Marketing Channels

Designing and Management

Dr. Sanjay Nandal Ravi Hooda

Designing &Managing Marketing Channel

Marketing channels are sets of interdependent organizations involved in the process of

making product or service available for use or consumption.

 Wholesalers and Retailers-Buy, take title to and resell the merchandise; they are
called merchants.
 Other Brokers, manufacturers’ representatives, sales agent- Search for customers
and may negotiate on the producer’s behalf but don’t take title to the goods; they are
called Agents.
 Still others- Transportation companies, ware houses, banks, advertising agencies
assist in the distribution process but neither take title to goods nor negotiate
purchases or sales; they are called Facilitators.
Push vs Pull Strategies
A push strategies involves the manufacturer using sales
force and trade promotion money to induce intermediaries to
carry, promote and sell the product to end users.

A pull strategy involves the manufacturer using advertising

and promotion to persuade consumers to ask intermediaries
for the product, thus inducing the intermediaries to order it.
Role of middleman or intermediaries
• Information
• Price stability
• Promotion
• Financing
• Title
Factors determining length of the channel
• Size of the market
• Order lot size
• Service requirement
• Product variety
Channel levels

manufacturer

wholesaler
wholesaler
retailer
retailer

retailer
jobber

Consumer
Marketing Channel Functions
Specialization and Division of
Labor

Channel fulfill
three important Overcoming Discrepancies
functions

Providing Contact Efficiency

Specialization and Division of Labor

 Provides economy of scale.

 Aids producers who lack resources to market directly.
 Builds good relationship with customers.
Overcoming Discrepancies
• The difference between the
Discrepancy amount of product produced and
of Quantity the amount an end user wants to
buy.

• The lack of all the items a

Discrepancy customer needs to receive full
of Assortment satisfaction from a product or
products.
Overcoming Discrepancies
• A situation that occurs when a
Temporal product is produced but a
Discrepancy customer is not ready to buy it.

• The difference between the

Spatial location of a producer and the
Discrepancy location of widely scattered
markets.
Channel Design Decision
 Analyzing customer needs.
 Establishing channel objectives.
 Identifying major channel alternatives.
 Evaluating major channel alternatives.
Analyzing Customer Needs
The marketer must understand the service output levels
desired by the target customer.

1. Lot Size
2. Waiting and Delivery Time
3. Spatial Convenience
4. Product Variety
5. Service backup
Establishing Channel Objectives
 Channel objectives vary with the product characteristics.
Identifying Major Channel alternatives
 All types of available business intermediaries
 The no of intermediaries needed- Exclusive distribution,
selective distribution, intensive distribution.
 The terms and responsibilities of each channel members-
price policy, conditions of sale, territorial rights.
Evaluating the Major Alternatives
 Economic Criteria
 Control and Adaptive Criteria
Channel Management Decisions
Selecting channel members:
 No. of years in business
 Other lines carried
 Growth and profile record
 Financial strength
 Cooperativeness
 Service reputation

Training channel members:

companies need to plan & implement careful training programs for there
intermediaries.
Motivating Channel Members
 Company needs to view intermediaries the same way it
views its customers.
 It needs to determine intermediaries needs and construct a
channel positioning such that its channel offerings is tailored
to provide superior value to intermediaries.

Channel power- the ability to alter channel members behavior

so that they take actions they would have not taken otherwise.
 Coercive power – manufacturers threatens to withdraw or
terminate if intermediaries fail to perform.
 Reward power- manufacturers offers an extra benefit for
performing specific acts or functions.
 Legitimate power- manufacturer request a behavior that is
warranted under the contract.
 Expert power- manufacturer has special knowledge that
the intermediaries value.
 Referent power- manufacturer is so highly respected that
intermediaries are proud to be associated with it.
Evaluating Channel Members
 Producers 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

underperformers need to be counseled, retrained , motivated or terminated.

Channel Integration and System
Conventional Marketing Channel:
it comprises an independent producer, wholesaler & retailer. Each is a separate
business seeking to maximize its own profits, even if this reduces profit for the
system as a whole.

Vertical marketing systems:

 It comprises the producer, wholesaler and retailer acting as unified system
 One channel member (channel captain) owns the other and has so much of
power that they all cooperate.
 It arose because of strong channel members attempt to control channel behavior
& eliminate the conflict when members pursue their own objectives.
Types of VMS
1. Corporate VMS:
it combines the successive stages of production and distribution under a single ownership.(BPCL)

2.Administered VMS
it coordinates successive stages of production& distribution through the size and power of one of the
members.(Kodak, HUL, Gillette command high level of cooperation from resellers )

3. Contractual VMS:
it consists of independent firms at different levels of production and distribution integrating their
programs to obtain more sales.

 Wholesaler – sponsored voluntary chains

 Retailer cooperatives
 Franchise organization
Horizontal Marketing Systems (HMS)
 Here two or more unrelated companies put together
resources or programs to exploit an emerging marketing
opportunities. (HUL’s strategic tie up with PepsiCo for
bottling and distribution of Lipton’s ready to drink
beverages)
Multi-channel Marketing system(McMS)
 It occurs when a single firm uses two or more marketing
channels to reach one or more customer segments.
 Benefits-
 Increased market coverage
 Low channel cost
 Customized selling
THANK YOU