Bruce Mallen
International Journal of Physical Distribution & Logistics
1996, Vol. 26, No. 5, pp. 5-21
1) Selecting channels of distribution is a 6-Stage process
- a) Decision Areas
- i) What degree of directness should the channel structure have?
(1) Number of middlemen
(2) Vertical integration
(3) Economies of scale
- ii) How selective should the distribution channel be?
(1) Per level
(2) Per geographic area
iii) What type(s) of middlemen are to be selected? (3 groups)
(1) wholesalers
(2) retailers
(3) facilitating intermediaries
- iv) How many channels should be established for a given product?
(1) Number of different patterns used for distribution
- v) How shall the middlemen be selected?
(1) Middlemen must fit into manufacturers total marketing strategy
(2) Network should have little overlap and maximum coverage
(3) Middlemen must have the necessary financial, human and physical resources
2) The guidelines
- a) Objectives and their relationships (ito. Directness, selectivity, types of middlemen, number of channels and degree of cooperation)
- i) Profit maximization
(1) Maximize sales
(a) Shorter channels
(b) More middlemen
(c) Multiple channels
(d) Maximum cooperation between middlemen
(2) Minimize costs
(a) Longer channels
(b) Fewer middlemen
(c) More comprehensive middleman services
(d) Single channel
(e) Minimum co-operation between middlemen
- ii) Long-run profit maximization
(1) Maximize channel goodwill
(a) Shorter channels
(b) Fewer middlemen
(c) More comprehensive middlemen services
(d) Single channel
(e) Maximum cooperation
(2) Maximize channel control
(a) Shorter channels
(b) Fewer middlemen
(c) Less comprehensive middlemen services
(d) Single channel
(e) Maximum cooperation
3) The determinants
- a) The market
- i) Density ito number of consumers per unit of measure
(1) Greater density
(a) Direct channel
(b) Selective channel
- ii) Size ito total number of buying units
(1) Greater size
(a) Direct channel
(b) Intensive channel
(2) Multiple channels
iii) Buying motives and habits
(1) Buying habits are a function of the market and the product
- b) Consumer goods classification
- i) Classification of product
(1) Convenience goods
(2) Shopping goods
(3) Specialty goods
- ii) Classification of oulet
(1) Convenience store
(2) Shopping store
(3) Specialty store
- c) Marketing Mix
- i) Product
(1) Uses
(2) Frequency of purchase
(a) Determining characteristic
(i) Consumption period
(ii) Search time
(iii) Replacement rate
(b) Higher frequency of purchase requires a more direct channel
(3) Perishability
(a) Fashionable and perishable commodities require a more direct channel- they must get to the seller more quickly
(4) Service required
(a) More service and technical items require a more direct and selective channel
(5) Value
(a) Low unit value items and convenience goods may utilize a more indirect and intensive channel
(6) Bulk
(a) More products produced can save through economies resulting from a direct channel
- ii) Pricing: Methods used to control resale prices
(1) Direct distribution to consumers or retailers
(2) Use of fair trade legislation
(3) Sale go goods on consignment
(4) Refusal to sell to price cutters
(5) Distribution through small middlemen
(6) Granting only small trade discounts
(7) Advertising resale prices to consumers
(8) Suggested and quoted resale prices
(9) Pre-ticketing
iii) Promotion
(1) Promotion and channel selection are determinants of each other
(a) Less advertising, less sales promotion and more personal selling
(2) Channel selection also impacts promotional budget dispursion
(a) More indirect channels require more budget allocation toward middlemen, etc…
- iv) Physical Distribution
(1) Manufacturer must decide
(a) Which functions to allocate to middlemen
(b) Which functions to do in-house
- d) Resources
- i) Finances and marketing manpower
(1) Strong resources allow more direct marketing
(2) Weak finances may force companies to use financially strong middlemen
- ii) Change in raw materials
(1) Depletion can alter the product and thus the channels
iii) Human resource policies
(1) Stable employment may result in higher inventories at times which may be passed to the middleman
- e) Environment
- i) 4 types of competition
(1) between channel members
(a) wholesaler vs wholesaler
(b) retailer vs retailer
(2) among channel members
(a) wholesaler vs manufacturer
(b) retailer vs wholesaler
(3) between channel members for the use of channel members
(a) manufacturer vs manufacturer for the use of a wholesaler
(b) wholesaler vs wholesaler for the use of a retailer
(4) between channels
(a) manufacturer-wholesaler-retailer vs manufacturer-retailer
- f) Business conditions and technology
- i) Conditions can modify the numbers and types of middlemen available
- g) International marketing
- i) Manufacturers seek middlemen who focus in international trade
(1) Importer-exporter merchants and agents
- h) Social and ethical considerations
- i) Black-market channels
- ii) Discounters
- i) Government and legal considerations
- i) Government as a customer
(1) Purchases on a bidding basis requiring more direct channels
- ii) Regulation of peddler and solicitor selling
4) Quantifying the options
- a) Process
- i) Work back from the ultimate market to arrive at the contributions to profit and overhead
- ii) Subtract total margins gained by middlemen from the total sales
iii) Consider total distribution costs
- iv) Consider channel control and channel good-will (non-quantifiable)
- v) Select the option showing the highest contribution to profit and overhead, so long as channel goodwill and channel control meet the needs of the organization
- vi) Consider the amount of investment required
5) Review and evaluation
- a) Optimize basic channel objectives
- i) Maximization sales
- ii) Goodwill control
iii) Minimization of costs