Hybrid Marketing Channel
Hybrid channels offer many advantages to companies facing large and complex markets. With each
new channel, the company expands its sales and market coverage and gains opportunities to tailor
its products and services to the specific needs of diverse customer segments. But such hybrid
channel systems are harder to control, and they generate conflict as more channels compete for
customers and sales
I. Channel Design Decisions
We now look at several channel decisions manufacturers face. In designing marketing channels,
manufacturers struggle between what is ideal and what is practical. A new firm with limited capital
usually starts by selling in a limited market area. Deciding on the best channels might not be a
problem: The problem might simply be how to convince one or a few good intermediaries to
handle the line.If successful, the new firm might branch out to new markets through the existing intermediaries.
In smaller markets, the firm might sell directly to retailers; in larger markets, it might sell through
distributors. In one part of the country, it might grant exclusive franchises; in another, it might sell
through all available outlets. In this way, channel systems often evolve to meet market
opportunities and conditions. However, for maximum effectiveness, channel analysis and decision
making should be more purposeful. Designing a channel system calls for analyzing consumer
service needs, setting channel objectives and constraints, identifying major channel alternatives,
and evaluating them.
a. Analyzing Consumer Service Needs
As noted previously, marketing channels can be thought of as customer value delivery systems in which
each channel member adds value for the customer. Thus, designing the distribution channel starts
with finding out what targeted consumers want from the channel. Do consumers want to buy from
nearby locations or are they willing to travel to more distant centralized locations? Would they
rather buy in person, over the phone, through the mail, or via the Internet? Do they value breadth
of assortment or do they prefer specialization? Do consumers want many add-on services
(delivery, credit, repairs, installation) or will they obtain these elsewhere? The faster the delivery,
the greater the assortment provided, and the more add-on services supplied, the greater the
channel's service level.
But providing the fastest delivery, greatest assortment, and most services may not be possible or
practical. The company and its channel members may not have the resources or skills needed to
provide all the desired services. Also, providing higher levels of service results in higher costs for
the channel and higher prices for consumers. The company must balance consumer service needs
not only against the feasibility and costs of meeting these needs but also against customer price
preferences. The success of off-price and discount retailing shows that consumers are often willing
to accept lower service levels if this means lower prices.
b. Setting Channel Objectives and Constraints
Channel objectives should be stated in terms of the desired service level of target consumers.
Usually, a company can identify several segments wanting different levels of channel service. The
company should decide which segments to serve and the best channels to use in each case. In each
segment, the company wants to minimize the total channel cost of meeting customer service
requirements.
The company's channel objectives are also influenced by the nature of the company, its products,
marketing intermediaries, competitors, and the environment. For example, the company's size and
financial situation determine which marketing functions it can handle itself and which it must give
to intermediaries. Companies selling perishable products may require more direct marketing to
avoid delays and too much handling. In some cases, a company may want to compete in or near
the same outlets that carry competitors' products. In other cases, producers may avoid the
channels used by competitors. Finally, environmental factors such as economic conditions and
legal constraints may affect channel objectives and design. For example, in a depressed economy,
producers want to distribute their goods in the most economical way, using shorter channels and
dropping unneeded services that add to the final price of the goods.
c. Identifying Major Alternatives
When the company has defined its channel objectives, it should next identify its major channel
alternatives in terms of types of intermediaries, the number of intermediaries, and the responsibilities of
each channel member.
d. Types of Intermediaries
A firm should identify the types of channel members available to carry out its channel work. For
example, suppose a manufacturer of test equipment has developed an audio device that detects
poor mechanical connections in machines with moving parts. Company executives think this
product would have a market in all industries in which electric, combustion, or steam engines are
made or used. The company's current sales force is small, and the problem is how best to reach
these different industries. The following channel alternatives might emerge from management
discussion:
Company sales force: Expand the company's direct sales force. Assign outside salespeople to
territories and have them contact all prospects in the area or develop separate company sales forces
for different industries. Or, add an inside telesales operation in which telephone salespeople
handles small or midsize companies.
Manufacturer's agency: Hire manufacturer's agents—independent firms whose sales forces handle
related products from many companies—in different regions or industries to sell the new test
equipment.
