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IF View - Issue No. 21

 

DESIGNING
A
TRULY
MARKET-DRIVEN
DISTRIBUTION
SYSTEM

Issue No 21

Marketing Channel Strategy Consultants
USA - EUROPE - AUSTRALIA - BRAZIL - HONG KONG
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In search of the optimal marketing channel strategy

Marketing channel strategy is rapidly emerging as a very powerful tool for companies searching to gain a decisive competitive edge.

More and more companies today realise that in order to devise optimal marketing channels, they first need to know what an ideal, totally customer driven system would look like, disregarding the fact that such models are usually not feasible and, for that reason, rarely see the light of day.

The ideal system, based on exacting customer research and unimpeded by external considerations and constraints, is intended purely as a yardstick by which a company’s marketing channel performance can be most accurately evaluated.  More importantly, it helps to measure the distance between ideal and present practices and/or obstacles to closing the gap.

The method most widely used to create this new scientific context in which top management can decide its company’s future marketing channel strategy, involves eight steps.

Step one – the customer’s wants

Preliminary research determines what customers really want from the buying process.  Their preferences generally fall into five categories, ie lot size, market decentralisation, waiting time, product variety and service backup.  These are then grouped into market segments.

Step two – label outlets

Focus here is on the relationship between market segments and the outlets where services are normally delivered.  Respondents are asked about the service outlets they visualise as ideally meeting their needs/wants.  Researchers then label these hypothetical outlets according to segments, but without limiting their possibilities.  The more researchers are creative with labeling, the better step two will work.

Financial supermarkets and discount brokerage wouldn’t exist if researchers were hamstrung by industry experience

Step three – the feasibility test

Having determined what customers perceive to be optimal shopping conditions, companies now must apply the first objective reality check.  This involves:

  • Assessing whether the previously determined segments are feasible for the company
  • Determining what kind of support will be needed, and available, from suppliers or other channel participants for any hypothetical outlet suggested by the data, and

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  • Projecting the cost of support and back-up systems.

Step four – how ideal is “ideal”

At this point the researchers have come as close as possible to discerning an ideal market-driven system.  Now they investigate how such a channel model would affect the company’s overall performance.

For this purpose researchers consult a cross section of the company’s executives as well as executives with a stake in distribution matters.  Inevitably, these groups will want to modify the ideal model to better suit their individual objectives and/or to take into account external issues impacting on the company’s scope with respect to distribution policy.

These considerations, many of which are based on industrial traditions, act as constraints on the ideal marketing channel strategy and thus are pivotal to further design stages.

IBM’s ideal system would have been a network of highly decentralised, service intensive specialty stores carrying an assortment of personal computer brands and models.

Step five – comparing the options

The step calls for a comparison between company’s existing market channel strategy and a) the ideal, truly market-driven distribution system, and b) the ideal model incorporating management’s constraints.

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One of three conclusions will emerge from these comparisons:

  • If all three systems resemble one another, the existing strategy is as good as it can get.  But if customer satisfaction is mediocre nevertheless, fault lies with implementation.
  • If the existing and “management’s” systems are similar, but substantially different from the ideal, management policies may indeed be causing the gap.
  • If all three vary greatly, it may be possible to improve marketing channel performance without relaxing management’s objectives and constraints.

Step six – reviewing all assumptions

Here all constraints are put under the microscope to see which are based on prejudice and assumptions and which are real and serious, and whether they can be overcome.  This process is ideally assisted by outside experts, including lawyers, political consultants and distribution experts from other industries.

Merrill Lynch would never have launched its highly successful cash management account program if it had not altered its assumptions about the future of federal banking laws. 

Step seven – confronting the gap

This is the climax of the process as top management is brought face-to-face with the gap between their preferred model and the ideal marketing channel strategy.

Armed with data gained from stage six, researchers challenge the validity of management’s objectives and constraints, thus promoting a fresh and energetic appraisal of all quantitative and subjective variable impacting on the choice of distribution system.

Step eight – implementation

This final step modifies the ideal marketing channel strategy according to management’s final objectives and constraints.  Implementation of this optimal model must be subject to intensive planning and any modifications to the existing system should be tested on a small scale before resources are committed.

Ideally none of the eight steps outlined here should be skipped for the sake of apparent expediency because, irrespective of the outcome, the clarity the process brings to companies’ distribution issues is absolutely invaluable.

Apple Computer would not likely have experimented with mail order channels had it followed its marketing channel strategy investigation to its conclusion.  

 

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