Marketing Channel Management

Marketing channels
A set of interdependent organizations (intermediaries) involved in the

process of making a product or service available for use or consumption by the consumer or business user.
In other words, it is a system of marketing institutions that

promotes the physical flow of goods and services, along with

ownership title, from producers to consumer or business user; also called a distribution channel.
Few producers sell goods directly to consumers. Instead most use

intermediaries
A company can have one or more marketing channels.

Intermediaries
Most producers dont sell their goods directly to final users, between

them stands a set of intermediaries performing a variety of functions. A set of intermediaries constitute a marketing channel. We can classify intermediaries/specialist organizations into two broad categories: resellers and specialty service firms. Resellers/Merchants: generally purchase or take ownership of products from the mktg. co. with the intention of selling to others. These can be classified into several sub-categories such as: Retailers :Orgns. that sell products directly to end consumers Wholesalers Orgn. that purchase products from suppliers, such as manufacturers or other wholesalers, and in turn sell these to other resellers, such as retailers or other wholesalers. Industrial Distributors Firms that work mainly in the business-tobusiness market selling products obtained from industrial suppliers.

 Specialty Service Firms

organizations that provide additional services to help in the

exchange of products but generally do not purchase the product (i.e., do not take ownership of the product): Agents and Brokers Organizations that mainly work to bring suppliers and buyers together in exchange for a fee. Distribution Service Firms also called facilitators Offer services aiding in the movement of products such as assistance with transportation, storage, and order processing. Others This category includes firms that provide additional services to aid in the distribution process such as insurance companies and firms offering transportation routing assistance.

Figure 15.2 Marketing Channel Flows

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 15-5

Channel Levels
A layer of intermediaries that performs some work in bringing the

product and its ownership closer to the final buyer. Number of intermediary levels indicate the length of a channel. A channel having no intermediary levels is called as direct marketing channel.

The channels having one or more intermediaries are called

indirect marketing channels. Cos. Can design their own marketing channel to make product available to customers in different ways. From producers point of view if number of intermediaries incs. The complexity incs and producers control reduces.

Figure 15.3 Consumer Marketing Channels

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 15-7

Figure 15.3 Industrial Marketing Channels

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall 15-8

SUPPLIERS

SUPPLIERS

SUPPLIERS

FACTORY (OEM)

FACTORY (OEM)

WAREHOUSE

WAREHOUSE

WAREHOUSE

CFA

CFA

CFA

CFA

CFA

CFA

DISTRIBUTOR

DISTRIBUTOR

DISTRIBUTOR

LG SHOPPE

DEALER

DEALER

DEALER

www.lgezbuy.com

INSTITUTIONS

CONSUMERS

CONSUMERS

CONSUMERS

CONSUMERS

Importance of Marketing channels

Cost Savings in Specialization

Channel members are specialists and perform tasks better and

at lower cost than companies who do not have distribution

experience.

Have greater efficiency in making goods available to target markets. Through their contacts, experience, specialization and scale of operation.

Marketers attempting to handle too many aspects of distribution

may end up exhausting company resources as they learn how to distribute.

 Reduces the amount of work & Exchange Time

Customers

Want

to

Conveniently

Shop

for

Variety:

Intermediaries transform assortments of products made by producers into assortments wanted by consumers.
Intermediaries buy large quantities from producers and break them

into smaller quantities wanted by customers.

Provide value by bridging the major time , place & possession gaps Provides information.

Offer Financial Support to customers: Resellers often provide programs that enable customers to more easily purchase products by

offering financial programs that ease payment requirements. These

programs include allowing customers to: purchase on credit; purchase using a payment plans.

Distribution Channel Functions

Risk Taking Financing Information Promotion

Physical Distribution Negotiation

Contact

Matching

 Functions that help to complete transaction

Information: gathering & distributing mktg. research and intelligence

information about market and various forces in mktg. environment.

Promotion: Developing & spreading persuasive comm. About an

offer.
Contact: finding & communicating with prospective buyers. Matching: shaping and fitting the offer to buyers needs.

Negotiation: reaching an agreement on price and other terms of offer

so that ownership and possession can be transferred.

 Functions that help to fulfill the

completed transaction
Physical distribution: transporting goods Financing: acquiring & using funds to cover costs of

channel work
Risk taking: Assuming the risk of carrying out the

channel work.

Channel Behavior
A marketing channel consists of firms that have partnered for their

common good. Each channel members success depends on others.

Ex- Maruti dealers depend on maruti to design product according to

consumer needs. And Maruti depends on Dealers to attract and

persuade customers to buy their products.

Ideally, the channel member should work together smoothly. They should understand & accept their roles, coordinate their

activities and cooperate attain overall channel goals.

 However, individual channel members rarely take such broad

view.
Cooperating to achieve overall channel goals sometimes mean

giving up individual co. goals. Although channel members depends on each other they often act in their own short term

interests.
They often disagree on who should do what & for what

rewards. Such disagreements over goals, roles, rewards generate channel conflict .

Channel conflicts
Horizontal conflicts: conflicts Occurring among firms at the same

level of channel.
Ex- conflicts Between retailers selling same products but at different

prices or offers.
Ex- conflicts between hotels of same hotel chain with few providing

service as per quality policy while others providing a distorted service

that is harming the overall image of the Brand.

 Vertical conflicts: Conflicts occurring among different levels of the

same channel.
Ex- conflicts between wholesaler and retailer for untimely delivery

of products. Conflict between wholesaler and manufacturer when manufacturer supplied directly to retailer (because of large order).
Cos. Should try their best to prevent and solve channel conflicts. Multilevel

Channel conflicts: conflicts occurring between

different channel members.

For the channel to perform well, conflict must be managed.

Vertical Marketing systems

A distribution channel structure in which producers, wholesalers

and retailers act as a unified system. One channel member owns

the others, has contracts with them, or has so much power that they all cooperate.
There are three types of VMS: Corporate VMS

Contractual VMS
Administered VMS

Types of Vertical Marketing Systems

Greater
Corporate
Common Ownership at Different Levels of the Channel

Degree of Direct Control

Contractual
Contractual Agreement Among Channel Members

Administered Lesser
Leadership is Assumed by One or a Few Dominant Members