CHAPTER 9: MARKETING CHANNELS

I. MARKETING CHANNELS

Marketing channels are defined as the internal or external contractual organization that
management operates to achieve the distribution objects.

Marketing channels are expected to perform a number of functions. These functions recognize
three kinds of flows:

1. Forward flow – company to its customers – goods and services

2. Backward flow – customers to the company – mostly the value of the goods or services
bought by the customers. Sometimes this may also be the goods returned from the
market or meant for reuse. (soft drink bottle)
3. Flows both ways – which is mostly information

 These
three
kinds of
flows are
further
broken
down
into five
flows as
follows:

1. Physical flow of goods

2. Title flow of goods ( includes negotiation, ownership and risk sharing also)
3. Payment flows (financing and payment)
4. Information flow about goods, orders placed and orders executed
5. Promotion flows about the trade and customers promotions.

 Some practitioners make a distinction in the flows these are the :

1. Physical possession- the intermediaries only holds the goods in behalf of the
company.

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 2. Ownership –the intermediaries has to buy the goods from the company for the
re-distribution to customers in his territory.

II. WHAT ABOUT INFORMATION?

All activities and tasks performed by the channel members can only be effective if the
transactions at each stage are covered by correct, accurate and immediate information
for the company, the channel members and the customers.

The flow of information keeps the channel performing, evaluating situations and taking
corrective actions in time.

Information flows are most of the time taken for granted and hence do not feature
separately in the list of channel flows. Normally the information flows are in the nature
if report and records.

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 Channel Partners and their involvement in flows.

III. EVOLUTION OF MARKETING CHANNELS

 In the past manufacturers or producers sell their goods within the limits of their
physical reach.
 During Industrial revolution changed the way producers started looking at
providing “reach” to their customer. Industrialization also resulted in
urbanization. While industrialization required movement of raw material and the
means of making production happen –machinery and equipment, these added to
the dimension to distribution –creating an assortment, transportation which
brought traders into the system.
 After world war the result is there is a huge stockpile of inventory which needed
to be “marketed” in order to release valuable working capital. The concept of
“branding” become apparent.
 The effort put on selling spawned a host of independent intermediaries in the
form of wholesalers and retailers.
 Development of distribution network – automobile and highway system. It is
now possible to move merchandise to previously inaccessible locations.
 1950 the laying of foundation of the marketing concept which meant each
channel member had to work towards meeting the needs of his customers.
The “PULL” concept was taking shape. Gathering and using customer
information became the norm.
 The birth of “relationship marketing” – relationships were required to build for
long-lasting and strong business results.

IV. CHANNEL FORMAT POSSIBLE

Categories of channel formats

1. Producer driven
2. Seller driven

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 3. Service driven
4. Others

 Producer Driven –This is the effort of the manufacturer to reach the product to
his consumers. Examples:
a. Company owned retail outlets – petrol, Bata,
b. Reliance mobiles
c. Licensed outlets – KMF
d. Consignment selling agents
e. Franchisees
f. Brokers
g. Vending machines
h. Company contracted distributors

 Seller driven –Use of existing channels to reach the largest number of end users
a. Existing wholesalers and retailers
b. Modern retail formats
c. Specialty stores – Shoppers’ Stop
d. Discount stores
e. Agents, dealers, stockists
f. Door-to-door sales people.

 Service driven –These are the people who facilitate the distribution
a. Transporters and freight forwarders
b. Providers of warehouse space
c. C&F agents
d. 3P Logistics service providers
e. Couriers
 Others
a. Multi-level marketing systems
b. Co-operative societies
c. Telephone kiosks
d. TV home shopping
e. Catalogue marketing
f. The internet
g. Exhibitions, fairs and trade shows
h. Data base marketing

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 V. CHANNEL LEVELS
A. Zero level – if the product or service is provided to the end user directly by the
company. – Used mostly by companies delivering service like health, education,
banking (also known as service channels)
B. One level – consists of one intermediary
C. Two level – consists of two intermediaries

VI. PROMINENT MARKETING CHANNEL

Marketing channel systems are basically classified into:
A. Vertical marketing system:
1. Corporate VMS
2. Administered VMS
3. Contractual VMS
B. Horizontal marketing system
C. Multi-channel marketing system

 Vertical marketing system –entities band together to deliver service to the

customer.

VMS are of three types:

1. Corporate VMS – successive stages on production and distribution
handled by one entity. This gives high degree of control over the channel
for the company.
2. Administered VMS –one channel leader in the channel network
influences and controls the other channel. The ownership of distribution
channel is not with one entity but one entity is of certain size and
influence that it can control other channel partners.

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 3. Contractual VMS –convenient arrangement made between channel
members to exploit favorable opportunities and economic scale.

 Horizontal marketing system –Two or more unrelated companies work together

using the marketing channel for the benefit of both. They can then exploit the
marketing opportunity better by this tie-up.
– In-store banking in hotels, big stores
– Retail outlets in petrol bunks
– Coffee Day outlets in airports

 Multi-channel marketing system – a firm uses two or more channel to reach

different segments of its customers.

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