Marketing channels

 A marketing channel is the people, organizations, and

activities necessary to transfer the ownership of goods from the
point of production to the point of consumption. It is the way
products and services get to the end user, i.e. the consumer; and
is also known as a distribution channel.
  A marketing channel is a useful tool for management, and is
crucial in creating an effective and well-planned marketing
strategy.
MARKETING CHANNELS
WHY??
 Information Provider: Middlemen have a role in providing information about the
market to the manufacturer. Developments like changes in customer demography,
psychography, media habits and the entry of a new competitor or a new brand and
changes in customer preferences are some of the information that all manufacturers
want.
Price Stability: Maintaining price stability in the market is another function a
middleman performs. Many a time the middlemen absorb an increase in the price of the
products and continue to charge the customer the same old price. This is because of the
intra-middlemen competition. The middleman also maintains price stability by keeping
his overheads low.
Promotion: Promoting the product/s in his territory is another function that
middlemen perform. Many of them design their own sales incentive programs, aimed at
building customers traffic at the other outlets.
Help in Production Function: The producer can concentrate on the production
function leaving the marketing problem to middlemen who specialize in the profession. 
Matching Demand and Supply: The chief function of intermediaries is to assemble
the goods from many producers in such a manner that a customer can affect purchases
with ease. The goal of marketing is the matching of segments of supply and demand.
Intermediaries involved in this process
Agents – acting on behalf of buyer or seller but do not
take title of the goods
Facilitators – transporters, C&Fs, banks, ad agencies
Advantages of a distribution system
Key external resource
Takes years to build
Significant corporate commitment to a large no. of
firms
Commitment to a set of policies that nourishes long
term relationships
Why would a manufacturer not like to do
his own distribution?
Lacks the financial resources to do direct marketing
Cannot have the infrastructure to make the product
widely available and near the customer
Trading profits could be less than manufacturing
profits
Manufactures typically produce a large
quantity of a limited variety of goods

Consumers usually desire a small quantity of

a wide variety of goods
If all manufacturers tried to reach all
consumers

M1 C1

M2 C2

M3 C3
If they tried to go through an intermediary

M1 C1

M2 D1 C2

C3
M3
Channel functions
Gathers information on customers, competitors and
other external market data
Develop and disseminate persuasive communication
to stimulate purchases
Agreement on price and other terms so that transfer of
ownership can be effected
Placing orders with manufacturers
Channel functions (cont’d)
Acquire funds to finance inventories and credit in
the market
Assume responsibility of all risks of the trade
Successive storage and movement of products
Helps buyers in getting their payments through
with the banks
Oversee actual transfer of ownership
Channels can be
Forward
Backward
Channel Alternatives
Types of available business intermediaries
No. of intermediaries needed
Terms and responsibilities of each channel member
Channel design decisions
Analyzing customer needs
(a)Lot size :
 In buying cars for its fleet, Hertz prefers a channel from which it can
buy a large lot size.
 A Household wants a channel that permits buying a lot size of one.
Waiting and delivery time :
The average time customers of that channel wait
for receipt of the goods. Customers increasingly
prefer faster and faster delivery channels.
Spatial convenience :
 The degree to which the marketing channel makes it easy for
customers to purchase the product.
 Example : Chevrolet offers greater spatial convenience than
Cadillac, because there are more Chevrolet dealers.
 Chevrolet’s greater market decentralization helps customers
save on transportation and search costs in buying and repairing
an automobile.
Product variety :
 The assortment breadth provided by the marketing
channel.
 Normally, customers prefer a greater assortment
because more choices increase the chance of finding
what they need.
 United Spirits Limited (USL) is the largest spirits
company in the world by volume, selling 114 million
cases for the fiscal ending March 21, 2011.
Service backup
 The add-on services are the credit, delivery,
installation, repairs and others provided by the
channel. The greater the service backup, the
greater the work provided by the channel.
 ESTABLISHING CHANNEL OBJECTIVES
 Channel objectives are a part of and result from the company‘s marketing objectives that
need to be stated in terms of targeted service output levels.

 Profit considerations and asset utilization must be reflected in channel objectives and the
resultant design.

 It should be the Endeavour of the channel members to minimize the total channel costs
and still provide with the desired level of service outputs.

 For example,
1. Perishable products require more direct marketing because of the dangers associated with
delays and repeated handling.
2. Products requiring installation and/or maintenance services are usually sold and
maintained by the company or exclusively branches dealers.
3. Custom-built machinery and specialized business forms are sold directly by company
sales representatives because middlemen lack the requisite knowledge.
IDENTIFYING MAJOR CHANNEL ALTERNATIVES
 Companies can choose from a wide variety of channels for reaching customers from
sales forces to agents, distributors, dealers, direct mail, telemarketing, and the
internet.

Three Elements of Channel Alternatives :

1. The type of business intermediaries  Company Sales force, Manufacture’s Agency,

Industrial Distributors..

2. The number of intermediaries  Intensive Distribution & Exclusive Distribution.

3. Terms and responsibilities of each channel participants  price policies,

conditions of sale, territorial rights and specific service to be performed by each
party.
 EVALUATING MAJOR CHANNEL ALTERNATIVES
 Economic criteria :- Each channel alternative will produce a different level of sales and
cost.
 Example : Company sales representatives are better trained to sell the company’s products..
 A Sales agency could economically sell more than a company sales force due to more sales
guys and better knowledge of the geographical area..

 Control criteria :- Channel evolution has to include control issues. Using a sales agency
poses a control problem.
 Example : The agent might not master the technical details of the company’s product or
handle its promotion materials effectively.

 Adaptive Criteria :- Each channel involves some duration of commitment and loss of
flexibility.
 Example : A manufactures seeking a sales agency might have to offer a five year contact.
During this period, other means of selling such as direct mail might become more effective,
but the manufactures is not free to drop the sales agency
Wholesaling Definitions
Wholesaling

All activities involved in selling goods and services to those

buying for resale or business use not to consumers

Wholesaling

A firm engaged primarily in wholesaling activity

 Wholesaling Characteristics
 Provides information & advisory to manufacturers and retailers

 Assembles the goods from many sources for the retailers

 Sell large quantities

 Buy goods from manufacturers & resell to retailers

 Does not sell to the ultimate consumer

Services of Wholesalers
Selling and promoting
Buying and assortment building
Warehousing
Transportation
Financing
Risk bearing
Marketing information
Management services and advice
 Retailing
Includes all activities involved in
selling goods or services directly to
final consumers.
 Retailing Functions
Provide personal services to all
Provide two-way information
Facilitate standardization & grading
Undertake physical movement and storage of goods
Assemble goods from various sources
Stock goods for ready supply to buyers
Extend credit facility
Create demand by window display etc.
Undertake sales promotion activities, assume risk
Types of Retailers
Self – service – Super market (no assistance)

Self – selection – Dept. store (assistance is available if

required)

Limited service – Counter sales men are there

Full service – Co. showrooms. Salesmen are available to

explain, demonstrate, give technical help and promote the
products.
Major Store Retailer Types
Specialty stores: Narrow prdt. Line with deep
assortment, furniture, sports, apparel etc.
Department stores: Variety of prdts under 1 roof
Supermarkets: large, low-cost, margin, high volume, self-
service
Convenience stores: nearby home, grocery etc.
Discount stores: low-cost, margin, high volume,
offers mostly national brands.
Off-price retailers: bought at less than wholesale price &
sold at less than retail
THANK YOU