7.4.3 Channel Design Process¶
Once the length and breadth of the distribution channel are identified, the next crucial step is designing the distribution channel. This process is similar to deciding on a pricing policy, where careful consideration of various factors is required to ensure the channel aligns with business objectives. The channel design process can be broken down into six steps that guide this decision-making.
Steps to Design the Distribution Channel¶
1. Identify Organizational and Distribution Objectives¶
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Organizational Objectives: These include the overall goals of the company, such as increasing market share, profit, or brand recognition. For example, a company may aim to increase its market presence in a specific region or demographic.
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Distribution Objectives: These are more specific and focused on the distribution process itself. Distribution objectives can vary and may include goals like:
- Expanding reach (e.g., reaching 50 rural villages).
- Enhancing customer experience (e.g., providing superior service or brand-building).
- Increasing penetration in a specific market or region.
These objectives are critical in setting the foundation for how products will reach customers.
2. Identify the Target Segment¶
After defining the distribution objectives, the next step is to understand who your target segment is. This step involves understanding the characteristics and preferences of the consumers you're trying to reach. The type of channel you choose should align with the needs of your target market. For example: - Rural Areas: A different approach might be needed, such as a direct-to-consumer model or small local shops that cater to the needs of rural populations. - Urban Areas: Urban consumers may have more time constraints and might prefer quick-commerce or online channels for convenience. - Family Consumers: In urban areas, families might prefer to shop at hypermarkets or department stores for larger purchases and family needs.
Understanding the target segment helps tailor the distribution channels accordingly.
3. Analyze Competitors¶
Once the target segment is identified, it’s essential to analyze what your competitors are doing. This involves looking at: - What channels are competitors using? - How do they structure their distribution? - What are they offering to consumers?
By understanding your competitors’ strategies, you can differentiate your distribution approach or find ways to offer something better or more convenient to consumers. Competitor analysis will give you insight into industry trends and consumer preferences, helping refine your channel strategy.
4. Evaluate Channel Structure Alternatives¶
With a clear understanding of your objectives, target segment, and competitors, the next step is to evaluate different channel structure alternatives. Similar to how companies evaluate pricing strategies, businesses need to assess different channel options. Some potential alternatives include: - Boutique Stores: Small, specialized retail locations. - Compact Supermarkets: Small-scale stores that cater to convenience shopping. - Own Online Platform: Building and maintaining your own e-commerce platform. - Joining External Online Platforms: Partnering with existing online marketplaces (like Amazon) to expand reach.
This step involves exploring various options, understanding the pros and cons of each, and deciding which structure best aligns with your goals and resources.
5. Select the Ideal Channel Structure¶
Once the alternatives have been evaluated, it’s time to select the ideal channel structure. This involves choosing the channel that aligns best with your business goals, target segment, and market conditions. Factors to consider include: - Financial capabilities: Can the company afford to build and maintain its own e-commerce platform, or is it better to join an existing online marketplace? - Target segment preferences: Does the target market prefer physical retail, online shopping, or a combination of both? - Competitor landscape: Is there a gap in the market that you can exploit with a unique channel structure?
The selection of the ideal channel structure is a critical decision that should be based on a comprehensive analysis of the alternatives.
6. Implement and Monitor the Channel Design¶
After selecting the ideal channel structure, the final step is to implement the channel design and monitor its performance. This includes: - Channel member selection: Who will be the intermediaries (wholesalers, retailers, etc.)? - Channel management: How will you manage these intermediaries to ensure smooth operations and maintain control over the distribution process?
Channel members must be chosen carefully, and their performance should be regularly assessed to ensure that the channel is functioning as intended. Regular monitoring will also help adapt the strategy if necessary, based on consumer feedback and market conditions.
Example of Channel Design Decision¶
Let’s consider a hypothetical scenario: - Organizational Objective: Increase market share and growth. - Channel Objective: Achieve 90% penetration of the target market. - Target Segment: Consumers aged 25-40, socio-economic class A, professionals, extroverts, tech optimists, and opportunistic switchers. They expect high levels of information, service, variety, and the best deals.
Based on this, the ideal channel might include: - A multi-channel retailing approach, combining online platforms (for tech-savvy consumers) and department stores or hypermarkets (for families and consumers looking for variety and service).
Conclusion¶
Designing the distribution channel is a multi-step process that requires careful planning and consideration of various factors: 1. Organizational objectives (market share, profit, brand-building). 2. Distribution objectives (reach, customer experience, penetration). 3. Target segments (understanding the consumer’s needs and preferences). 4. Competitors (analyzing what they are offering and how they are reaching consumers). 5. Channel structure alternatives (evaluating different options). 6. Final selection of the best channel structure that aligns with all the above factors.
In addition to these steps, the final decision must ensure that the channel characteristics match customer expectations. This ensures that consumers receive the right level of service, information, and products from the chosen distribution channels, leading to business success.
By following this structured approach, businesses can design an effective distribution channel that meets their objectives, caters to their target segments, and remains competitive in the marketplace.
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