As noted previously, marketing channels are part of the overall customer value delivery network. Each channel member and level adds value for the customer. Thus, designing the marketing channel starts with finding out what target consumers want from the channel. Do consumers want to buy nearby, or are they willing to travel to more centralized locations? Would customers rather buy in person, by phone, or online? Do they value breadth of assortment, or do they prefer specialization? Do consumers want many add-on services (delivery, installation, repairs), or will they obtain these services elsewhere? The faster the delivery, the greater the assortment provided, and the more add-on services supplied, the greater the channel’s service level.

Providing the fastest delivery, the greatest assortment, and the most services, however, may not be possible, practical, or desired. The company and its channel members may not have the resources or skills needed to provide all the desired services. Also, higher levels of service result in higher costs for the channel and higher prices for consumers. The success of modern discount retailing shows that consumers often accept lower service levels in exchange for lower prices. For example, Walmart typically rates dead last in Consumer Reports rankings of grocery retailers on customer shopping experience and satisfaction compared to the likes of Wegmans, Publix, Kroger, Whole Foods, or about any other grocery retailer. Yet it captures a 25 percent share of the U.S. grocery market.12

Many companies, however, position themselves on higher service levels, and customers willingly pay the higher prices. For example, whereas Walmart typically rates last in Consumers Reports rankings of grocery retailer customer satisfaction, East Coast supermarket chain Wegmans consistently ranks first:13

Wegmans prides itself on its broad and deep selection, clean stores, very high service levels, and well-trained and friendly employees. “Best supermarket around, hands down,” says one customer in a Yelp review. “The knowledge and helpfulness of the workers is beyond amazing.” Says another, “Aside from the overwhelming options of everything on the planet to choose from, it’s an amazing place. I walk around thinking…ok, I’m impressed!” The result is avidly loyal customers. Actor Alec Baldwin’s mother reportedly refused to move from New York to Los Angeles because she didn’t want to abandon her favorite Wegmans store. So even though they could probably save money by shopping at Walmart, to devoted Wegmans shoppers, the higher quality and extraordinary service are well worth the somewhat-higher prices.

Thus, companies must balance consumer needs not only against the feasibility and costs of meeting these needs but also against customer price preferences.

Companies should state their marketing channel objectives in terms of targeted levels of customer service. Usually, a company can identify several segments wanting different levels of 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, its marketing intermediaries, its 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, for example, 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. For example, Maytag and other appliance makers want their products displayed alongside competing brands to facilitate comparison shopping. In other cases, companies may avoid the channels used by competitors. The Pampered Chef, for instance, sells high-quality kitchen tools directly to consumers through its corps of more than 60,000 consultants worldwide rather than going head-to-head with other kitchen tool makers for scarce positions in retail stores. And Stella & Dot sells quality jewelry through more than 30,000 independent reps—called stylists—who hold Tupperware-like in-home “trunk shows.”14 GEICO and USAA primarily market insurance and banking products to consumers via phone and internet channels rather than through agents.

Finally, environmental factors such as economic conditions and legal constraints may affect channel objectives and design. For example, in a depressed economy, producers will 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.

When the company has defined its channel objectives, it should next identify its major channel alternatives in terms of the types of intermediaries, the number of intermediaries, and the responsibilities of each channel member.

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 products 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. Kraft, Coca-Cola, Kimberly-Clark, and other consumer goods companies distribute their products in this way.

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 luxury brands. Breitling watches—positioned as “Instruments for Professionals” and selling at prices from $5,000 to more than $100,000—are sold by only a few authorized dealers in any given market area. For example, the brand sells through only one jeweler in Chicago and only six jewelers in the entire state of Illinois. Exclusive distribution enhances Breitling’s distinctive positioning and earns greater dealer support and customer service.

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 consumer electronics, furniture, and home appliance brands are distributed in this manner. For example, outdoor power equipment maker STIHL doesn’t sell its chain saws, blowers, hedge trimmers, and other products through mass merchandisers such as Lowe’s, Home Depot, or Sears. Instead, it sells through a select corps of independent hardware and lawn and garden dealers. By using selective distribution, STIHL can develop good working relationships with dealers and expect a better-than-average selling effort. Selective distribution also enhances the STIHL brand’s image and allows for higher markups resulting from greater value-added dealer service. “We count on our select dealers every day and so can you,” says one STIHL ad.

Suppose a company has identified several channel alternatives and wants to select the one that will best satisfy its long-run objectives. Each alternative should be evaluated against economic, control, and adaptability criteria.

Using economic criteria, a company compares the likely sales, costs, and profitability of different channel alternatives. What will be the investment ­required by each channel alternative, and what returns will result? The ­company must also consider control issues. Using intermediaries usually means giving them some control over the marketing of the product, and some intermediaries take more control than others. Other things being equal, the ­company prefers to keep as much control as possible. Finally, the company must apply adaptability criteria. Channels often involve long-term commitments, yet the company wants to keep the channel flexible so that it can adapt to environmental changes. Thus, to be considered, a channel involving long-term commitments should be greatly superior on economic and control grounds.

International marketers face many additional complexities in designing their channels. Each country has its own unique distribution system that has evolved over time and changes very slowly. These channel systems can vary widely from country to country. Thus, global marketers must usually adapt their channel strategies to the existing structures within each country.

In some markets, the distribution system is complex, competitive, and hard to penetrate. For example, many Western companies find India’s distribution system difficult to navigate. Large discount, department store, and supermarket retailers still account for only a small portion of the huge Indian market. Instead, most shopping is done in small neighborhood stores called kirana shops, run by their owners and popular because they offer personal service and credit. In addition, large Western retailers have difficulty dealing with India’s complex government regulations and poor infrastructure.

Distribution systems in developing countries may be scattered, inefficient, or altogether lacking. For example, China’s rural markets are highly decentralized, made of many distinct submarkets, each with its own subculture. And, because of inadequate distribution systems, most companies can profitably access only a small portion of China’s massive population located in affluent cities. China’s distribution system is so fragmented that logistics costs to wrap, bundle, load, unload, sort, reload, and transport goods amount to 16 percent of the nation’s GDP, far higher than in most other countries. (In comparison, U.S. logistics costs account for about 8.3 percent of the nation’s GDP.) After years of effort, even Walmart executives admit that they have been unable to assemble an efficient supply chain in China.15

Sometimes local conditions can greatly influence how a company distributes products in global markets. For example, in low-income neighborhoods in Brazil where consumers have limited access to supermarkets, Nestlé supplements its distribution with thousands of self-employed salespeople who sell Nestlé products from refrigerated carts door to door. And in big cities in Asia and Africa, where crowded streets and high real estate costs make drive-thrus impractical, fast-food restaurants such as McDonald’s and KFC offer delivery. Legions of motorbike delivery drivers in colorful uniforms dispense Big Macs and buckets of chicken to customers who call in. More than 30 percent of McDonald’s total sales in Egypt and 12 percent of its Singapore sales come from delivery. Similarly, for KFC, delivery accounts for nearly half of all sales in Kuwait and a third of sales in Egypt.16

Thus, international marketers face a wide range of channel alternatives. Designing efficient and effective channel systems between and within various country markets poses a difficult challenge. We discuss international distribution decisions further in Chapter 15.