MODULE-4

MARKETING CHANNELS
1
 CHANNEL DESIGN (CONT.)
Efficient movement of finished product from the end of
the production line to customers.
Coordinate the execution of distribution plans
So as to provide good customer service at acceptable
cost.

2
 DETERMINANTS OF CHANNEL STRUCTURE
1. The distribution tasks that need to be performed

2. The economics of performing distribution tasks

3. Management’s desire for control of distribution

4. Transaction Efficiency (refers to the effort to reduce the

number of transactions between producers &consumers).

3
REVIEW CHANNEL STRUCTURE/DESIGN
1. Setting distribution objectives
 Meeting customer needs is the ultimate goal

2. Specifying distribution tasks

 who does what along the supply chain (channel of distribution)

3. Considering alternative channel structures

 Three dimensions:
 Length/Intensity/Types of intermediaries

4. Choosing optimal channel structures

 each participant in the marketing channel focuses on performing those
activities at which it is most efficient. This results in much greater efficiency
and higher output.

4
A channel of distribution comprises a
set of institutions which perform all
of the activities utilized to move a
product and its title from production
to consumption

Bucklin - Theory of Distribution Channel Structure

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 PHYSICAL DISTRIBUTION IS…
Organizing and moving products through the
channels

aka: Logistics = ordering, transporting, storing,

handling and inventory control

The 3rd largest expense for most

businesses

(#1 Materials #2 Labor)

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 EXPLAIN HOW CHANNEL MEMBERS ADD
VALUE
Right PLACE
Right TIME

Place UTILITY
 Location – having the product where customers can buy it

Time UTILITY
 Having the product available when the customer wants/needs it

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CHANNEL MEMBERS ADD VALUE TO A PRODUCT
BY PERFORMING CERTAIN CHANNEL
ACTIVITIES EXPERTLY

Marketing
Packaging
Financing
Storage
Delivery
Merchandising
Personal selling
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 ADDING VALUE THROUGH
DISTRIBUTION
Intermediaries provide value to producers because they
often have expertise in certain areas that producers do not
have.

Intermediaries are experts in displaying, merchandising,

and providing convenient shopping locations and hours for
customers.

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10
 CHANNEL FUNCTIONS

Information
Promotion
Contact
Matching
Negotiation
physical distribution
Financing
Risk taking
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CHANNEL FUNCTIONS (CONT.)
Providing marketing information:
 Companies rely on market research to determine their target markets’ needs and
wants
 Ex: small business producing handmade greeting cards

Promoting products:
 Can be expensive
 Retailers often take a large portion of promotion responsibilities
 Ex: local supermarkets/discount stores

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CHANNEL FUNCTIONS (CONT.)
Contact
Matching
Negotiating with the customers:
 Different prices are paid by the wholesaler, retailer and
consumers based on negotiation
Physical distribution
Financing and risk taking:
 Moving products through a channel costs money
 When channel members work together to finance activities and
to assume financial risks, channels will be more effective

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 Today’s system of exchange

Promotion
Contact

Negotiation

Transporting and storing

Producers

Users
Financing
Packaging
Money

Goods

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EXPLAIN KEY CHANNEL TASKS
Marketing
Packaging
Financing
Storage
Delivery
Merchandising
Personal selling

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EXPLAIN KEY CHANNEL TASKS (CONT.)
Providing marketing information
 Rely on market research to determine their target markets’ needs
and wants
Promoting products
 Costs and responsibilities can be shared
Negotiating with customers
 Offering to deliver and install products
Reducing discrepancies
 Selling large quantities of products to wholesalers and retailers
Financing and risk-taking
 Work together to finance activities to become more effective

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TASKS OF INTERMEDIARIES -
WHOLESALERS
Break down ‘bulk’
Buys from producers and sell small quantities to
retailers
Provides storage facilities
Reduces contact cost between producer and
consumer
Wholesaler takes some of the marketing
responsibility e.g sales force, promotions
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TASKS OF INTERMEDIARIES -
RETAILER
Much stronger personal relationship with the consumer
Hold a variety of products
Offer consumers credit
Promote and merchandise products
Price the final product
Build retailer ‘brand’ in the high street

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TASKS OF INTERMEDIARIES -
INTERNET
Sell to a geographically disperse market
Able to target and focus on specific segments
Relatively low set-up costs
Use of e-commerce technology (for payment,
shopping software, etc)
Paradigm shift in commerce and consumption

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TASKS OF A LOGISTICS MANAGER
plans the flow of materials in a manufacturing organization (beginning
with raw materials and ending with delivery of finished products to
channel intermediaries or end customers) and coordinates the work of
departments involved in the process, such as procurement,
transportation, manufacturing, finance, legal, and marketing.

