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The Channel Design Decision: A Model and an Application

Author

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  • V. Kasturi Rangan

    (Harvard University)

Abstract

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.

Suggested Citation

  • V. Kasturi Rangan, 1987. "The Channel Design Decision: A Model and an Application," Marketing Science, INFORMS, vol. 6(2), pages 156-174.
  • Handle: RePEc:inm:ormksc:v:6:y:1987:i:2:p:156-174
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    File URL: http://dx.doi.org/10.1287/mksc.6.2.156
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    Citations

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    Cited by:

    1. Gangshu (George) Cai & Yue Dai & Sean X. Zhou, 2012. "Exclusive Channels and Revenue Sharing in a Complementary Goods Market," Marketing Science, INFORMS, vol. 31(1), pages 172-187, January.
    2. Rodríguez, Betzabé & Aydın, Göker, 2015. "Pricing and assortment decisions for a manufacturer selling through dual channels," European Journal of Operational Research, Elsevier, vol. 242(3), pages 901-909.
    3. Cai, Gangshu (George) & Zhang, Zhe George & Zhang, Michael, 2009. "Game theoretical perspectives on dual-channel supply chain competition with price discounts and pricing schemes," International Journal of Production Economics, Elsevier, vol. 117(1), pages 80-96, January.
    4. repec:eee:jouret:v:91:y:2015:i:4:p:569-585 is not listed on IDEAS
    5. Jaffe, Eugene Donald & Yi, Ling, 2007. "What are the drivers of channel length? Distribution reform in The People's Republic of China," International Business Review, Elsevier, vol. 16(4), pages 474-493, August.
    6. repec:pal:jorsoc:v:56:y:2005:i:1:d:10.1057_palgrave.jors.2601804 is not listed on IDEAS

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