[MUSIC] Welcome back, today we're going to learn to design a distribution channel, where we'll find out what important aspects we need to take into account. In designing marketing channels manufacturers struggle between what is ideal on one side and what is practical. A marketing channel design calls for four aspects, analyzing customer needs, setting channel objectives, identifying major channel alternatives, and finally evaluating those alternatives. We need to start by analyzing customer needs and wants. We need to find out what the target customer wants from the channel, providing the fastest delivery, the greatest assortment, and the more services may not be possible and practical. Second aspect is to establish the channel objectives and constraints. A company states objectives in terms of the target level of customer service. And also it has to decide which segments to serve and the best channels to use in each case. The channel objectives are also influenced by several factors like the nature of the company, its product, the market and intermediaries, and competitors. We have the example of Mary Kay use direct channel, and Estee Lauder, for example, the department stores. Apple sells through stores and Dell through Internet. But we have to also consider that the environmental factors such as the economic condition and legal constraints may also affect the channel objectives and its designed. During the crisis, the main objective has been to distribute the most economical way. The third aspect in designing channels is to identify major channel alternatives. When the company has defined its channel objectives, it should next identify what are these alternatives in terms of the type, the number of intermediaries, and its responsibilities. Type of intermediaries, these are the type of channel members available to carry out the channel work. Using many types of resellers in a channel provides both benefits, because you can reach more different buyers, but also drawbacks because it's difficult to manage and control. And they may compete, and conflict may arise. This would be a long channel. We have the case of Dell that it decided to use a short channel, meaning selling through Internet. Talking about channel alternatives, we have to consider not only the type of intermediaries, also the number of intermediaries, what number of channel members to use in each level. There are three strategies available. We have intensive distribution, that the stock is available in many outlets. That would be typical for convenience products, and the company could be 7/11. We have also exclusive distribution. Usually you lmiit the number of intermediaries handling your product. Also typically in the luxury products like Hermes, Rolex, or Rolls-Royce. And we have a third type that would be in the middle, that is the selective distribution, where you have more than one intermediary, but fewer than all that would be willing to carry your product. And in here we can highlight, for example, the distribution of TVs, furniture, or home appliances. And a third factor within the channels is that we have to consider not only the number and the types but also the responsibilities of each of the channel members. Producers and intermediaries need to agree on the terms and responsibilities of each channel member. And we need to agree in aspects like, for example, the price policing, the condition of sales, the territory rights, and also in the specific service that is going to be performed. And the four aspect that we have to in the designing of the channel, just to finalize is that we need to evaluate these major alternatives. Each alternative should be evaluated against economic, control, and adaptability criterias. In economic criterias, we compare ratios, such as what's going to be expected sales, the costs, the profitability. In the control criteria, it helps us to decide if we are going to give more or less control to the intermediaries. We also have the adaptability ones, and channels often involve a long-term commitment. However, the company wants to keep the channel flexibility to adapt to the environmental changes. So if we choose a long-term commitment channel, it might show that it is going to have a clear superiority in the economic and control terms. So now that we know which steps to follow to design a distribution channel, in the next class we will learn how to manage them [MUSIC]
