Formulating the Channel Objectives Formulation of channel objectives is the first step in designing a channel system. The objectives clarify what is sought to be achieved by having the channels. All firms seek to realize certain common objectives by having the channel. In addition, they may also have some specific objectives depending on their unique circumstances.
Channel Objectives will Decide Channel Design Channel objectives will determine the channel design the firm should adopt.
Objectives, Firms Commonly Seek from Channels
- Effective coverage of the target market
- Efficient and cost-effective distribution
- Ensuring that consumers incur minimum exertion in procuring the product
- Helping the firm to carry on manufacturing uninterrupted, confident that the channels will take care of sales.
- Partnering the firm in financing and sub-distribution tasks
| Linkage between Channel Design and Channel Objectives | |
| Channel objectives | Channel design |
| Castrol India | |
| Provide locational convenience to customers; make the products available everywhere (strong reach). | Go for vast network of outlets. Make available all products/all pack sizes (1,800 Stock keeping units) in all outlets and allow of the customer to pick what he wants. This means the outlets have to be backed by an extensive network of CFAs/stockists/warehouses/delivery facilities. |
| Provide speedy delivery; fulfill orders from outlets within 24 hours. | This again means extensive back-up and a multi-tier design. |
| Reliance Textiles (Vimal) | |
| Use channel to project the exclusive image of Vimal fabrics. | Go for exclusive showrooms (Vimal has a chain of over 2,000 showrooms). |
| Concentrate on urban market to fall in line with the segmentation/positioning strategy. | Have showrooms in all cities/Class I towns of the country. Have jumbo showrooms in the metros/big cities. |
| Philips (Appliances / Personal care products) | |
| Cover the market intensively and extensively. | Have a three-timer channel, with C& F agents, distributors, and retailers. Philips has set up a large base of 2,200 retailers. |
| Make after-sales service an integral part of channel function. | Establish APSCs (authorized Philips service centers); Philips now has 110 APSCs, four CRCs (consumer response centers), and a team of 60 engineers liaising with the APSCs. |
| Motivate the channel for attending to service requirements. | |
| Philips gives a guaranteed 30 per cent return on investment to the APSC. | |
| Bind barriers to competitors through channel strength. | Pre-empt the march of competitors by embracing practically all strong dealers in the market as Philip dealers. |
We can take an example of Hindustan Lever to explain it better. Lever lays down the objective that Lifebuoy should be available in more than 80 per the villages of India; its channel design takes shape in line with this objective. Similar is the case, when FACT, the fertilizer firm, lays down the objective that in the home market of any company, no farmer should have to travel more than 3 km to buy its products.
We can take this forward a little more and state that marketing objectives determine channel objectives, and the latter determine the channel design. Usually, with the channel objectives, the broad contours of the channel design also get fixed. In the Lifebuoy example, given the channel objective to cover 80 per cent of the villages, the channel design has to naturally ensure a very intensive network of dealers spread through every nook and comer of rural India. As a corollary, a multi-tier channel, consisting of C&F agents, re-distribution stockiest, retailers, and village-level shops, will have to be the choice. In fact, HLL uses almost every village shop to sell Lifebuoy.
Above chart gives several illustrations of the linkage between channel objectives channel design. It will be clear from the chart that the channel design/channel strategy of a firm flows directly from its channel objectives.
In the case of Castrol, for example (cited in the chart), engine oil is a convenience good and a medium involvement product. Castrol knows that if a customer does not find engine oil at a given outlet, he may switch to another brand. Castrol accordingly stresses ‘reach and ‘speedy delivery’ in its channel strategy. And, once these two factors are set as the main channel objectives, it automatically leads to the channel design, which Castrol has adopted.
| Channel objectives | Channel design |
| Archie’s gifts and Greetings | |
| Proximity to customers | Establish outlets close to the target buyers—the upper echelons of society. |
| Go for exclusive shops/shop-in-shops. | |
| Convert low involvement purchase into high involvement purchase. | Go for trendy interior design and peppy ambience |
| Make purchase of greeting cards/gifts as enjoyable experience. BBLIL (Premerger with HLL) | Stock a wide range of highly appealing merchandise. |
| Make the products available everywhere (strong reach). | Embrace all types of shops, supermarkets, grocery stores and kirana shops, as part of the company’s channel. BBLIL has adopted a three-tier channel with C&F agents, redistribution stockists and retailers. |
| Provide choice of brand; ensure different brands are available at the right place, right time. | Provide for proper inventory / delivery back-up. |
| Always give fresh stocks to consumers. | At each level, minimize the distance between issuing and receiving points. |
| Louis Philippe Promote Louis Philippe as a complete and premium wardrobe line, with shirts, trousers, ties, socks, blazers, belts, etc. Cover the target market (the will-to-do gents) adequately. | Go for exclusive showrooms; ensure availability of the whole line at these outlets Showrooms alone will not be enough |
| Go for dress circles (similar to showrooms, but stocks are bought and resold by the retailer) | |
| Go for multi-brand outlets too. | |
| Maintain an edge over competition by competing on quality, service, image and value. ITC-Tobacco Division | Go for Shop-in-Shop in super stores like Akbar Alis, Mumbai, where special areas (shops within shops) are available for exclusive marketing of specific brands. |
| Ensure easy availability of ITC cigarettes. | Go for CFAs as well as wholesalers, who will distribute / resell to retailers (ITC has more than 8,000 retailers). |
| Go for different types of retailers; Branded, traditional and Non-traditional. | |
| Build brands through merchandising. | Have branded retailers / franchisee retailers who sell only ITC cigarettes and not other brands. |
Channel Objectives Differ from Firm to Firm; Consequently, their Channel Designs Differ We see that often channel designs of firms differ from one another. Even within a given industry; different firms have different channel designs. This is so because their channel objectives differ. Even in respect of those objectives, which are by and large common for all firms, we can see variations in emphasis from firm to firm. For example, intensity of market coverage sought from the channels and extent of convenience to be provided to the customer will vary from firm to firm. The weightings will flow from the marketing objectives of the respective firms.
The textile industry example: National Textile Corporation (NTC), Reliance Industries, Bombay Dyeing, DCM and Mafatlal are all textile firms and all of them operate in the same market. Yet, their channel designs vary from one another. This is so because their channel marketing objectives differ from one another. NTC’s objective is to cater to the lower middle class, with textiles of reasonable quality at reasonable prices. It goes in for a channel design, which is appropriate for this objective. At the other end of the spectrum, selling ‘fashion’ to well-to-do urban segments is the objective of Reliance. Premium product and premium price are the implications here. Evidently, the channel design of Reliance differs from that of NTC Reliance has gone in for a chain of exclusive Vimal showrooms. Though NTC has also set up some showrooms, it relies mainly on conventional trade. Reliance has set up 2,000 odd showrooms, covering all metros and Class I towns of India; it has located them in the shopping areas of the concerned towns; it has fabulously displayed its fabrics in these showrooms; the showroom is one main strategic strength of the company; Firms like Bombay Dyeing and DCM fall somewhere on the line between the positions taken by NTC and Reliance at the two ends. All these firms have obviously selected their channel design, based on their respective channel objectives.
