Business to Business Marketing 9 1

Summary

This video explains the process of channel design, focusing on the creation of effective distribution channels from a manufacturer's perspective. It explores the decisions involved in selecting direct or indirect channels, the importance of face-to-face contact, and the costs per transaction. Real-world examples, such as the success of Nokogins in Sweden, highlight how channel design can impact a product’s success. The video also addresses factors affecting channel selection, such as market characteristics and competition, and emphasizes the significance of adapting to changes in the market or new distribution channels like the internet.

Takeaways

• 😀 Channel design is a framework that ensures the proper functioning of distribution channels for manufacturers, helping them to increase marketing control and manage competition.
• 😀 Manufacturers must decide whether to use direct or indirect channels, and determine the most efficient functions for each channel member in the distribution process.
• 😀 Direct channels (e.g., manufacturer's own store) offer higher control but require significant investment, while indirect channels (e.g., retailers) can reduce costs and complexity.
• 😀 The design of distribution channels has a significant impact on product success, as choosing the right channels can lead to better sales outcomes.
• 😀 Nokogins' example illustrates how a shift in sales channels (from department stores to hourly stores) can lead to better sales performance by aligning product pricing with market expectations.
• 😀 Various types of channels can be analyzed based on two key factors: the degree of face-to-face interaction and cost per transaction, influencing the choice of sales approach.
• 😀 High-touch channels (e.g., direct sales force, agencies) involve more face-to-face interaction, are suitable for complex products, but come with higher costs.
• 😀 Low-touch channels (e.g., internet, catalog) are more cost-effective for standardized products, with lower face-to-face interaction and a higher volume of transactions.
• 😀 Distribution channel design is an ongoing process that involves recognizing the need for change, considering market characteristics, and selecting the most efficient members for each channel.
• 😀 New product launches, market expansions, or competitive pressures may prompt the need to design or modify distribution channels to remain competitive and meet customer needs.
• 😀 The introduction of new distribution channels, such as online platforms, can disrupt existing markets, as seen in the music industry with the rise of MP3 distribution and its effect on traditional CD sales.

Q & A

What is channel design and why is it important for manufacturers?

Channel design refers to creating a framework, called the channel structure, that ensures channel members can perform their functions effectively. It's essential because manufacturers need to establish efficient distribution channels to meet rising competition and retailer demands, impacting product success.

Why did Nokogins change its sales channel and what was the result?

Nokogins initially failed in department stores due to high pricing and lack of consumer justification. After switching to an hourly store with a lower price, their product performed better. This demonstrates the importance of selecting the right distribution channel that aligns with product value and market needs.

What factors must manufacturers consider when designing distribution channels?

Manufacturers must determine the functions needed to deliver products to consumers, decide between direct or indirect channels, and choose whether to use one or multiple channels. They must also assess potential conflicts between channels and their ability to meet marketing objectives efficiently.

What is the difference between high touch and low touch distribution channels?

High touch channels involve face-to-face interactions, where the seller provides detailed product explanations, training, and negotiations, leading to higher transaction costs. Low touch channels have minimal interaction, making them more cost-efficient and suitable for standardized products.

How does a direct sales force differ from an agency in distribution channels?

A direct sales force consists of employees who sell directly to consumers with high interaction, providing expert advice and handling post-purchase services. An agency, however, deals with contracted manufacturers’ products and often represents a single company with specialized knowledge, resulting in higher transaction costs.

What are the advantages of retail and internet distribution channels?

Retail channels allow manufacturers to use an established distributor’s network, while internet channels offer a direct selling route with very low interaction and transaction costs, ideal for reaching a broad customer base with convenience.

What are the main considerations when choosing between online, catalog, and retail channels?

The main factors are the degree of face-to-face contact required and the cost per transaction. Online channels have low interaction and transaction costs, while catalog channels involve limited phone interaction. Retail channels may have more direct engagement, but they come with higher costs.

How can manufacturers benefit from using multiple distribution channels?

Multiple channels, such as combining online and catalog sales, can boost results by reaching different customer segments and increasing product availability. However, manufacturers must carefully manage conflicts between channels to prevent operational issues.

What are the five stages of the distribution channel design process?

The five stages are: 1) Recognizing the need for channel design, 2) Considering the influence of market characteristics and understanding customers, 3) Specifying factors affecting channel design, 4) Developing channel structures, and 5) Selecting the appropriate channel members.

Why did Coca-Cola redesign its distribution channels in China?

Coca-Cola redesigned its distribution channels in China due to inefficiencies in the existing system, compounded by the communist government’s involvement in retailing. The company adapted its strategy to ensure more effective distribution in a new market.