Channel Optimization in Complex Marketing Systems

Abstract

Channel optimization in multiple-channel systems is a basic problem in marketing and one which has not received much attention in the literature. A model is presented which simultaneously solves three distribution decisions—the manufacturer's choice of channels (channel strategy), the number of outlets to operate within each channel (channel intensity), and the pricing structure between channels (channel management). The general form of this model is not solvable by conventional programming techniques because it is intrinsically nonconvex. The paper shows how signomial geometric programming can provide a theoretically attractive and practical solution procedure. The model is estimated and solved on a real-life case study and the important managerial and theoretical implications are discussed.