MARKETING CHANNELS

An Introduction
 Distribution
 Products must be available to consumers who
want to purchase them conveniently, quickly, and
with a minimum of effort.
 The distribution system determines a product's
marketing presence and the buyers' accessibility
to the product.
 Defn’ : A distribution channel (also known as a
marketing channel) is a set of interdependent
organizations or intermediaries involved in the
process of making a product available for
consumption.
 Utilities offered by Distribution
 Distribution (also known as place) provides utility.
 Time utility is offering the product when the
customers want to purchase it.
 Place utility is offering the product where the
customers want to purchase it.
 Possession utility facilitates customer ownership
of the product.
 Form utility might be needed if changes have
been made to the product in the distribution
channel (Coca-Cola concentrate sold to bottlers).
 A channel directs the flow of products from
producers to customers. Intermediaries are
organizations operating in the middle or
between the producer and the final buyer.
 They link producers to other intermediaries
or to the ultimate users of the product.
Traditionally, intermediaries have been
referred to as middlemen.
 Channel interactions

How a marketing intermediary reduces the number of channel transactions

and raises economy of effort
 Functions of Intermediaries
 Information (Gathering and passing MR to
the company)
 Promotion (Spreading persuasive commn.)
 Physical possession (Transporting and
storing)
 Negotiations (Deciding terms of sale)
 Risk (from damages etc)
 Title (transfer of title)
 How are Marketing Channels useful?

 Manufactures typically produce a large quantity

of a limited variety of goods.
 Consumers usually desire a small quantity of a
wide variety of goods.
 Intermediaries reduce this quantity discrepancy
by matching supply and demand. They buy in
large quantities and sell in smaller quantities.
 They help to smooth the distribution path for
goods by creating utility, performing marketing
functions, and cutting costs.
 Channel Members
 Marketing intermediaries include
wholesalers and retailers.
 Wholesale transactions are all transactions
except the transaction with the ultimate
consumer.
 Retail transactions are all the transactions
with end users of goods and services.
 Channel Members

 The purchaser, not the price, determines

the classification of the intermediary as a
wholesaler or retailer.
 If over 50% of sales are with other
intermediaries, then the intermediary is a
wholesaler. If over 50% of sales are with
the consumer, then the intermediary is a
retailer.
Market Intensity

 The organization must decide on the

amount of market coverage--intensive,
selective, or exclusive--needed to
achieve its marketing strategies.
 In terms of number of intermediaries to
use, an organization has three basic
strategies it can follow.
 Market Intensity

 For convenience products, where widespread

availability is key, the company may opt for
intensive distribution.
 This is stocking the product in as many outlets
as possible. An example would be soft drinks,
gum, candy, and potato chips.
 They are sold at grocery stores, gas stations,
and neighborhood stores. Companies that
frequently use this method are Proctor &
Gamble, Coca-Cola, and Knorr Soup.
 Market Intensity
 For shopping products, where consumers spend
some time in the decision process and have some
brand preferences, selective distribution may be the
best option.
 Under selective distribution, the organization tries to
use more than one, but fewer than all the
intermediaries who are willing to carry the product.
 Most television, furniture, and small appliance brands
are distributed in this manner. Maytag, Whirlpool, and
General Electric use this method to distribute their
products.
 Market Intensity
 For specialty products where consumers have
strong brand preferences and are willing to go out
of their way to obtain the product, an organization
may opt to use exclusive distribution, where a
limited number of dealers have the exclusive right
to distribute an organization’s products in their
territories.
 This form is often used in the distribution of new
automobiles and prestige women’s clothing. Rolls
Royce dealerships, for example, are limited to
only large metropolitan areas where significant
portions of their customers reside.
 Channel intermediaries - Wholesalers

 Break down ‘bulk’

 buys from producers and sell small
quantities to retailers
 Provides storage facilities
 reduces contact cost between producer
and consumer
 Wholesaler takes some of the marketing
responsibility e.g sales force, promotions
Channel intermediaries - Retailer

 Much stronger personal relationship

with the consumer
 Hold a variety of products
 Offer consumers credit
 Promote and merchandise products
 Price the final product
 Build retailer ‘brand’ in the high street
Channel intermediaries – Agents & Brokers

 Do not take title.

 Have knowledge of buyers and sellers.
 Help in arranging a meeting of both parties.
 Help negotiations.
 Charge a commission from one or both the
parties.
 Mainly used in international markets
 Agents usually represent only one seller or
buyer, brokers work on a freelance basis.
 Types of Marketing Channels
 Consumer Goods
Types of Marketing Channels
B2B goods and services
 Zero Level Channel
 Characteristics of companies distributing
directly :
 No middlemen
 Referred to as Direct Channels
 Company has sound capital structure to
support direct distribution
 Inversely, companies having small markets,
poor capital structure, perishable products
also use direct distribution.
Examples

 Catalogue Marketing
 Company showrooms
 Door – to – door selling
 Online / internet marketing
 Tele shopping
 Tele marketing
 Automatic vending machines
 One level channel

 Only one middleman between

manufacturer and consumer.
 Manufacturer – Dealer – Consumers
e.g. All major automobiles
 Manufacturer – Large retailer –
Consumers e.g. Supermarkets etc.
 One level channel

