SALES AND DISTRIBUTION MANAGEMENT

LESSON 23: FUNCTION OF MARKETING CHANNEL

Learning Objectives
On completion of this lesson,you should be able to
Identify the functions of marketing channels. Understamd the importance of marketing channel.

channels help in matchingsegments of supply with segments of demand. Provide Salesmanship Marketing channels also provide salesmanship. In particular,they help in introducing and establishing new products in themarket. In many cases, buyers go by the recommendations of the dealers. The dealers establish the products in the marketthrough their persuasive selling and person-to-person communication.They also provide pre-sale and after-sale service to the buyers. Help in Price Mechanism In many cases, the channels also help implement the pricemechanism. They conduct price negotiations with buyers onbehalf of the principals and assist in arriving at the right pricethe price that is acceptable to the maker as well as the user. Thisis vital for the consummation of the marketing process. Themanufacturer would find it difficult to complete this stepwithout the help of the channels. Look after a Part of Physical Distribution and Financing Channels also look after a part of the physical distributionfunctions like transportation, handling, warehousing, subdistribution,order processing and inventory management. Channels also share the financial burden of the manufacturer byfinancing the goods flowing through the marketing pipeline.Often, they pay cash and lift the products; in the process, the manufacturer gets his money long before the products reach theultimate users. In some cases, the channels provide substantivedeposits to the principals. In several cases, the channels alsoextend credit to the subordinate levels in the channel and to theconsumers. This also relieves the principals financial strain to anextent. More than everything else, the channels place theproducts close to potential consumers and thereby enhance thechance of its sale. Assist in Merchandising Merchandising is another important function performed bymarketing channels. Through merchandising, they helpreinforce the awareness about the product among customers. When a customer visits a retail shop, his attention can be alluredby an attractive display of the product brand increasing hisawareness and interest. Merchandising, especially display complements the selling efforts of the company and acts as asilent salesman at the retail outlet. Provide Market Intelligence Channels provide market intelligence and feedback to theprincipal. In the nature of things, channels are in a goodposition to perform this task, since they are in constant

Channel Functions
Provide distribution efficiency Provide salesmanship Help in price mechanism Look after a part of physical distribution and efficiency Provide market intelligence Assist in merchandising Act as change agent and generate demand Take care of flows involved in distribution

Provide Distribution Efficiency In the first place,the chanel brings together the manufacturer and the user in an economic manner and thereby provide distribution efficiency to the manufacturer. Minimize the Number of Contacts Needed for Reaching Consumers: In most cases,it will be impractical for the manufacturing firm to sell its entire production directly to the consumers.Resource constraint is the first hurdle in this regard.Even assuming that the required resources can be found,the question arises whether it will be advantageous for the firm to sell its products directly and all by itself, totally avoiding external. Marketing channels analysis shows that in most cases,using external marketing channels/intermediaries is more advantageous to the firm than performing the distribution function all by itself. When channels are dispensed with, thenumber of contacts a manufacturer will have to establish forreaching out to the consumers are far too many; Channelsminimise the number of contacts. Break the Bulk and Cater to tiny Requirements Channelsbreak the bulk and meet the small-size needs of individualconsumers. Supply Products in Suitable Assortments Channels alsocombine products and components manufactured by differentfirms and offer them in assortments that are convenient tousers. The users normally need an assortment of items. Theywill shop at only those outlets, which supply such assortments.But, a manufacturer cannot meet the need for such assortments, since it will not be feasible for him to take up distribution ofother products required by the customers. The channels thusrender the vital service of assembling the products of different manufacturers and offering them to customers in suitableassortments. In other words, the

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anddirect contact with the customers. They feel the pulse of themarket all the time. Act as Change Agents and Generate Demand In certain cases, the marketing task involves diffusion of someinnovation among consumers. In such cases, the channels gomuch beyond the conventional functions of distribution aid act as change agents among consumers and generate demand forthe product. Take Care of the Flows Involved in Distribution The distribution process can be viewed as a series of flows: thephysical flow of products, the title/ownership flow, risk flow,the negotiation flow, the financing/payment flow, the informationflow and promotion flow. Marketing channels handle andtake care of all these flows. Functions Performed by Marketing Channels
Facilitate selling by being physically close tocustomers Provide distributional efficiency by bridgingthe manufacturer

