for own channels-company showrooms and depots-or prefer conventional intermediaries, i.e. the wholesale/retail trade? How many levels/tiers should there be in the chosen channel design. How many wholesale points should it have to ensure satisfactory market coverage? Where should they be located?
- How many retail points should it have? Which are the places where it should have them?
- What should be the relationship between the wholesalers and the retailers?
