Distribution system design - Marketing Management

The starting point for marketing channel design is the end consumer. Although an understanding of consumer purchasing patterns is essential, there are other factors that influence channel organization:

  • There may be a restriction in choice of outlets available to suppliers, e.g. retail outlets may already have been secured by established manufacturers.
  • Channel design will be influenced by the number, size and geographic concentration of consumers. If customers are few in number, but large and geographically concentrated, it may be that direct channels will be suitable. If customers are dispersed, the mechanics of direct channels become increasingly difficult and there will be a need for a large number of intermediaries.
  • Product characteristics affect channel design. Industrial goods manufacturers tend to use direct channels, but there are other factors that influence the decision. Perishable goods, for example, need to be turned over quickly so direct methods are often applied. Non-perishable, non-bulky goods can be handled via indirect channels.
  • Some products are more suited to indirect channels because of environmental characteristics. For example, in some countries shopping is seen very much as being a leisure activity especially for items like clothing and furniture, so much so that companies such as the Swedish company IKEA have made this a central part of their business model.
  • Some organizations have limited discretion over marketing channel choice owing to economic conditions and legal restrictions. In certain of the Eastern European and Baltic countries such as Estonia, Latvia and Uzbekistan there is still restricted choice in terms of the range and scope of retail outlets for marketers.

Any channel decision will have long-term implications for the company, e.g. price will be affected depending on the number of levels between the manufacturer and the end user. A decision to change channels is likely be long term so it is important that existing channel structures are constantly reviewed to exploit opportunities.

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