8-1
` Chapter 8
TARGET MARKETS AND CHANNEL DESIGN
STRATEGY
Teaching Notes
The focus of this chapter is an understanding of who buys products and how the “who”
affects channel strategy. The chapter leans heavily on consumer buying behavior that
students new to marketing may not be fully familiar with. As a result, perhaps a brief
explanation of consumer buying behavior literature is appropriate before discussing this
chapter.
Chapter Objectives
Market considerations are a key determinant of channel structure because marketing
channels must reflect the needs and wants of the customer – customer centric.
Learning objectives
1) Appreciate the importance of market variables as the most fundamental and
significant variables to consider for channel design strategy.
2) Be familiar with the framework for market analysis and its four basic dimensions.
Target Markets and Channel Design Strategy
8-2
Chapter Topics
1) A Framework for Market Analysis
Chapter Outline
A Framework for Market Analysis
Markets, whether consumer or industrial, are complex. Frameworks consisting of four
basic dimensions for discussing markets are:
1. Market geography
The emphasis will be on showing how these market dimensions influence channel design
strategy.
Market Geography and Channel Design Strategy
Key Term and Definition
▪ Market geography: Refers to the geographical extent of markets and where they are
located.
Marketing Channels 8e
8-3
Market Size and Channel Design Strategy
Key Term and Definition
▪ Market size: Refers to the number of buyers or potential buyers (consumer or
industrial) in a given market.
Market Density and Channel Design Strategy
Key Terms and Definitions
▪ Market density: Refers to the number of buyers or potential buyers per unit of
geographical area.
Target Markets and Channel Design Strategy
8-4
Market Behavior and Channel Design Strategy
The fourth dimension, market behavior, consists of four subdimensions: (1) when the
market buys, (2) where the market buys, (3) how the market buys, and (4) who buys.
A) When Consumers Buy
Neither consumer nor industrial markets buy products on a precisely predictable time
schedule that remains constant per time period. Weekly and daily variations in buyer
behavior are common at the retail level and vary across different trade areas throughout
the country.
Two important implications for the channel manager are related to this subdimension:
a. First, seasonal variations tend to create peaks and valleys in the manufacturer’s
B) Where Consumers Buy
The types of outlets from which final buyers choose to make their purchases and the
location of those outlets determine where the market buys.
Marketing Channels 8e
C) How Consumers Buy
Customer preferences reflected in purchase behavior indicate how the market buys.
Table 8.3 shows contrasting behaviors related to how customers buy at the consumer
level. Each of the eight behaviors in the table can vary across different market segments
and over time for any given product category.
D) Who Buys
The subdimension of who does the buying has two aspects: (a) who makes the physical
purchase, and (b) who takes part in the buying decisions.
1) Who Makes the Purchases
From a channel design standpoint, who actually buys the product can affect the type of
retailers to choose in the consumer market, and may also influence the kinds of channel
members to use to serve the industrial market.
Target Markets and Channel Design Strategy
8-6
2) Who Participates in the Buying Decision
The more difficult aspect to analyze than who actually makes the physical purchase is
who decides to make the purchase in the first place.
1. Users–those who will use the product and service.
Two heuristics exist to provide the channel manager some insight for analyzing the
relationship of channel structure to the ability to reach the influential parties of buying
decisions:
a. As the channel becomes longer, the degree of control exercised by the
manufacturer is lessened.
Answers to Review Questions
1. The market variables are the most basic and important variables in channel design
because, quite simply, the needs and wants of the target market should drive channel
design. The target market is the final adjudicator of the channel design.
Marketing Channels 8e
8-7
3. The market variables are a four-dimensional construct for analyzing markets. The
four basic dimensions are:
▪ Market Geography: defines the market in terms of its geographic boundaries, its
location and its distance.
4. The channel manager needs to be aware of and sensitive to changes in market
5. Some of the basic questions that should be raised by an increasing market size are: (1)
the effect of larger markets on the average cost of serving buyers, (2) possible
6. Highly dense markets are said to be in efficient congestion because the large number
of buyers per unit of geography facilitates the performance of such distribution tasks
7. Market Behavior consists of four sub-dimensions:
Target Markets and Channel Design Strategy
8-8
▪ When the Market Buys: seasonal, weekly and daily variations in the time of
purchase. In some cases, particularly prepared food retailing, variations are
8. Both consumer and industrial buyers elect their purchase outlets (both type and
location) based on complex motivations. The recent success of new forms of store
and non-store retailing evidence that the buyer’s election can be highly variable
across time and situations. It is not even understood whether changes in this election
9. This question is best handled as an outside assignment. Students need not do
10. To market its product effectively, the manufacturer must see that all parties with
Marketing Channels 8e
8-9
It is the channel manager’s responsibility to ensure that the channel structure is
facilitating, not inhibiting, the manufacturer’s attempt to reach the influencers. This is
Commentaries on Issues for Discussion
1. The purpose here is to emphasize that the design of marketing channels and the
resultant channel structures should be market driven. That is, the channels should
2. It is vital that channel members be in tune with the changing patterns consumer
behavior relating to “when” people buy. From the case’s description of consumer
behavior, it would appear that consumers are becoming more focused on price and
immediacy of service as criteria for choosing their media service provider. In recent
3. Today a growing list of products are distributed by vending machines. Once restricted
Target Markets and Channel Design Strategy
4. Buyers in an airport may be the ultimate in a transient market. Nonetheless, they
represent a growing and increasingly international market that has time to shop during
long layovers. This can be translated into market variables as:
▪ Market Geography: clearly defined and compact
5. No. Goya Foods position is based upon an understanding of the market behavior of
its channel members and of consumer behavior that favors their positioning with the
“stand alone” or “store within a store” concept.
Marketing Channels 8e
8-11
6. We know that the types of outlets from which customers choose to make their
purchases and the location of those outlets is an important driver of channel design
strategy. Research on where consumers buy is often based on the assumption that
they will behave so as to maximize their convenience in the selection of retail outlets.
That is, the consumer is seen as engaged in balancing the desirability of near and
7. Avijit Mohan may not be fair with his criticism considering the types of stores he is
attempting to sell his product through. Department stores are not likely to be good
outlets for these types of specialty products that require knowledgeable personal