CHAPTER 8

MANAGING
MARKETING CHANNELS
 Placement /Distribution
• Definition
• Functions of distribution channels
• Types of distribution channels
• Distribution intensity
• Factors affecting channel decision
• Channel management
• Terminologies: Intermediary, Intermediation,
disintermediation,
• What is unique in distribution through the help of
internet
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 Components of Distribution
• Channels
• Locations
• Inventory
• Transport
• Services

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 What is a Marketing Channel?

• Marketing channel or Distribution channel or

trade-channel is a set of interdependent
organizations involved in the process of making
a product or service available for use or
consumption by the customer or business user.
Or
• A set of interdependent organizations that ease
the transfer of ownership as products move
from producer to business user or consumer.
What is a Value Network and Marketing-
Channel System?

• Value Network
• Marketing channel
 Value Networks and
Marketing Channel Systems

• A Value Network is a system of partnerships

and alliances used by a firm to source,
augment, and deliver its product or service
offerings.
Nature & Importance of Marketing
Channels
• Channel choices affect other decisions in the
marketing mix
– Pricing, Marketing communications
• A strong distribution system can be a
competitive advantage
• Channel decisions involve long-term
commitments to other firms
 The importance of marketing intermediaries
• Their importance include;
• Many producers lack the financial resource to carry out
direct marketing.
• Intermediaries reduce the amount of work that must be
done by both producers and consumers.
• Intermediaries play an important role in matching
supply and demand.
• Channel members add value by bridging the major
time, place and possession gaps that separate goods
and services from those who would use them.
Contact Efficiency
• Producers establish marketing channels for a
variety of reasons:
– Producers lack financial resources necessary for
direct marketing

– Direct marketing is not feasible for many offerings

– Using channels frees money for investment in

main business

– Intermediaries are more efficient

 Channel functions and flows

1. Information: Gathering and dissemination of

marketing research and intelligence information
about potential and current customers, competitors
and other actors and forces in the marketing
environment.
2. Promotions: The development and dissemination of
persuasive communications designed to attract
customers to the offer.
3. Contact: Finding and communicating with prospective
buyers.
 Channel Functions (cont’’’d)
4. Matching: Shaping and fitting the offer the buyer’s
needs, including activities such as manufacturing,
grading, assembling, and packaging.
5. Negotiation: Reaching an agreement on price and
other terms of the offer so that ownership or
possession can be transferred.
6. Ordering: Marketing channel members’
communication of intentions to buy to the
manufacturer.
 Channel Functions (cont’’’d)

7. Physical distribution: Transporting and storing

goods.
8. Financing: Acquiring and using funds to cover
the cost of the channel work.
9. Risk taking: Assuming the risks of carrying out
the channel work.
10. Payment: Buyers’ payment of their bills to the
seller through banks and other financial
institution.
Key Functions Performed by Channel
Members
– Forward flow functions:
• Develop / disseminate communication
• Store and move the physical products
• Oversee transfer of ownership
– Backward flow functions:
• Place orders with manufacturers
• Facilitate payment of bills
– Forward and backward flow functions:
• Gather information
• Negotiate price and transfer of ownership
• Finance inventories
• Assume risk
Work Performed by Channels------
Cont’d
• Other key functions performed by channel
members include those that flow both ways:
– Forward and backward flow functions:
• Gather information
• Negotiate price and transfer of ownership
• Finance inventories
• Assume risk
Channel levels
– Zero-level channel (direct-marketing channel)
– One-level channel
– Two-level channel
– Three-level channel
– Reverse-flow channel
• Service Sector Channels
Channel level
 Channel-Design Decisions
– Designing a channel system involves four steps:
• Analyzing customer needs
• Establishing channel objectives
• Identifying major channel alternatives
• Evaluating major channel alternatives
 Channel-Design Decisions
1. Analyze Customers’ Desired
Service Output Levels
– Lot size
– Waiting and delivery time
– Spatial convenience
– Product variety
– Service backup
 Channel-Design Decisions

2. Establish Objectives and Constraints

3. Identify Major Channel Alternatives
– Types of Intermediaries
– Number of Intermediaries
• Exclusive distribution
– Exclusive dealing
• Selective distribution
• Intensive distribution
 Distribution intensity
A. Exclusive distribution
• It Exclusive involves only one wholesaler, retailer or industrial
distributors handling the company’s goods or services.
• It is used when the producer wants to maintain a great deal
of control over the service level and service outputs offered
by the resellers.
• Often it involves exclusive dealing arrangements, in which the
resellers agree not to carry competing brands.
• It requires very close cooperation between producer and
retailer over servicing, pricing and promotion.
•  
 B. Selective distribution
• Market coverage may also be achieved through
selective distribution, in which the producer
uses a limited number of outlets in a
geographical area to sell its products.
• The advantages to the best outlets to focus its
efforts to build close working relationships with
its selected intermediaries.
• It enables the producer to gain adequate
market coverage with more control and less
cost than intensive distribution.
 C. Intensive distribution
• It aims to provide saturation coverage of the
market by using all available outlets.
• When the consumer requires a great deal of
location convenience, it is important to offer
greater intensity of distribution.
• This strategy is generally used for convenience
items such as tobacco products, soap, beer,
newspapers and foods.
 Channel-Design Decisions
4. Evaluate the Major Alternatives
– Economic Criteria
– Control and Adaptive Criteria
CHANNEL-MANAGEMENT DECISIONS
Selecting Channel Members
Training Channel Members
Motivating Channel Members
Evaluating Channel Members
Modifying Channel Arrangements

