Valuation of the distribution Environment: While selecting the channel design, the firm should take into account the distribution environment obtaining in the country /territory. It should evaluate the vital features of the distribution environment and ensure that the proposed channel design is compatible with them. Distribution environment in the boarder sense includes the trade related legal environment as well. A mention about the legal environment relating marketing and trade matters has been made on the marketing Environment. The legal implications of channel design must be carefully examined before a final decision.
Evaluation of Competitor’s Channel designs:
The firm should also study the competitor’s channel patterns before deciding its channel design. While the firm may not necessarily follow the competitors in channel design, it should analyze the plus and minus of the channel patterns adopted by each of its major competitors. Quite a number of firms do settle down and follow the leaders policy in channel design they find it an easy route. But such an approach may deprive them of the chance to score an edge over competition through the channel strategy. Reliance Textiles and Asian Paints are two good examples of companies striking an entirely new path in channel design; both broke away from the existing practice and scored high success.
Matching the channel design to Company resources:
Choice of cannel is also governed by the resources available with the organization.
Firms with limited resources settle for conventional channels: Firms with limited resources and small volume of business will normally find it difficult and uneconomical to opt for own channels. For such firms, establishing branches / showrooms /depots /retail outlets of their own will result in a high unit cost of distribution, which they cannot afford, the are better off by depending on conventional channels. In fact, they are usually content with a small network of conventional intermediaries.
Firms with larger resources have more options: Firms with larger resources and larger marketing operations can go in varied distribution channel. In fact, in India, several businesses which are strong in resources, usually operate two parallel channels, one reaching out to the customer through company depots and showrooms, and the other through conventional intermediaries. The textile, is a good example of this phenomenon. Firms like Reliance Industries, Bombay Dyeing, DCM and Mafatlals have all gone in for such a two pronged channels design. In some cases, however, even large firms a distribution wherein they will not be required to pump in much of their resources. They are content with entrusting their distribution job to some distribution houses appointing them either as the sole selling agent or as marketers. Many manufacturers of pharmaceuticals machine tools, agricultural equipment, electric motors and household appliances have adopted this route.
Evaluating the Alternatives and selecting the best:
With the completion of the foregoing steps, the number of alternatives would have narrowed down considerably. The firm must evaluate these alternative designs and choose the best among them. Actually two distinct evaluations – an economic evaluation and a conceptual evaluation – may be necessary.
Economic evaluation launching cost, efficiency and risk:
Cost and efficiency are the two main parameters on economic evaluation. Often, tough to necessarily, the two are directly proportional. The firm has to rate the risk associated with the different alternatives. The firm’s choice is a compromise among the three parameters. The first step here is the determination of the sales volume that can be obtained trough each alternative design. Second, the cost of selling that volume through that alternative has to be assessed. In other words, the firm determines the unit cost of selling in each pf the alternatives. The firm chooses the one which is attractive from the cost vs efficiency angle and is also relatively less risky.
Conceptual evaluation Flexibility and controllability:
Conceptual evaluation is also equally important. It has to be used for assessing the flexibility and controllability of the alternative. It is possible that economic evaluation points to one particular alternative points to one particular alternatives as superior while conceptual evaluation gives it a low rating. For example, a marketer oriented channel design may show merit in terms of unit cost of selling, but may show severe imitations room the standpoints of controllability / flow of market feedback as well as requirements of long term market development. With conceptual evaluation, the firm can also check out whether the alternative is compatible with its business objectives.