Industrial distributors: Find distributors in the different regions or industries who will buy and
carry the new line. Give them exclusive distribution, good margins, product training, and
promotional support.
e. Number of Marketing Intermediaries
Companies must also determine the number of channel members to use at each level. Three
strategies are available: intensive distribution, exclusive distribution, and selective distribution.
Producers of convenience products and common raw materials typically seek intensive
distribution—a strategy in which they stock their products in as many outlets as possible. These
goods must be available where and when consumers want them. For example, toothpaste, candy,
and other similar items are sold in millions of outlets to provide maximum brand exposure and
consumer convenience. By contrast, some producers purposely limit the number of intermediaries
handling their products. The extreme form of this practice is exclusive distribution, in which the
producer gives only a limited number of dealers the exclusive right to distribute its products in
their territories. Exclusive distribution is often found in the distribution of new automobiles and
prestige women's clothing. Exclusive distribution also enhances the car's image and allows for
higher markups.
Between intensive and exclusive distribution lies selective distribution—the use of more than one,
but fewer than all, of the intermediaries who are willing to carry a company's products. Most
television, furniture, and small-appliance brands are distributed in this manner. They can develop
good working relationships with selected channel members and expect a better-than-average selling
effort. Selective distribution gives producers good market coverage with more control and less cost
than does intensive distribution.
J. Channel Management Decisions
Once the company has reviewed its channel alternatives and decided on the best channel design, it
must implement and manage the chosen channel. Channel management calls for selecting and
motivating individual channel members and evaluating their performance over time.
a. Selecting Channel Members
Producers vary in their ability to attract qualified marketing intermediaries. Some producers have
no trouble signing up channel members. In some cases, the promise of exclusive or selective
distribution for a desirable product will draw plenty of applicants.
At the other extreme are producers who have to work hard to line up enough qualified
intermediaries..
When selecting intermediaries, the company should determine what characteristics distinguish the
better ones. It will want to evaluate each channel member's years in business, other lines carried,
growth and profit record, cooperativeness, and reputation. If the intermediaries are sales agents,
the company will want to evaluate the number and character of other lines carried and the size and
quality of the sales force. If the intermediary is a retail store that wants exclusive or selective
distribution, the company will want to evaluate the store's customers, location, and future growth
potential.these different industries. The following channel alternatives might emerge from management
discussion:
Company sales force: Expand the company's direct sales force. Assign outside salespeople to
territories and have them contact all prospects in the area or develop separate company sales forces
for different industries. Or, add an inside telesales operation in which telephone salespeople
handles small or midsize companies.
Manufacturer's agency: Hire manufacturer's agents—independent firms whose sales forces handle
related products from many companies—in different regions or industries to sell the new test
equipment.
Industrial distributors: Find distributors in the different regions or industries who will buy and
carry the new line. Give them exclusive distribution, good margins, product training, and
promotional support.
e. Number of Marketing Intermediaries
Companies must also determine the number of channel members to use at each level. Three
strategies are available: intensive distribution, exclusive distribution, and selective distribution.
Producers of convenience products and common raw materials typically seek intensive
distribution—a strategy in which they stock their products in as many outlets as possible. These
goods must be available where and when consumers want them. For example, toothpaste, candy,
and other similar items are sold in millions of outlets to provide maximum brand exposure and
consumer convenience. By contrast, some producers purposely limit the number of intermediaries
handling their products. The extreme form of this practice is exclusive distribution, in which the
producer gives only a limited number of dealers the exclusive right to distribute its products in
their territories. Exclusive distribution is often found in the distribution of new automobiles and
prestige women's clothing. Exclusive distribution also enhances the car's image and allows for
higher markups.
Between intensive and exclusive distribution lies selective distribution—the use of more than one,
but fewer than all, of the intermediaries who are willing to carry a company's products. Most
television, furniture, and small-appliance brands are distributed in this manner. They can develop
good working relationships with selected channel members and expect a better-than-average selling
effort. Selective distribution gives producers good market coverage with more control and less cost
than does intensive distribution.
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