To evaluate the channel alternatives using the 3 criterias, first the company should identify its major channel alternatives in terms of types of intermediaries, number of marketing intermediaries and lastly the responsibility of each channel member.
First are the types of intermediaries. A company should identify the types of channel members available to carry out its channel work. There are 5 sorts of channel intermediaries; wholesalers, distributors, agents, retailers and the internet intermediaries. Wholesalers break down “bulk” into smaller packages for resale by a retailer. They purchase goods from producers and resell to retailers and takes the ownership or title for the good whereas the agents do not. Wholesalers also often reduce physical contact cost between the producer and the consumer. For example; customer service cost and the sales force cost. An example; wholesalers buy in bulk rice from rice plantations, then break the rice into smaller amounts to sell to distributors.
Distributors are like wholesalers who carry non- competing goods or lines. They also break down bulk but along with that they offer value added service to the product such like break- bulk delivery such as credit term and maintained contract. For example; Distributors can then break up the rice bags into smaller bags and then sell them to retailers like Giant, NTUC and Sheng Siong.
Next, Agents are primarily used in the international market. They secure an order and will take up a commission however, unlike the wholesalers they do not take the title of the goods. Moreover, agents can be very expensive to train as they are difficult to keep control of due to the physical distances involves thus, they are laborious to motivate. For example, a rice plantation in japan may look for their local agents who have international contacts to try to look for wholesalers or distributors in other countries.
Furthermore, retailers, are people who have a stronger personal relationship with the consumer. The retailers will hold several other brands. A customer will expect to be exposed to many products. The retailers are entitled to promote and advertise in the products and services on their own and also give the final selling price of the product to the consumers. For example; Retailers often have a strong “brand” themselves. E.g. Wall-Mart in USA, NTUC in Singapore.
Lastly, a new entity that is not usually found in traditional channels – Internet Intermediaries. Since the internet has a geographical circulating market, the main benefit of the internet is that niche products reach a wider audience. Internet may be used as a direct channel of distribution using own website) or indirect such as niche website Amazone.com etc. Thus, using the internet intermediaries, people can use e-commerce technology for payment etc.
Next, to determine the number of channels members to use at each level. There are 3 strategies that are available: intensive distribution, exclusive distribution and selective distribution. Intensive distribution is a strategy in which they stock their products in many outlets. Therefore, according to the example, I have given above. The rice producers may sell their products in many outlets such as NTUC outlets in woodlands, Jurong, Bishan etc. In contradiction, these producers may purposely limit the number of intermediaries handling their products. This is called the extensive distribution, in which the producers give a dealer right to the right to distribute their products However, exclusive distribution only applies to prestigious women clothing or luxury automobiles. Lastly, the selective distribution is the use of more than one, but fewer than all, of the intermediaries who are willing to carry a company’s product.
The final major alternatives that needs to be identifies before moving to the next step will be the responsibilities of the channel members. This is whereby the producers and the intermediaries need to agree on the terms, conditions and responsibility of each channel members. They should agree on the price policies, conditions of sales and territorial right to be performed by each party. For example, the price policies (a price policy that to be set and cannot be negotiated by customers/ consumers), conditions of sales, territorial rights and etc.
Therefore, once a company has identified alternatives and wants to select the one that will best satisfy its long-term objectives. A business should first evaluate each of these alternatives against the 3 criteria, such as Economic, Control and Adaptive.
Economic criteria compare the likely sales, cost and profitability of the other types of alternatives. Under these criteria, the company should assess the level of investment needed, channel efficiency in reaching customers, logistic efficiency etc.
Control criteria is about Ability to control marketing activities, service levels and access end consumers. Using intermediaries usually means giving them some control over marketing of the product and some intermediaries take more control than others Upon this criteria a company should assess the level of control over marketing activities, control over service levels, access to end consumers etc. For example, when an enterprise seems like sales are dropping and to revive the sales, they might want to do promotional activities like bulk purchase.
Lastly, the adaptive criteria is about having ability to keep channel flexible so that it can adapt to environmental changes. For example, Uniqlo a clothing brand, clearing their winter collection when summer is approaching.