Cost factors
Category: Marketing
Channel design options will have varying cost implications and so some analysis will be necessary. Estimates will be required for the cost imposed by each alternative. This might proceed by estimating the costs in a given channel for various sales volumes. In a direct channel this could relate to the number of sales representatives needed for several levels of sales volume. With indirect channels the middlemen costs would have to be estimated. The firm would assess the costs implied by discounts allowed any special incentives to be given and any allowances made for equipment or sales promotion. The analysis in a single channel, single market segment network would be fairly straightforward assuming the treatment of items such as inventory charges pose no problem.
However multiple channel multiple market segments networks can induce complex analyses and would probably be dependent upon a host of Judgements. These would include the likelihood of ‘cannibalisation’ between channels in a three channel system the analysis of the costs imposed by any two rests on assumptions about the market coverage of those two and how much of the third channel’s coverage they would take.
In assessing channel acceptability it may also be necessary to include a number of additional factors, many derived from consideration of the factors considered earlier. They could be combined into a listing of criteria and subjective evaluations made about the actual or likely performance of alternative channels. This might be with each criterion being given a differential weight to reflect its importance to the firm at that time. Or, as discussed in new product, screening some kind of series of hurdles may be operated where each channel alternative is assessed against one criterion and those that pass move on to be assessed against a further criterion and so it continues until all criteria have been employed.