To design a “Zero Based Channel” what actions do you need to take as a channel d

Question

To design a “Zero Based Channel” what actions do you need to take as a channel designer? (While answering this question consider and elaborate upon the interconnections that the following concepts will have on your design steps: Segmentation of your customer market and the criteria for segmentation. What impact it has on the positioning of the channel The choice of the Channel Structure Channel membership and their identity Exploring the idea of multiple channels Concerns about channel intensity Addressing Gaps that develop over time due to changes in the Environmental Bounds and Managerial Bounds

Explanation / Answer

The channel structure decisions of type, identity, and intensity of channel members should all be made with the minimisation of channel flow costs in mind. That is, each channel member is allocated a set of channel flows to perform, and ideally the allocation of activities results in the reliable performance of all channel flows at minimum total cost.

The exercise results in one channel profile for each segment that is identified in the market segmentation stage of the exercise. Each of these channel profiles is called a zero- based channel, because it is designed from a zero base of operations, that is, as if there were no pre-existing channel in the market. The concept of a zero-based channel means that the segment’s service output demands are met and that they are met at minimum total channel cost.

The channel manager has identified the optimal way to reach each targeted segment in the market, as well as the bounds that might prevent the channel from implementing the zero-based channel design in the market. If no channel exists currently in the market for the segment, the channel manager should now establish the channel design that comes closest to meeting the target market’s demands for service outputs, subject to the environmental and managerial bounds constraining the design.

If there is a pre-existing channel in place in the market, however, the channel manager has to perform a gap analysis. The differences between the zero-based and actual channels on the demand and supply sides constitute gaps in the channel design.

On the demand side, gaps mean that at least one of the service output demands is not being appropriately met by the channel. The service output in question may be either under supplied or over supplied. The target segment is likely to be dissatisfied because end-users would prefer more service than they are getting.

Implementation of Channel Design

Assuming that a good channel design is in place in the market, the channel members must now implement the optimal channel design.

Incomplete incentives among channel members would not be a problem if they were not dependent upon each other. However, by the very nature of the distribution channel structure and design, specific channel members are likely to specialize in particular activities and flows in the channel. If all channel members do not perform appropriately, the entire channel effort suffers. For example, even if everything else is in place, a poorly performing transportation system that results in late deliveries of the product to retail stores prevents the channel from succeeding in selling the product. The same type of statement could be made about the performance of any channel member doing any of the flows in the channel. Thus, it is apparent that inducing all of the channel members to implement the channel design appropriately is critical for the success of any channel design.

It is not possible for a company to have a common channel for all its products and markets. The company has to ensure that the product reaches the right segment at the right time and the right place, and also reflects the product’s positioning. Quite often, companies have to have different channels to reach the different segments

CHANNEL DESIGN TARGET

The channel manager is equipped to decide what segments to target. Knowing what segments to ignore in one’s channel design and management efforts is very important, because it keeps the channel focused on the key segments from which it plans to reap profitable sales.

The channel manager has to look at the internal and external environment facing the channel. For example, the top management of a manufacturing firm may be unwilling to allocate funds to build a series of regional warehouses that would be necessary to provide spatial convenience in a particular market situation. Many countries restrict the opening of large mass-merchandise stores in urban areas, to protect small shopkeepers whose sales would be threatened by larger retailers. Such legal restrictions can lead to a channel design that does not appropriately meet the target segment’s service output demands, and may cause a channel manager to avoid targeting that segment entirely.

When superior competitive offerings do not exist to serve a particular segment’s demands for service outputs, the channel manager may recognize an unexplored market opportunity and create a new channel to serve that under-served segment. Meeting previously unmet service output demands can be a powerful competitive strategy for building loyal and profitable consumer bases in a marketplace

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