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Step 1: Segmentation, targeting, differentiation and positioning decision.

Step 2: Product assortment and service decision

- (2. 1) The Retailer's Product Assortment
"The retailer's product assortment should differentiate the retailer while matching target shoppers' expectations." The author point out three strategies for retailers to differentiate their product assortment.

- (2.2) The Services Mix"The services mix can also help set one retailer apart from another. For example, some retailers invite customers to ask questions or consult service representatives in person or via phone or keyboard.  Nordstrom promises to 'take care of the customer, no matter what it takes.' Home Depot offers a diverse mix of services to do-it-yourselfers, from "how-to" classes and "do-itherself" and kid workshops to a proprietary credit card." (Kotler & Armstrong, 2012: p384

- (2.3) The Store's Atmospher"The store's atmosphere (as part of good service environment) is another important element in the reseller's product arsenal. Retailers want to create a unique store experience, one that suits the target market and moves customers to buy. Many retailers practice 'experiencing retailing.' For example, at several REI stores, consumers can get hands-on experience with merchandise before buying it via the store's mountain bike test trail, gear-testing stations, a huge rock climbing wall, or an in-store simulated rain shower. Similarly, outdoor goods retailer Cabela's stores are as much natural history museums for outdoor enthusiasts as they are retail outlets."(Kotler & Armstrong, 2012: p384)

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A) Analysing Consumer Needs. We really need to know what do customers want, what do customers expect out of the channel?
For example, what are additional things that consumers/customer might purchase from TESCO?

B) Setting Channel Objectives has a strong impact upon our speed in product delivery (e.g. Optimum Stock Turnover Rates), care about the existing and prospective customer (e.g. Exceed optimum customer care levels) and cost measurement. These are three factors that need to be strongly considered by line management. We obviouly want our supply chain management best practices to be our competitive advantage and not a debatable issue.

C) Identifying major alternatives regarding the types and numbers of intermediaries and hence their responsibilities.

D) Evaluation of alternative channeling decisions on the ground that the conusmer has the product available when required at the right price involving the right blend-set of Stock Keeping Units (SKU's).

E) Adaptation of the channeling selection involves economic and control parameters. In many cases it is not what we desire in marketing but what we can afford and how can we eventually control performance effectivenes.

Reference: http://actingmarketing.blogspot.com/2012/03/channel-design-decisions.html

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- Direct channels : situation in which the producer sells a product directly to a consumer without the help of intermediaries, example by using direct marketing.

(Picture A is Direct Channels)

- Indirect channels : typically involves a product passing through additional steps as it moves from the manufacturing business via distributors to wholesalers and then retail stores.

(Picture B, C, D are Indirect Channels)

: In indirect channel, there are one or more middlemen.

: 1) producer - retailers - consumers

: 2) producer - wholesalers - retailers - consumers

: 3) producer - agents - wholesalers - retailers - consumers

- Vertical Markets : Composed of a vendor who supplies a product or service to a customer who exists within the same industry

Example - Vertical market would be wholesalers of car parts who sells their products to automobile manufacturers.

- Horizontal Market : Sell their products or services to customers in a number of different industries.

Example - Tyres can be sold direct to automobile manufacturers and they can also sell to retailers who will sell those tyres to the public.

- Channel behaviour : A marketing channel is a set of independent organizations that help make a product or services available for use of the consumers.

Example -  A Ford dealer depends on Ford to design cars that meet consumer needs. In turn, Ford depends on the dealer to attract consumers, persuade them to buy Ford cars, and service cars after the sale. The Ford dealer also depends on other dealers to provide good sales and service that will uphold the brand's reputation. In fact, the success of individual Ford dealers depends on how well the entire Ford marketing channel competes with the channels of other auto manufacturers.