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DESCRIBE WHEN A CHANNEL WILL BE
MOST EFFECTIVE
The channel must be properly managed
Recognize the importance of their task and
make informed decisions
Each member is assigned tasks it can do best

21
DESCRIBE WHEN A CHANNEL WILL BE MOST
EFFECTIVE (CONT.)

Channel members share a common goal

Commitment to quality of the product
Satisfying the target market’s needs and
wants
All members cooperate to attain overall
channel goals

If the channel is not effective, conflict occurs…..

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ACTIVITIES THAT A TYPICAL DISTRIBUTION
CHANNEL PERFORMS
SPATIAL
DISCREPANCY

TEMPORAL NEED TO
DISCREPANCY PROVIDE
ASSORTMENT

NEED TO
BREAK THE
BULK

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 INTERMEDIATION: IS IT REALLY NEEDED?

Cost
Control efficiency

Indirect Distribution
Direct Distribution
The cost and control aspects of intermediation 24
DISTRIBUTION CHANNEL STRATEGY
Setting Distribution Objectives

Finalizing Channel Activity

Organizing the Channel Activities

Developing Policy Guidelines for day-to-day

Operations

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DISTRIBUTION CHANNEL MANAGEMENT
Designing Channel
Structure
Ex ante
Phase
Distribution Channel Strategy
Establishing the
1. Channel Objective channel
2. Activity Finalization
3. Organizing the activities
4. Developing policy Motivating channel
guidelines members
Ex poste
Resolving conflicts Phase
among channel
members

The Framework of Channel management

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PRACTICAL INSIGHT
Western digital’s expansion plan
Eastman Kodak’s worldwide corporate strategy
TI Cycles: Focus on Retail Segment

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DISTRIBUTION CHANNEL STRUCTURES
Manufacturer

C&F/ Depot/ Super Stockist

Stockist

Institution Hospital
Wholesaler

Retailer/ Chemist

Patient

Channels of drug distribution

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 DESIGNING A CUSTOMER-ORIENTED CHANNEL
List Down all services outputs that the channel needs to offer. List has to to be as
exhaustive as possible

Develop the levels at which each of the services outputs have to be offered. This can be
achieved through collection of information from the customer or benchmarking with
competitors

Work back from each of the service output levels and conceive the activities that have to
be performed to fulfill these service output objectives. These activities are called the
flows in a channel

Calculate the cost incurred for performing these activities if they are performed by
particular channel entities including your organisation

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DESIGNING A CUSTOMER-ORIENTED CHANNEL
Design the ideal channel structure, which will consist of a network of members
performing certain functions so that the service output objectives are achieved at
minimum cost.

Compare the ideal channel structure with the channel structure that is existing in reality
so as to modify the ideal channel structure

Assess the ideal channel design within terms of the channel selection criteria like
Effectiveness, Efficiency, Equity, Scalability, and Flexibility

Develop the channel establishment/ modification plan

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 DESIGNING A CUSTOMER-ORIENTED CHANNEL
List Down all services outputs that the channel needs to offer. List has to to be as exhaustive as possible

Develop the levels at which each of the services outputs have to be offered. This can be achieved through collection of information from the
customer or benchmarking with competitors

Work back from each of the service output levels and conceive the activities that have to be performed to fulfill these service output
objectives. These activities are called the flows in a channel

Calculate the cost incurred for performing these activities if they are performed by particular channel entities including your organisation

Design the ideal channel structure, which will consist of a network of members performing certain functions so that the service output objectives
are achieved at minimum cost.

