Evaluating the Major Alternatives

Once the company has identified its major channel alternatives, it must evaluate each alternative against appropriate economic, control, and adaptive criteria.

^ Economic criteria. Each channel alternative will produce a different level of sales and costs, so producers must estimate the fixed and variable costs of selling different volumes through each channel. For example, in comparing a company sales force to a manufacturer's sales agency, the producer would estimate the variable cost of commissions paid to representatives and the fixed cost of rent payments for a sales office. By comparing its costs at different sales levels, the company can determine which alternative appears to be the most profitable.

^ Control criteria.. Producers must consider how much channel control they require, since they will have less control over members they do not own, such as outside sales agencies. In seeking to maximize profits, outside agents may concentrate on customers who buy the most, but not necessarily of the producer's goods. Furthermore, agents might not master the details of every product they carry.

^ Adaptive criteria. To develop a channel, the members must make some mutual commitments for a specified period of time. Yet these commitments invariably lead to a decrease in the producer's ability to respond to a changing marketplace. In a volatile or uncertain environment, smart producers seek out channel structures and policies that provide high adaptability.

CHANNEL-MANAGEMENT DECISIONS

After a company has chosen a channel alternative, it must select, train, motivate, and evaluate the individual intermediaries. Then, because neither the marketing environment nor the product life cycle remains static, the company must be ready to modify these channel arrangements over time.

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