Title

The Development Of A Marketing Channel Selection Process Model And Its Demonstration In An Industrial Chemicals Business And In An Electronic Components Business

Date of Award

1981

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Marketing

Advisor(s)

George Fisk

Keywords

Marketing

Subject Categories

Marketing

Abstract

From the academic perspective, marketing channel selection involves the choice of institutions that will comprise a system involved with the task of moving things of value from points of production to points of consumption. To the industrial manager, this process is one of determining whether a product should be sold direct, through distributors, or through a combination of both methods to end users. Therefore, this research was initiated with the objective of developing and demonstrating a method of marketing channel selection that is theoretically sound as well as managerially useful.

Analytically, this research consists of three steps: (1) development, (2) demonstration, and (3) revision of a marketing channel selection process model. The model-building portion consists of a survey of the academic literature and interviews with thirty industrial managers. The literature furnished a list of five concepts that "ought to be considered" in channel selection--assortments, functions, transactions, flows, and relationships. The managerial interviews pointed out practical concerns of channel management and revealed several channel selection techniques. Insights from the literature and managers were combined into a channel selection process model.

The channel selection model includes seven steps: statement of objectives, market analysis, environmental analysis, identification of feasible alternatives, functional analysis, financial analysis and channel selection. Twenty categories of information must be gathered to activate the model. The most important are: number and geographic distribution of users, users' typical order size and frequency, the assortment needs of users, the types of intermediaries available, situational supplier preference of users, external opportunities or constraints in the marketplace, the nonproduction functions provided by the channel, the value of distributor services to end users, and basic financial information. The channel selection decision is based on a discounted cash flow analysis of alternative channels.

The model was demonstrated in two industrial businesses--Product A, an industrial chemical, and Product B, an electronic component. Research activities entailed; estimation of product sales potential by user standard industrial codes; personal interviews with Product A and B managers; personal interviews with five distributors and five purchasing agents of both products; a telephone survey of 300 purchasing agents of Product A and Product B users; and the collection of financial data.

The implementation of the model yielded the recommendation that both Product A and Product B sold direct to large volume users and through distributors to small volume users.

The principal findings derived from the demonstration of the model are: there are five channel businesses; industrial markets can be segmented by order size and user supplier preference; the value of distributor services to users is related to their typical order size; a fear of materials shortages pervades both industries; the traditional discount system of pricing is distintegrating; key differences between industries can be traced to the relationship between working capital and fixed assets; there are distinct environmental constraints in each industry; power and risk influence channel member behavior; and strategic planning is the key to channel selection.

Revisions in the model included: a clarification of strategic planning activities, greater emphasis on the evaluation of transactions, and an assessment of risk and power.

Future channel research should explore: the development of productivity and performance measures, the relationship between order size and service value, and an analysis of differences in industrial distributors.

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