N.B. Neither the marketing environment nor the product

life cycle remains static, implying the need for modifying
channel arrangement over time
 1. Selecting Channel Members

What characteristics distinguish the better

intermediaries??
Number of years in business
Other lines carried
Growth and profit record
Solvency
Cooperativeness, and
Reputation.
Selecting channel members ---cont’d

• Selection of channel participants is a two-way

process.

• Selection can be a lengthy process

What makes you choose a particular
channel?

Factors
Factors
Affecting
Affecting
Channel
Channel
Choice
Choice

Market
Marketconsideration
consideration

Product
Productconsideration
consideration

Middlemen
Middlemenconsideration
consideration

Company
Companyconsideration
consideration
MARKET CONSIDERATION/FACTORS

Type
Typeof
ofmarket
market

Number
Numberof
ofpotential
potentialcustomers
customers

Geographic
Geographicconcentration
concentrationof
ofmarket
market
Market
Market Factors
Factors
That Affect
That Affect
Channel
Channel
Choices
Choices Order size
 PRODUCT FACTORS

Unit
Unitvalue
value

Perishability
Perishability

Product
ProductLife
LifeCycle
Cycle

Product
Product Factors
Factors
That Affect
That Affect
Channel
Channel Technical
Technicalnature
natureof
ofthe
theproduct
product
Choices
Choices
 Middlemen consideration

Service
Serviceprovided
provided

Availability
Availabilityof
ofdesired
desiredmiddlemen
middlemen

Producer
Producerand
andmiddlemen’s
middlemen’spolicy
policy

Middlemen
Middlemen
factor
factor
Affecting
Affecting
channel
channel choices
choices
 Company consideration

Desire
Desirefor
forchannel
channelcontrol
control

Services
Servicesprovided
providedby
byseller
seller

Ability
Abilityof
ofManagement
Management

Company
Company Factors
Factors
That
That Affect
Affect Financial
Financialresources
resources
Channel
Channel
Choices
Choices
 2. Training Channel Members

• Companies need to plan and implement careful

training programs for their distributors and dealers
as they are viewed as the company by end users.
 3.Motivating Channel Members
• view channel members as a customers

• This means determining their needs and then tailoring

the channel positioning to provide superior value to
them.
• The manufacturer should clearly communicate what it
wants form its distributors and its polices and reward
those stick to it.
Motivating channel members—cont’d
To improve intermediaries’ performance, the
company should:
 Provide training
 Market research
 Design capability-building programs.
 See intermediaries as partners in the joint effort to
satisfy customers.
Build a long-term partnership with distributors
4. Evaluating Channel Members
  intermediaries’
Producers must evaluate
performance against such standards as:
Sales-quota attainment
Average inventory levels
Customer delivery time
Treatment of damaged and lost goods, and
Cooperation in promotional and training programs.
 5. Modifying Channel Arrangements
  be reviewed periodically
Channel arrangements must
and modified when:
Distribution is not working as planned
Consumer buying patterns change
The market expands
New competition arises
Innovative distribution channels emerge, or
The product moves into later stages in the product
life cycle.  
 A Lecturer Explaining Marketing;

1. You see a Gorgeous Girl at a party. You go up to

her and say; I am very rich. Marry me! - That is
Direct Marketing.
2. You are at a party with a bunch of friends and
see a Gorgeous Girl. One of your friends goes up
to her and pointing at you says; He is very rich.
Marry him! – That is Advertising.
3. You are at a party and see a Gorgeous Girl. She
walks up to you and says; you are very rich! Can
I marry you? - That is Brand Recognition.
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 A Lecturer Explaining Marketing;
4. You see a Gorgeous Girl at a party. You go to her
and say; I am very rich. Marry me! She gives you a
hot slap on your face. - That is Customer Feedback.
5. You see a Gorgeous Girl at a party. You go to her
and say; I am very rich. Marry me! And she
introduces you to her husband. - That is Perfect
competitive Market.
6. You see a Gorgeous Girl at a party. You go to her
and before you say; I am rich, Marry me!, your wife
arrives. – That is Decision making point.

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