Compare the ideal channel structure with the channel structure that is existing in reality so as to modify the ideal channel structure

Assess the ideal channel design within terms of the channel selection criteria like Effectiveness, Efficiency, Equity, Scalability, and Flexibility

Develop the channel establishment/ modification plan

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 DISTINGUISH BETWEEN
HORIZONTAL AND VERTICAL CONFLICT
Horizontal Conflict: occurs between channel
members at the same level

Good, old-fashioned business competition

Ex: two retailers selling pet supplies compete to sell

to the same target market

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 DISTINGUISH BETWEEN
HORIZONTAL AND VERTICAL CONFLICT
(CONT.)
Vertical Conflict: occurs between channel
members at different levels within the same
channel

Producers and wholesalers, wholesalers &

retailers, or producers and retailers

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CHANNEL MANAGEMENT DECISIONS

Channel strategy is not formulated in

a vacuum
Channel strategy and product strategy

Channel strategy and price strategy

Channel strategy and promotion strategy

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DESCRIBE CHANNEL MANAGEMENT
DECISIONS
Decisions about a product’s physical movement and transfer of ownership from
producer to consumer.

FIRST - Setting channel objectives

 Determine what the company is trying to achieve
 Meet the needs and wants of their target market
 Give their product a competitive edge
SECOND - Channel members:
– Selection
– Management
– Motivation
– Evaluation

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1. SELECTING CHANNEL
MEMBERS
Determine the types of members the belong in the channel, as well as the
channel length (total number of channel members)

Usually based on the nature of the product

Factors to consider:
 Create product value that others cannot or are not willing to provide
 Channel the product to its desired market
 Have a pricing and promotion strategy compatible with the product’s needs
 Offer customer service compatible with the products needs
 Be willing and able to work cooperatively with other members within the
product’s channel

36
1. SELECTING CHANNEL
MEMBERS (CONT.)

Involves determining the characteristics that

distinguish the better ones by evaluating
channel members
Do they: Provide value? Perform a function?
Expect an economic return ?
Years in business
Lines carried
Profit record
Policies, strategies, & image
Experience & track record
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1. SELECTING CHANNEL
MEMBERS (CONT.)

Selecting intermediaries that are sales agents

involves evaluating

Number and character of other lines carried

Size and quality of sales force

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1. SELECTING CHANNEL MEMBERS
(CONT.)
Market segment - must know the specific segment and
target customer

Selecting intermediates that are retail stores that want

exclusive or selective distribution involves evaluating
 Store’s customers

 Store locations

 Growth potential

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2. MANAGING CHANNEL MEMBERS

Determining channel responsibilities

•Members must work together appropriately and perform the tasks
they are best suited for

The company must sell not only through the

intermediaries but also to/with them

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2. MANAGING CHANNEL MEMBERS
(CONT.)

Partner relationship management (PRM) and supply

chain management (SCM) software are used to

•Forge long-term partnerships with channel members

•Recruit, train, organize, manage, motivate, and evaluate
channel members

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3. MOTIVATING CHANNEL MEMBERS

Develop a cooperative/collaborative and balanced relationship

with the partner
Understand the partner’s customers – their needs, wants, and
demands
Understand the partner’s business – operationally and financially
and what’s really important to them
Look at the partner’s needs in terms of customer support,
technical support, and training
Establish clear and agreed upon expectations and goals
Develop recognition programs focusing on the partner’s
contributions
Build internal support systems and dedicate resources to the
partner

42
3. MOTIVATING CHANNEL
MEMBERS (CONT.)

Motivation can be positive or

negative
Sanctions may be imposed on middlemen
not performing well
Chargebacks – financial penalties
assessed for a variety of problems
Incentives may be offered for reaching
performance goals
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4. EVALUATING CHANNEL
MEMBERS

Produces must evaluate intermediaries

performance against such standards as:
 Sales quota attainment

 Average inventory levels

 Customer delivery time

 Treatment of damaged and lost goods

 Cooperation in promotional and training programs.

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4. EVALUATING CHANNEL
MEMBERS (CONT.)

Should constantly evaluate the

channel:

What is working?

What is not working?

What can be improved?

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4. EVALUATING CHANNEL MEMBERS
(CONT.)
Risks & Dangers of Distribution Decisions

Transaction costs both apparent & hidden

Risks include loss in transit, destruction, negligence, non-

payment and so on.

So, careful choice & evaluation of each & every channel

partner is a necessity.