Normally, the flow takesplace sequentially through different levels in the distribution chain. In some cases, however, the flow may bypass a particularlevel in the chain. Channels Acquire Their Importance by Their FunctionsThe foregoing elaborations not only explain the importance ofmarketing channels, but also clarify the fact that the channels acquire their importance by virtue of the functions theyperform. Channel Functions cannot be Eliminated Sometimes, firms tend to think that channels could be easilydispensed with and that the firm would be better off doing so.The firms assume that by eliminating the channels, they can eliminate the channel costs, this is erroneous thinking. Theinherent assumption in this thinking is that by eliminating thechannels, they can escape the functions that the channels perform. The fact is that even where channels are eliminated, thechannel functions as such are not eliminated; they are merelytransferred from the channels to the manufacturer; and the coststhereof are also just transferred, not eliminated.Sometimes, the firms assume that while channels as a wholecannot be eliminated, a particular tier in the channel can bereadily eliminated and the firm would be ipso facto better offwith such elimination. Here too, if the assumption is based onthe logic that with the elimination of the particular tier, the functions performed by that tier can be eliminated, then thefirm will soon realise that it has committed a mistake. For heretoo, the alternative arrangement may not eliminate the functionsperformed by that particular tier. What is likely to happen is atransfer of the functions from the given tier to another one inthe channel, backward or forward. So, it will be wrong toassume that the elimination of the tier will ipso facto result insavings to the firm. It depends on the circumstances. Channels/Middlemen are no Parasites The problem arisesdue to a confusion in thinking. The firms concerned might beviewing channels as mere middlemen, with a negative connotationattached to the term. And, they might consider thechannels as parasites. No wonder then, they think that theywould be better off by dispensing with the channel, in part orfull. It needs to be emphasised that channels/ middlemen areno parasites. They are an essential and valuable part of thefirms marketing activity. Manufacturers use them as there is economic sense in doing so, and all things considered, usingthem improves distribution efficiency.This is not to suggest that under no circumstances can a tier inthe channel be eliminated and that there would be no advantageat all in doing so. In some cases, it certainly is sensible toeliminate one particular tier in the channel and the firm might be better off doing so. It has to be conceded that there arealways alternative methods of performing a set of channelfunctions and a firm may be better off by following one method in preference to another. But, it depends on thecircumstances of the case. The firm has to analyse and find outwhether the concerned distribution functions are performed more cost-effectively by eliminating the tier and shifting thefunctions backward or forward to another tier in the channel, orby keeping the tier alive. As a general rule, it can be said that where the number of tiers are far too many, the elimination ofa tier would be advantageous.
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with the user, efficiently and economically

Break the bulk and cater to the tinyrequirements of buyers Assemble products into assortments to meetbuyers needs;

match segments of supplywith segments of demand

Look after a part of physicaldistribution/marketing logistics Sub-distribution

a. Reselling b. Transport c. Handling d. Accounting

Stock holding .

a. Providing warehouse space b. Storing the stocks c. Bearing risks d. Transforming static stocks into operational stocks, thereby aiding thesale process
Share the financial burden of theprincipal; provide deposits;

finance thestocks till they are sold to the ultimateconsumers; extend credit toretailers/consumer
Provide salesmanship Provide pre-sale and after-sale service Assist in sales promotion Assist in merchandising Assist in introducing new products Assist in implementing the pricemechanism; assist in price

negotiations
Assist in developing sales forecasts/salesplans for the territory Provide market intelligence and feedback Maintain records Take care of liaison requirements Help diffuse innovations amongconsumers, act as change

agents and generate demand Some of these flows are forward, some backward and theothers take place as a two-way process.

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The Test Question The test question is: Are the functionsduplicated in a wasteful manner? Sometimes, duplication ofchannel functions does take place in a channel system; the same function being performed by more than one tier. Firms oftenpresume that in such cases, it is beneficial to dispense with oneof the tiers. This is again incorrect thinking. Duplication of functions by different tiers need not automatically implyinefficiency, or waste. In many cases, such duplication may beessential for achieving the desired service level in distribution. For example, inventories may have to be kept at differentlevels/ tiers of the channel so that the flow of products issmooth and customers get the products at the time and place of their choice. In such cases, duplication is essential andbeneficial. The firm, therefore, has to find out whetherduplication is wasteful. If it serves the interests of the firm, it is not wasteful. So based on the facts of the case, the firm shouldfind out how costs are reduced, efficiency increased and wasteeliminated. Channel Decisions have a Bearing on Other Marketing Decisions The decisions on channel have a vital bearing on other decisionsrelating to marketing. Pricing decisions, for example, are relatedto the channel pattern adopted by the firm and the compensationpaid to the channel. Similarly, decisions on sales force, itssize, type, etc., depend on the nature and size of the marketingchannel adopted. The channel pattern influences the pattern ofsalesmens operations. It also determines to a significantmeasure the size and complexity of the marketing departmentof the firm.Channel decisions usually bind the firm with long-termcommitments. The channel types and the number of levels/tiers in the channel cannot be changed every now and then. Forexample, once a firm has developed a marketing channel of itsown, with companys own stock points performing thewholesaling/semi-wholesaling task, and dependence onexternal channel limited to retailing activity alone, it cannot all ofa sudden switch to a sole-selling agent system or even awholesaler-retailer system. Having invested heavily in companysown stock points/depots, the firm cannot suddenly extricateitself from the commitments already made. Basically; once afirm adopts a particular channel model and goes along with itfor some time, exiting the model will be difficult.Channel Levels, Channel Members, and Channel LengthAll marketing intermediaries do not operate at the same tier;they operate at different tiers. Each distinctive tier of intermediariesis referred to as a level in the channel; and each link isreferred to as a channel member. The number of levelsdetermines the length of the channel; the more the levels,longer is the channel. The number of members does not deter- . mine the length of the channel. Conclusion We have discussed that channels perform many vital distribution functions. They Provide Distribution Efficiency bybringing together manufacturer and user, Provide Salesmanship, Help in Price Mechanism, Look After a Part of PhysicalDistribution and Financing, Provide Market Intelligence, Assistin Merchandising

by creating awareness about the product among customers, Provide Market Intelligence as they are incontact with the customers, Take Care of the Flows Involved inDistribution, Act as Change Agents and Generate Demand. The channel functions cannot be eliminated, though intermediarycan be eliminated. For example wholesaler can beeliminated but functions will have to be transferred to a retailer. Questions Q1. How does channel provides distribution efficiency? Q2. Discuss the channel functions. Q3. How channel is important due to its functions?

SALES AND DISTRIBUTION MANAGEMENT

Notes:

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