21-03-2022

Marketing Channels
(trade channel or distribution channel)

MARKETING CHANNELS Sets of Interdependent organizations involve in the

process of making a product or service available for use
or consumption.
Designing & Managing Marketing Channels –
Managing Retailing, wholesaling and market logistics

Five Marketing Flows in the Marketing

Channel Channel Levels

 No. of intermediary levels decide the

length of a channel.

 zero-level channel (direct-marketing

channel)
 Internet selling, door-to-door sales, mail
order, telemarketing, TV selling,
manufacturer-owned stores, and other
methods.

1
 21-03-2022

Marketing Channels
Channel Levels
 A one-level channel contains one selling
intermediary, such as a retailer.

 A two-level channel contains two intermediaries;

 A three-level channel contains three intermediaries.

 Backward channels, : recycle trash and old or

obsolete products no longer used by customers.

 Obtaining information & exercising control becomes

more difficult as the no. of channel levels increases.

PUSH STRATEGY PULL STRATEGY

• Appropriate For: • Appropriate :

- low brand loyalty products - for high brand loyalty and high involvement in the
category, and
- brand choice decision in the store,
- When people choose the brand before they go to the
- impulse item
store.

2
 21-03-2022

PROCESS OF DESIGNING A CHANNEL SYSTEM Analyze customer needs (Service

Output Levels)
 Channels produce five service outputs:
• 1. Analyzing customer needs

 Lot size
• 2. Establishing channel objectives
 Waiting time

 Spatial convenience
• 3. Identifying major channel alternatives
 Product variety

 Service backup
• 4. Evaluating major channel alternatives

Establishing Objectives and Identifying Major Channel

Constraints Alternatives
 Identify channel alternatives are described by
 Minimize total channel costs
 Product characteristics.
 (1) the types
 strengths and weaknesses each intermediaries.
 Competitor’s channels
 (2) number and
 Must adapt to the larger environment.  (3) the terms and responsibilities of channel
 Legal restrictions and regulations. intermediaries.

3
 21-03-2022

Types of Intermediaries Types of Intermediaries

 TYPES MERCHANTS, AGENTS &  Facilitators — transportation companies,
FACILITATORS independent warehouses, banks, and advertising
agencies — assist in the distribution process but
 Merchants — wholesalers and retailers—buy, take neither take title to goods nor negotiate purchases
title to, and resell the merchandise. or sales.

 Agents — brokers, manufacturers’ representatives

and sales agents —search for customers and may
negotiate on the producer’s behalf but do not take
title to the goods.

Terms and responsibilities of

Number of Intermediaries
channel members
 In deciding how many intermediaries to use, successful
 The main elements in the “trade relation
companies use one of three strategies:
mix” are
Exclusive distribution  Price policies
Selective distribution  Conditions of sale

Intensive distribution  Territorial rights

 And specific services to be performed
by each party

4
 21-03-2022

Channel Management Decisions Channel Management Decisions

 Selecting Channel Members
 Training Channel members
 number of years in business,
 growth and profits record,  because the end users would view them as company.
 cooperativeness,
 reputation,
 Motivating Channel Members:
 the number and characteristics of other lines carried,  Producers can draw on the following types of power to
 the size and quantity of the sales force, elicit cooperation:
 locations,  Coercive Power
 type of clientele.  Reward Power
 Legitimate (action under contract) Power
 Expert Power
 Referent Power

Channel Management Decisions Channel Management Decisions

 Modifying Channel Arrangements:
 Evaluating Channel members:
 A producer must periodically review and modify its
 sales quota attainment, channel arrangements.
 avg inventory levels,

 customer delivery time,

 treatment of damaged and lost goods and

 cooperation in the promotional and training

programs.

5
 21-03-2022

Channel Dynamics
A. Conventional Marketing System
 Marketing channels are characterized by
continuous and sometimes dramatic change,
especially with the changes brought by the
growth of the Internet as a major marketing tool A channel consisting of one or more
and channel of distribution.
independent producers, wholesalers, and
 The recent growth are : retailers each a separate business seeking to
 vertical , maximize its own profits even at the expense
 horizontal,and of profits for the system as a whole .
 multi channel marketing systems.