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DISTRIBUTION DECISIONS - MAJOR
CONSIDERATIONS…

 Multiple channels

 Control vs. costs

 Intensity of distribution desired

 Involvement in e-commerce

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1. MULTIPLE CHANNELS
Some products meet the needs of both industrial and consumer markets.
J & J Snack Foods sells its pretzels, drinks and cookies using multiple channels
to:
 Supermarkets
 Movie Theaters
 Stadiums
 Schools
 Hospitals

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 2. CONTROL VS. COSTS
All manufacturers and producers must weigh
the control they want to keep over the
distribution of their products against the
costs and profitability.
Direct sales force – company employees are expensive
with payroll, benefits, expenses; may set sales quotas
and easily monitor performance
Agents – work independently, running their own
businesses; less expensive = less control; agents sell
product lines that make them more money

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MANAGEMENT’S DESIRE FOR
CONTROL OF DISTRIBUTION

•In general, the shorter the channel structure, the higher

the degree of control, and vice versa.

•The lower the intensity of distribution, the higher the

degree of control, and vice versa.

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3. DISTRIBUTION INTENSITY
how widely a product will be distributed; marketers want to
achieve the ideal market exposure; determining distribution
patterns.
Achieve ideal market exposure (make their
product available without over exposing
and losing money)
To achieve market exposure, marketers must
determine distribution intensity

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DISTRIBUTION INTENSITY

 Exclusive Distribution

 Selective Distribution

 Intensive Distribution

 Integrated Distribution

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 INTENSITY OF CHANNEL STRUCTURE

Channel intensity: the number of intermediaries at

each level of the marketing channel.
Intensive Selective Exclusive

All Possible Relatively Few Just One

Intermediaries Intermediaries Intermediary

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INTENSIVE DISTRIBUTION
the use of all suitable outlets to sell a product.

The objective is complete market coverage and the ultimate

goal is to sell to as many customers as possible, wherever
they choose to shop.

Ex. Motor oil is sold in quick-lube shops, farm stores, auto

parts retailers, supermarkets, drugstores, hardware stores,
warehouse clubs, and other mass merchandisers.

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SELECTIVE DISTRIBUTION
a limited number of outlets in a given geographical area are
used to sell the product.

Very important to select channel members that maintain the

image of the product & are good credit risks, aggressive
marketers & good inventory planners.

Ex. Armani & Lucky Brand sell their clothing only through top
department stores that appeal to the affluent customers who
buy its merchandise. It does not sell in a chain megastore or a
variety store.
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EXCLUSIVE DISTRIBUTION
• protected territories for distribution of a product in a given
geographic area; business maintains tight control over a
product

• Ex. Franchisor legally requires a franchisee to sell only the

franchisor’s products

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INTEGRATED DISTRIBUTION
Manufacturer acts as wholesaler and retailer for its own
products.

EX. Sherwin-Williams Paint, Merle Norman

Ex. The Gap or Ann Taylor sells its clothing in company-

owned retail stores.

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DUAL DISTRIBUTION
A manufacturer may sell its products through multiple outlets
at the same time:

Toll-free phone system

Company website
Multiple retailers

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 4. INVOLVEMENT IN E-COMMERCE
means by which products are sold to customers and
industrial buyers through the Internet.
Consumers have also become accustomed to buying
products online.
one-stop shopping and substantial savings for
industrial buyers.
E-marketplaces provide smaller businesses with the
exposure that they could not get elsewhere
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CHANNEL DESIGN DECISIONS
Channel design/structure = form or shape that a
marketing channel takes to perform the tasks necessary
to make products available to consumers.

Includes ALL the parties involved

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CHANNEL DESIGN DECISIONS (CONT.)
Analyzing consumer needs
Setting Channel Objectives
Identifying Major Alternatives
 Types of intermediaries
 Company sales force
 Manufacturer’s agency
 Industrial distributors

 Number of intermediaries
 Responsibilities of intermediaries

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3 DIMENSIONS OF CHANNEL DESIGN

1.Length of the channel

2.Intensity of various levels (Exclusive,

Selective, Intensive)

3.Types of intermediaries involved

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 CHANNEL DESIGN (CONT.)
Efficient movement of finished product from the end of
the production line to customers.
Coordinate the execution of distribution plans
So as to provide good customer service at acceptable
cost.

63
 DETERMINANTS OF CHANNEL STRUCTURE
1. The distribution tasks that need to be performed

2. The economics of performing distribution tasks

3. Management’s desire for control of distribution

4. Transaction Efficiency (refers to the effort to reduce the

number of transactions between producers &consumers).

