Choosing Best Channel Structure

Optimal channel structure is best way to

gain long term profits from distribution
There is no exact method to choose the
optimal channel structure.
Channel manager can follow certain
approaches for making good choices of
channel.
Approaches For Channel Structure
Selection

1. Aspinwalls characteristics of Good

and Parallel systems approach
2. Financial Approach
3. Transaction Cost Analysis Approach
 Aspinwalls characteristics of Good
and Parallel systems approach
This approach places emphasis on choosing the channel structure
on product variables.
Variables/Characteristics of products
1. Replacement rate
2. Gross margin
3. Adjustment
4. Time of consumption
5. Searching time
Aspinwall actually have categorized the goods into three colors
Red, Orange, Yellow according to above characteristics.
 Financial Approach
Financial approach is started by Lambert 1960

According to him choosing appropriate channel

structure is analogous to an investment decision of
captial budgeting.
- Channel should always be long term
investment and it should cover cost of capital and with
better returns on investment.
 Transaction Cost Analysis Approach

Transaction cost analysis is based on the work of

williamson.
This approach focus on choosing channel structure
based on manufacturer performing all of the distribution
tasks through vertical integration versus independent
intermediaries to perform distribution tasks.
It focus on transaction costs like gathering information,
negotiating, monitoring performance and others.
This approach has many limitations.