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COST ANALYSIS OF DISTRIBUTION CHANNELS: AN EMPIRICAL DETERMINATION OF THE OPTIMAL CHANNEL STRATEGY
Abstract
The area of channel selection and evaluation is perceived as being an increasingly important component of any firm's marketing strategy. Despite this, empirical research has been limited primarily to surveys of existing practices. Although models have been developed, they have remained, for the most part, in the theoretical realm. The primary reason for this appears to be the difficulty in obtaining the requisite accounting data. The purpose of this study was two-fold: (1) to identify the accounting data necessary to enable a firm to select the most effective channels of distribution; and (2) to provide empirical evidence that changes in the distribution strategy by a firm represent movements in the direction of the most effective channel strategy. A profit maximization model developed by Zoltners, Rangan and Becker of Northwestern University was used to predict the optimal channel strategy. The dealer network of a regional paint manufacturer was selected for analysis. Over a five-year period, sixty-two dealers in fourteen geographic areas were considered as potential market intermediaries. Contribution margin and direct costs were calculated. Advertising costs were reviewed. Actual results were compared to the results predicted by the model. Changes in the dealer network over the five-year period were identified and analyzed with respect to whether or not such changes reflected increased profits. In eight of the fourteen geographic areas, the company was already utilizing the optimal dealer. In the remaining six areas, the company made four changes. All changes resulted in increased profits for the company. Based on this study, it was concluded that the company was moving in the direction of profit maximization. This movement, however, seemed to be intuitive, rather than based on any formal strategy or evaluation. The accounting data necessary for effective evaluation of channel strategy was not readily available to management. Neither marketing management nor the accountant appeared the be cognizant of the importance of marketing costs in channel selection.
Subject Area
Accounting
Recommended Citation
HOWARD, ARLEY ANN, "COST ANALYSIS OF DISTRIBUTION CHANNELS: AN EMPIRICAL DETERMINATION OF THE OPTIMAL CHANNEL STRATEGY" (1985). ETD collection for University of Nebraska-Lincoln. AAI8526622.
https://digitalcommons.unl.edu/dissertations/AAI8526622