64
REVIEW CHANNEL STRUCTURE/DESIGN
1. Setting distribution objectives
 Meeting customer needs is the ultimate goal

2. Specifying distribution tasks

 who does what along the supply chain (channel of distribution)

3. Considering alternative channel structures

 Three dimensions:
 Length/Intensity/Types of intermediaries

4. Choosing optimal channel structures

 each participant in the marketing channel focuses on performing those
activities at which it is most efficient. This results in much greater efficiency
and higher output.

65
LENGTH OF CHANNEL
Channel length = number of levels in a distribution channel.

2 level 3 level 4 level 5 level

Manufacturer Manufacturer Manufacturer Manufacturer

Agent

Wholesaler Wholesaler

Retailer Retailer Retailer

Consumer Consumer Consumer Consumer

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SERVICE OUTPUT DEMAND ANALYSIS

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SUPPLY-SIDE CHANNEL ANALYSIS

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REVERSE LOGISTICS

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DIFFERENCES BETWEEN FORWARD AND REVERSE LOGISTICS

72
CHALLENGES OF CHANNEL MANAGEMENT
1. Channel partners are companies, not people;
2. Channel partners do not report to vendors;
3. Channel partners have their own priorities;
4.There are different types of partners, and they require different
engagement models;
5. A partner’s loyalty is driven by financial motives.;
6. Partner success depends on their competencies in an ecosystem;
7. Forecasting is very hard when it comes to run rate and large-deal
businesses;

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CHANNEL CORRECTION
1. A structured channel program;
2. Ease of doing business – doing less to get more done via
channel;
3. Systems for partner relationship management and partner
marketing management;
4. Program alignment – training, product promotions, incentives;
5. Celebrate success – make it fun.

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75
Gucci has decided to use India as its manufacturing base for the supply of printers
to the European markets. The company offers three types of printers, high-end,
standard and low-end.

All three types of printers offered by the firm are similar in size and shape. The
only differences are in the software and the chip used in the printers. The three
models of the printers cost Rs 20,000, 15,000 and 10,000 per unit, resp.
If the firm decides to use Air as a mode of transport, it can fly the goods in smaller
lots of 100 units, while shipping via sea requires a minimum shipment size of 400
units.
The demand in Europe is stable at 100 units per week for each of the three types
of printers. Transportation and customs clearance take one week if air is used as
the mode of transport, the same will take four weeks if sea is used as the medium
of transport.

Freight by air will be Rs 360 per unit while freight by sea will be Rs 90 per unit.
The annual inventory-carrying cost for the firm is 20 per cent of the cost of the
item.

The firm wants to decide on the optimum mode of transport.

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DISCUSS THE RELATIONSHIP BETWEEN THE
PRODUCT BEING DISTRIBUTED AND THE
PATTERN OF DISTRIBUTION IT USES

Consumer Good
Consumer Service
Industrial Good
Industrial Service

77
OBJECTIVE TWO:
EXPLAIN THE RELATIONSHIP BETWEEN
CUSTOMER SERVICE AND CHANNEL
MANAGEMENT

78
EXPLAIN HOW CUSTOMER SERVICE
FACILITATES ORDER PROCESSING
Ensures timely delivery of products
Effective communication is important
Order processing
 Correct shipping information
 Correct products
 Handling complaints
 Reducing the probability of complaints
 Nice and friendly people

79
IDENTIFY ACTIONS THAT CUSTOMER SERVICE CAN
TAKE TO FACILITATE ORDER PROCESSING

EX. In retail selling, bag the merchandise with care.

Products such as glassware may require individual
wrapping before bagging.Work quickly to bag your
customer’s merchandise and complete the payment
process.
EX. In business-to-business sales, complete the paperwork
quickly and leave a business card.

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 Call Customer Online
Center Order

Warehouse

Actions to
Facilitate
Order Inventory
Processing Check

No, Customer Items Yes, Item Packed

Notified of for Shipment
Backorder in
Stock?
Accounts
Receivable
Processes
Payment

Item Shipped 81
 DESCRIBE THE ROLE OF CUSTOMER
SERVICE IN FOLLOWING UP ON ORDERS

Following up with your customers after the sale is an

important part of providing good customer service.
Should customer have questions or problems it is your duty to
make sure they have a positive experience with your company.

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