Chapter Overview

The importance of good distribution decisions in designing a marketing plan is simple: Customers won’t buy your good or service unless it is conveniently available when and where they want to buy it.
Distribution channel decisions have a major economic impact because distribution costs, many of which do not even appear to the firm’s income statement, often exceed the costs of producing a good or service.
Channel design involves decisions about the appropriate types and numbers of middlemen to include in the distribution channel in order to link the marketing strategy for the good or service to the needs of the target customers.
Distribution channels can be designed to accomplish a number of objectives, including maximizing the product’s availability, satisfying customer service requirements, encouraging promotional effort, obtaining timely market information, minimizing distribution costs, and maintaining flexibility. However, each design alternative is better for achieving some objectives than others, and there are trade-offs across objectives; increasing availability and customer service, for example, tends to increase distribution costs. Therefore, good channel design decisions require compromise and careful judgment.
A manufacturer or service provider can attempt to gain the support and direct the efforts of its channel partners through vertical integration, by legal contracts (e.g., franchise agreements), by providing economic incentives, and/or by developing mutually beneficial relationships based on trust and the expectation of future benefits. Given the large investments required for vertical integration and the difficulty of writing enforceable contracts when market conditions are changing rapidly, the development of effective incentives and long-term relationships with channel members is increasingly vital to the market success of most firms.

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