 Manufacturer – Franchisee –
Consumer e.g. Food products,
designer jewelry, garments etc.
 Service provider – Agents –
Consumers e.g. Life Insurance.
 Manufacturer – Manufacturers Agent –
Consumer e.g. Personal Computers
etc.
 Two Level Channel

 There are two middlemen between

Manufacturer and Consumer.
 Manufacturer – Wholesaler – Retailer
– Consumer e.g. All FMCG’s
 Manufacturer – Broker – Retailer –
Consumer e.g. Farm products, food
grains etc.
 Three or more level channel

 Manufacturer – C&F Agent – Stockist –

Retailer – Consumer e.g. All pharmacy
products.
 Manufacturer – C & F Agents –
Redistribution Stockist – Retailer –
Consumer e.g. Companies having large
product lines – HLL.
 Distribution of some food articles in Japan
have as long as six levels of distribution.
 Unconventional Channels

 Apart from the conventional (traditional)

channels, now a days, a number of
unconventional channels have been
introduced. Companies that find these
channels more economical and efficient
are slowly shifting to these channels.
 We see a few unconventional channels
that are gaining popularity…
 Unconventional Channels

 Door to Door selling : One of the oldest forms of

selling products. The changed version of door to
door selling is referred to as MLM ( Multi Level
Marketing ).
 No one is appointed as a Retailer, Wholesaler
etc. Newly added consumers are to promote the
products for which they are paid commissions.
 Examples of traditional door to door selling and
MLM may include milk, vacuum cleaners,
cosmetics, Tupperware & Amway products, etc.
 Unconventional Channels

 Consumer Co – operatives : A group of

consumers buy directly from
manufacturers or wholesalers and
undertake retailing for its members. Since
they bypass at least one channel, they can
make a saving and products available to
consumers at reasonably cheap price.
 Usually work on a no profit no loss basis.
 Unconventional Channels
 Automatic Vending Machines : One of the
newest format of non store retailing. It is an
impersonal form of retailing in which money or
credit card operated machines provide products
or services.
 In case where products are offered, consumers
have to insert coins and collect the products on
their own. ( Still in the primary stage in India )
 Services like ATM’s or PCO’s are also forms of
AVM’s.
 Unconventional Channels
 Kiosk : A slightly different version of
vending machines which actually offer no
product but give information and collect
orders from potential buyers. Yet to
establish fully in India.
 In the developed countries, consumers
can avail services of interactive videos, on
line ordering technology and place orders.
 Unconventional Channels
 Catalogue Marketing : Special, exclusive
and ethnic products can be sold through
Catalogue Marketing. Catalogues are
sent to potential and repeat buyers and
orders are booked over the mail, phone or
on – line.
 In India, a few cosmetic companies,
jewelers etc use this format.
Short vs. Long Channels
 Channel Conflict

 A channel conflict may be defined as “A

situation in which one channel member
perceives another channel member(s) to
be engaged in behavior that prevents it
from achieving its goals”.
 Conflict is opposition, disagreement or
discard among the organizations.
 Conflicts can be classified as

 Vertical conflict
 Horizontal conflict
 Inter type conflict
 Multi Channel conflict
 Vertical conflicts

 Vertical conflicts occur due to the differences

in goals and objectives, misunderstandings,
and mainly due to the poor communication.
 Lack of role clarity and over dependence on
the manufacturers. For e.g. Today the large
retailers dominate the market and dictate the
terms. Hence there are often conflicts between
these giant retailers and the manufacturers.
 Reasons for vertical Conflict

 Over expectations
 Dual Distribution
 Over Saturation
 Partial treatment
 No Sales and advertising support
 Rude behaviour
 Refusal to replace faulty goods
 Over stocking and dumping
 Delays in delivery
 Quality issues
 Inadequate credit offering
 Intermediates promote competitors brands, promote
private label brands or offer less showroom space etc.
 Less service support by intermediaries.
 Intermediaries fail to follow up on payments
 No feedback sent back to the producers.
 Horizontal conflicts
 Horizontal conflicts are the conflicts between
the channel members at the same level, i.e.
two or more retailers, two or more
franchisees etc.
 These conflicts can offer some positive
benefits to the consumers.
 Competition or a price war between two
dealers or retailers can be in favor of the
consumers.
 Reasons for horizontal conflicts

 Price-off by one dealer / retailer

 Aggressive advertising and pricing
by one dealer/ retailer
 Extra service offered by one retailer
 Territory issues
 Inter Type conflict
 Inter type conflict occurs when, the Intermediaries
dealing in a particular product starts trading outside
their normal product range.
 For example, now the supermarkets such as
Foodworld also sell vegetables and fruits and thus
compete with small retailers selling these products.
 Large retailers often offer a large variety and thus
they compete with small but specialized retailers.
 This concept is called as “Scrambled
Merchandising” where the retailers keep the
merchandise lines that are outside their normal
product range.
 Multi-channel Conflict

 Multi-channel conflict occurs when the

manufacturer uses a dual distribution
strategy, i.e. the manufacturer uses two or
more channel arrangements to reach to the
same market.
 Manufacturers can sell directly through
their exclusive showroom or outlets.
 This act can affect the business of other
channels selling manufacturer’s brands.
 Multi-channel Conflict

 Manufacturers can bypass the wholesalers

and sell directly to the large retailers.
 Conflict becomes more intense in this case
as the large retailers can enjoy more
customers and so the profit due to offering
more variety and still economical prices,
which is possible due to a volume purchase.