Channel Organization : A conventional marketing

B. Vertical Marketing System channel versus a vertical marketing system

 A distribution channel structure in which producers,

wholesalers, and retailers act as a unified system.

 VMS arose as result of strong channel members’

attempts to control channel behavior and eliminate the
conflict that results when independent members
pursue their own objectives.

 VMS achieve economies through size, bargaining

power, and elimination of duplicated services.

6
 21-03-2022

VMS
 Vertical marketing system comprises of  ii. Administered VMS
 i. Corporate VMS
 ii. Administered VMS
 iii. Contractual VMS
 one member of the channel is large and
 i. Corporate VMS powerful enough to coordinate the
 one member of the distribution channel owns the other activities of the other members without an
members. Although they are owned jointly, each
company in the chain continues to perform a separate task. ownership stake. (Amul, Unilever, P&G)

 This occurs most frequently in the retail industry where a

supplier operates a chain of retail stores. (Amway, Bata,
Raymonds)

iii. Contractual VMS C.Horizontal Marketing Systems (HMS)

 A vertical marketing system in which independent firms at different  A channel arrangement in which two or more companies
levels of production and distribution join together through contracts at one level join together to follow a new marketing
to obtain more economies or sales impact than they could achieve opportunity.
alone.

 Contractual VMS could have the following forms
 Wholesaler-sponsored – where a wholesaler brings together and
manages many independent retailers including having the retailers use
the same name (Independent Grocer Alliance (IGA), Canada)
 Retailer-sponsored – this format also brings together retailers but
the retailers are responsible for managing the relationship
 Franchised – where a central organization controls nearly all
activities of other members
 i. Two or more unrelated firms put together resources or
programs.
 ii. Each firm lacks the capital, technology, marketing
resources or other variables to take on the venture alone
 iii. Can be permanent or temporary
 Also referred as symbiotic marketing.

7
 21-03-2022

D. Multichannel Marketing Systems CHANNEL CONFLICT

(MMS)
 A distribution system in which a single firm sets up two or more
marketing channels to reach one or more customer segments.
 Multi channel marketing—single firm uses two or more marketing
channels to reach one or more customer segments
 ADVANTAGES:
 i. increased coverage, lower cost, customized selling
 ii. Planning channel architecture (companies thinking through their
channel architecture which are efficient and not, and developing new
means)
 Disagreement among marketing channel members on
goals and roles—who should do what and for what
rewards.
 Types of conflict
 Let us Know why conflicts occur ?
 i. Vertical channel conflict - means conflict between
different levels within the same channel
 ii. Horizontal channel conflict- conflict involves conflict
between members at the same level: within the channel.
 iii. Multi channel conflict- exists when the manufacturer
has established two or more channels that sell to the
same market

CAUSES FOR CHANNEL How to manage channel conflict

CONFLICT (responses)
 Mechanisms for effective conflict management :
 Following highlight the common causes of conflict
:-  One is the adoption of superordinate goals.
 Goal incompatibility
 A useful step is to exchange persons between two or more
 Unclear roles and rights channel levels.
 Differences in perception
 Co-optation is an effort by one organization to win the
 “Over” dependence support of the leaders of another organization by including
them in advisory councils, boards of directors, and the like.

 Conflict resolution can be accomplished by encouraging

joint membership in and between trade associations.

8
 21-03-2022

HOW TO MANAGE CHANNEL CONFLICT Legal & Ethical Issues in Channel

(RESPONSES) Relations
 When conflict becomes acute or chronic, the parties may have to  Exclusive Dealing – dealer should not handle
resort to diplomacy, mediation, or arbitration. competitors products Exclusive Dealing

 Diplomacy takes place when each side sends a person or group to  Exclusive Territories – producer will decide not to sell
meet with its counterpart to resolve the conflict. to other dealers in the same territory

 Tying Agreements – producers of a strong brand sell

 Mediation means resorting to a neutral third party who is skilled in to dealer only if he takes other products from him
conciliating the two parties’ interests.
 Dealers’ Rights – producers can sell to dealers but
 Arbitration occurs when the two parties agree to present their cannot terminate the dealer agreements easily. Only if
there is a cause but not for non compliance in some
arguments to one or more arbitrators and accept the arbitration illegal agreements.
decision. Sometimes, when none of these methods proves effective, a
company or a channel partner may choose to file a lawsuit.