The Channel Design Decision: A Model and an Application

This paper proposes a channel design model based on the notion that distribution functions are the basic determinants of channel structure. The purpose of the model is to assist manufacturers in making effective channel decisions. The model evaluates what distribution structure the firm should adopt, how many intermediaries it should use, and what levels of service it should offer its customers. The proposed model-based decision approach is illustrated with an industrial marketing application. First, parameters were established for the model, using a combination of field data and managerial judgment. Next, the model was used to optimize profits over several channel alternatives. The profit-maximizing alternative determined the optimal channel structure, distribution intensity, and channel service. The implications of the model results for the manufacturer are discussed.