Marketing Channels

Marketing Channel
A marketing channel is a system of relationships existing among
businesses that participate in the process of buying and selling products
and services.
Marketing channels are set of interdependent organizations involved in
the process of making the product or service available for use or
consumption.
Functions of Channel Members

I. Channel Members Create Utility.

II. Channel Members Facilitate Exchange Efficiencies.

III. Channel Members may reduce Discrepancies and Separations.

IV. Other Functions.

 Role of Marketing Channels
Roles Description

Buying Purchasing a broad assortment of goods from the producer or other channel members

Carrying Inventory Assuming the risks associated with purchasing and holding an inventory.

Financing Providing funds required to cover the cost of channel activities.

Marketing Research Providing information regarding the needs of customers.

Negotiating Attempting to determine the final price of goods and the terms of payment and delivery.

Promoting Contributing to national and local advertising and engaging in personal selling efforts.

Selling Performing activities required for selling goods to consumers or other channel members.

Servicing Providing a variety of services, such as credit, delivery and

Transporting Arranging for the shipment of goods to the desired destination.

Channel Design Decisions
 Intermediaries

Intermediaries are the middlemen and signify those individuals in the

channels that either take title to take goods and sell at profit.

They are directly involved in process of flow of goods from

manufacturer to consumer.
 Types of Intermediaries
Company Sales Force
Middlemen
Agent or Broker
Wholesaler
Retailer
Distributor
Dealer
Value-Added Resellers (VARs)
Merchants
Carrying and Forwarding Agents (C&F)
 Distribution Strategies

1. Intensive Distribution

2. Selective Distribution

3. Exclusive Distribution
Selection of Channel Members

The marketing managers should identify what characteristics distinguish better

intermediaries. Selecting marketing channels can be a complicated process, particularly

if part of the channel is outside the producer’s direct control. In addition, there is not an

endless supply of available intermediaries sitting around waiting for producers to give

them a call. The elements that managers examine as they define channel strategies

can be grouped into market factors, product factors and producer factors.
Factors governing the choice of channel of
distribution

FACTORS

Products Market Institutional

Unit factors
factors factors factors

Environmental factors
Market Factors

1. Customer Preferences

2. Organizational Customers

3. Geography

4. Competitors
Product Factors:

1. Life Cycle

2. Product Complexity

3. Product Value

4. Product Size and Weight

5. Consumer Perceptions
Institutional Factors:

1. Company Objective

2. Company Resources

3. Desire for Control

4. Breadth of Product Life

 Training Channel Members
The training programs can be on selling skills, on business processes
and other soft skills required to serve the end customer. The training
programs should cover customer contact and interaction management,
selling skills, relationship building skills and business development skills.
The company should undertake a continuous training calendar for its
employees.
 Motivating Channel Members
The marketing manager should understand his need and then design
motivational programs to stimulate peak level performance. The
relationship should be developed based on mutual cooperation, trust and
scientific distribution programming.
The most challenging aspect is gaining intermediaries’ cooperation for
which one needs to use positive motivational tools like higher margins,
cash discounts, quantity discounts, cooperative advertising, advertising
allowances and point of purchase displays.
Many marketing managers also use negative tools, like slowing down of
distribution, reduction in cash allowance and credit period to threaten
them to commit for higher sales.
 Strategies for motivating Intermediaries

 Relationship Marketing

 Benefit and Costs Offered to Intermediaries

 Co-operative Programs

 Distributor Advisory Councils (DAC)

 Evaluating Channel Members
The marketing manager may set up standard evaluation
bench marks like sales quota, market share, average
inventory carrying level, customer response and
delivery time, usage and management of unused,
unusable and damaged goods and cooperation in sales
promotion and channel employee training programs
organized by the company. While the company should
reward the exceptions, it should also guide, goad, re-
motivate and terminate the underperformers.
 Modifying Channel Arrangements :
Six Step Approach
1. The marketing manager should research customer’s value
perception, needs and desires regarding service expected
from the channel members
2. Compare and contrast the existing distribution system of the
company, with its competitors with respect to customer
requirements.
3. Find out the service output gaps that need immediate
attention for correction.
4. Identify the organizational and market based constraints that
will limit possible corrective actions.
5. Develop a new/modified channel solution.
6. Implement and monitor the modified distribution channel.
Classification of channels/channel levels

Channels of distribution

0-level 1-level 2-level 3-level

 0-level 1-level 2-level 3-level

manufacture Manufacturer manufacturer manufacturer

wholesaler wholesaler

jobber
retailer
retailer
retailer

consumer consumer
consumer consumer
 Types of Intermediaries
1. Merchant middlemen
• Wholesalers
• Retailers

2. Agents
• Brokers
• Commission agents
• Selling agents
• Clearing agents
• auctioneer
 Wholesalers
Functions of wholesalers:
1) Assembling and buying.
2) Warehousing.
3) Transporting.
4) Financing.
5) Risk bearing.
6) Grading, and packaging.
7) Dispersing and selling.
8) Providing market information.
 Services of Wholesalers
1.Service to manufacturers-
• Economies of scale.
• Saving in time and trouble.
• Better use of capital.
• Price stabilization.
2. Services to retailers-
i. Saving in cost and time.
ii. Economy in transport and packing.
iii. Better use of limited factors.
iv. Expert knowledge.
 Types of wholesalers
• Full function
• Converter
• Drop shipper
 Retailers
Retailing includes all activities directly related to the
sale of goods and services to the ultimate consumer for
personal or non-personal use.
 Functions
1. Buying and assembling.
2. Warehousing.
3. Selling.
4. Grading and packing.
5. Financing.
6. Advertising.
 Services of Retailer
• To manufacturer and wholesaler
1. Offer opportunity.
2. A big relief.
3. Provision of information.
4. Reduce the risk of loss.
• To the consumers
1. Largest choice.
2. Relief from storage.
3. Extra service.
4. Supply of information.
 Agent middlemen
• Agent middlemen are those channel components who help in the
transfer of goods from the hands of ultimate users without acquiring
the ownership of these goods.
• They operate for a commission.
 Types of Middle Agents
1. Commission agents.
2. Brokers.
3. Factors.
4. Auctioneers.
5. Selling agents.
6. Clearing agents.
Factors governing the choice of channel of
distribution

FACTORS

Products Market Institutional

Unit factors
factors factors factors

Environmental factors
 Product Factors
1. Product nature.
2. Technical nature: simple or complex.
3. The length of product line.
4. The market position: market position of
manufacturer.
 The Market Forces
1. The existing market structure.
2. The nature of purchase deliberations.
3. Availability channel.
4. competitior's channels.
 Institutional Factors
1. The financial ability of channel members.
2. The promotional ability of channel members.
3. The post-sale service ability.
 Unit factors
1. The company’s financial position.
2. The extent of market control desired.
3. The company reputation.
4. The company marketing policies.
 Factors governing the choice of Intermediary
1. Economic factors
2. The legal restrictions.
3. Fiscal policies.
4. The financial position.
5. The facilities available.
THANK YOU