Chapter Five

Marketing Channels
 Learning Goals
Up on the completion of this unit a student will
able to
 Define marketing channels
 Describe major marketing channel function
 Discuss types of channels
 Discuss channel structure
 Identify factors affecting channel structure
 Definition
 Marketing channels can be viewed as sets of
inter dependent organizations involved in the
process of making a product or service
available for use or consumption.
 Channel of distribution can, therefore, be
defined as a path traced in the direct or indirect
transfer of the title of a product as it moves
from a producer to ultimate consumers or
industrial users.
 WHY?
1. Many producers lack the financial resources
to carry out direct marketing.
2. Direct marketing simply is not feasible for
some products.
3. Producers who do establish their own
channels can often earn a greater return by
increasing their investment in their main
business.
 Functions
1. Transactional: Buying, Selling and Risk taking
(obsolete or deteriorate inventories)
2. Logistical function
Assorting: have various products
Storing Transporting
Sorting: purchase in large quantity and breaking in
to smaller amount
3. Facilitating: financing, grading (inspecting, testing,
judging products) and market information and research
 Channel Levels
 Producer Consumer
 Producer retailer Consumer
 Producer _ wholesaler retailer___ Consumer
 Producer __ agent _ wholesaler retailer
Consumer
 Direct marketing
 A zero-level channel (also called a direct-
marketing channel) consists of a manufacturer
selling directly to the final customer through
Internet selling,
door-to-door sales,
mail order,
telemarketing or
manufacturer-owned stores.
 Indirect marketing

 Wholesalers: buy products in large quantities

and sell to retailers, industrial consumers and
other wholesaler.
Functions:
 Selling and promoting:
 Buying and assortment building:
 Bulk-breaking: (breaking large lots into small
quantities).
 Cont’d…
 Warehousing: Wholesalers hold inventories
 Transportation
 Financing
 Risk taking
 Market information
 Management service and advise
 Types of wholesalers
 Merchant wholesalers: Independently owned
businesses that take title to the merchandise
they handle.
 Full-service wholesalers: Provide a full line of
services.
 Limited-service wholesalers: Offer fewer
services than full-service wholesalers.
 2. Brokers and agents
 Brokers: Chief function is bringing buyers and
sellers together and assisting in negotiation.
 They are paid by the party who hired them, and do
not carry inventory, get involved in financing, or
assume risk.
 Agents: Represent either buyers or sellers on a
more permanent basis than brokers do.
 Brokers and agents do not take title to goods. Main
function is to facilitate buying and selling, for
which they earn a commission on the selling price.
3. Manufacturers' and retailers'
branches and offices
 Wholesaling operations conducted by sellers or
buyers themselves rather than through
independent wholesalers.
Retailers
 Retailing includes all the activities involved in
selling goods or services directly to final
consumers for their personal, non business
use.
 Types of Retailers:
1. Amount of Service
 Self-service retailers serve customers who are willing
to perform their own "locate-compare-select“ process
to save money.
 Limited-service retailers provide more sales assistance
because they carry more shopping goods about which
customers need information.
 Full service retailers, such as specialty stores and first-
class department stores, salespeople assist customers
in every phase of the shopping process.
 2. Product Line
 Based on the length and breadth of their product line
I. specialty stores, carry narrow product lines with deep
assortments within those lines.
II. department stores carry a wide variety of product lines
such as home furniture.
III. Supermarkets are the most frequently shopped type of
retail store.
IV. Convenience stores are small stores that carry a limited
line of high-turnover convenience goods.
V. Superstores are much larger than regular supermarkets
Flows in marketing channels
 Some functions (physical, title, promotion)
constitute a forward flow of activity from the
company to the customer;
 other functions (ordering and payment)
constitute a backward flow from customers to
the company.
 Still others (information, negotiation, finance,
and risk taking) occur in both directions.
 Cont’d…

 Product flow
 Negotiation flow
 Ownership/title flow
 Information flow
 Promotion flow
 Intensity of distribution
1. Exclusive distribution: one intermediary
2. Selective distribution: more than a few but
less than all of the intermediaries.
3. Intensive distribution: as many
intermediaries as possible.
 Variables affecting channel
structure
Market variables
I. Market geography
II. Market size
III. Market density: number of buying units per
unit of land area.
IV. Market behavior: type of buying behavior
 Cont’d…
Product variable
Bulk and weight
Perishability
Unit value: price per unit of the product
Degree of standardization
Technical versus non technical
Newness
 Cont’d…
Company variables
Financial capacity
Managerial expertise
Objectives and strategies
Intermediary variable
Availability
cost
 Channel conflict
 A distributer channel consists of dissimilar
firms that have banded together for their
common good.
 Each channels are dependent on each other.
 Channel conflict is disagreement between
channel members on goals and roes; who
should do what and for what rewards.
1. Horizontal conflict
2. Vertical conflict
End of Chapter Seven