Steps involved in designing a channel system:
Formulating the channel objective: Formulating the channel objectives is the first step in designing a channel system. The objectives clarify what is sought to be achievd by having the channels. All firms seek to realize certain common objectives by having the channel. In addition, they may also have some specific objectives depending on their unique circumstances. The common objectives firms seek from the channels are:
1. Effective coverage of the target market.
2. Efficient and cost effective distribution.
3. Ensuring that consumers incur minimum exertion in procuring the product.
4. Helping the firm to carry on manufacturing uninterrupted, confident that the channel will take care of sales.
5. Partnering the firm is financing and sub - division tasks.
Identify channel functions: identification of the function to be performed by the channel in the next step in the designing of a channel system. We have already discussed the channel functions in detail. Suffice to add here that channel design depends on the functions expected of the channel and that channel functions must be identified in the specific context of th firm in order to get practical direction in the designing the channel system.
Linking channel design to product characteristics: different products require different channel system. The firm should analyze the characteristics of the product characteristics and choose the channel system that matches the product best. Consumer and industrial goods, for example, need different channels. And within the category of consumer goods, different sub - categories such as convenience goods, shopping goods and specially goods may be need different channel systems.
Evaluation of the distribution environment: while selecting the channel design, the firm should also take into account the distribution environment obtaining in the country or territory. It should evaluate the vital features of the distribution environment and ensure that the proposed channel design is compatible within the term. Distribution environment in the boroader sense includes the trade related legal environment as well. The legal implications of the channel design must be carefully examind before taking a final decision.
Evaluation of the 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 the channel design, it should analyze the plus and minus of the channel patterns adopted by each of its major design. Quite a number of firm sdo settle down for a "follow the leader" policy in the channel design. They find it an east route. But such an approach may deprive them on the change to scope an edge over competition through the channel strategy. Reliance tetiles and Asian paints are two good examples of companies' strking an entirely new path in the channel design both broke away from the existing practise and scored high success.
Matching the channel design to company resources: the resources available with the organization also govern choice of the channel.
1. Firm with the limited resources settle for conventional channels: firms with the limited resources and small volume of business will normally find it difficult and uneconomical to opt for own channels. For such firms, estimating branch showrooms or depots or retail outlets of their own will result in a high unit cost of the distribution, which they cannot afford. They are better of by depending on conventional channels.
2. Firms with the large resource have more options: firm with larger resources and larger marketing operations can go in for varied distribution channels. In fact, in India, in several businesses, firms, which are strong in the resources, usually operate two two parallel channels, one reaching out to the customer through the company depots and showrooms, and the other through conventional intermediaries. Firms like Reliance industries, Bombay dyeing, DCM and Mafatlas, have all gone in all for a two pronged channel design.
3. Evaluating the alternatives and selecting the best: with the competition of the foregoing steps, the number of alternatives would have narrowed down considerbley. The firm must evaluate these alternative designs and choose the best among them. Actually, two distinct evaluations - an economic evaluation and a conceptual evaluatuion - may be necessary.