CHAPTER 2

MARKETING
CHANNELS
WHAT IS MARKETING CHANNEL?

Marketing channels are defined as internal (own sales force)

 or external (all kinds of channel partners) contractual
organizations that management operates to achieve its
distribution objectives (reaching the product or service to the
consumers/end-users/customers)

Role of Producer and End User in Marketing Channels

Manufacturer is the creator of the product or service and can also be the
originator of the service.

End-users act as retailers hence perform the flows of physical possession,

ownership and financial flows.
Question: Can we consider manufacturers and end-users as part of the marketing
channel members?

THE CLASSIFICATION OF CHANNELS:

1. Direct Channels:
Manufacturers Customers- This is the shortest and
simplest choice as goods move directly from the source
of manufacture to the ultimate user.

Example: Vending Machine of Coca Cola

THE CLASSIFICATION OF CHANNELS:

2.Indirect Channels of Distribution:

A. Manufacturers – Retailers – Consumers:
This option consists of only one intermediary. It is short
and simple. This is a popular in case of consumer
durables such as textiles, readymade garments, etc.

Example: clothes, shoes, and furniture

THE CLASSIFICATION OF CHANNELS:

 2.Indirect Channels of Distribution:
B. Manufacturers – Wholesalers – Retailers – Consumers:
Here, two intermediaries exist. This is the most popular
choice and is used by both small and big companies
alike. This is ideal for consumer non
durables.

Examples: Biscuits and chocolates, soaps, and

shampoos etc.

THE CLASSIFICATION OF CHANNELS:

2.Indirect Channels of Distribution:
c) Manufacturers – Wholesaler – Consumer:
Here, retailers do not exist. This works well for institutional consumers such as
colleges, hospitals, schools clubs, government agencies, business houses,
religious institutions etc. This can be adopted in case of consumer durables and
consumer non-durables.
Flows in Marketing Channels

One traditional framework that has been used to express the channel mechanism is
the concept of flow. These flows reflect the many linkages that ties channel members
and the other agencies together in the distribution of goods and services.

Product flow
Negotiation flow
Ownership flow
Information flow
Promotion flow
Flows in Marketing Channels

Product flow
1

The actual movement of the physical product from the

manufacturer through all the parties who take physical
possession of the product until it reaches the ultimate
consumer.

Flows in Marketing Channels

 Negotiation Flow
2

The negotiation flow encompasses the institutions that

are associated with the actual exchange processes.

Flows in Marketing Channels

Ownership Flow
3
 The ownership flow shows the movement of title through
the channel.

Flows in Marketing Channels

Information Flow
4

Information flow identifies the individuals who participate

in the flow of information either up or down the channel.
Flows in Marketing Channels

Promotion Flow
5

The promotion flow refers to the flow of persuasive

communication in the form of advertising, personal selling,
sales promotion, and public relations.

THE EVOLUTION OF MARKETING CHANNELS

The use of the word "marketing channel"seems to have started to describe the trade
 intermediaries who connect companies and the users of their products.

These"exchange relationships" have evolved with the maturity of markets and

development of technology.

THE EVOLUTION OF MARKETING CHANNELS

In the past, all the products were those which were produced on the agricultural
farms and it was necessary to have the points of production to be close to the
points of consumption.

The Industrial revolution changed the way producers started looking at

providing reach to their customers/consumers. Industrialization also
resulted in urbanization
 After the Second World War, the US economy ended up
with huge stockpiles of inventory which needed to be
marketed in order to release valuable working capital.

PROMINENT MARKETING CHANNEL SYSTEMS

We have seen that companies use a variety of channel partners depending on the
business they are in and the level of customer service they are striving for.

The various channel partners can be grouped into three channel systems:

i. Vertical marketing systems

ii. Horizontal marketing systems
 iii. Multi-channel marketing systems

PROMINENT MARKETING CHANNEL SYSTEMS

Vertical marketing systems

This is at variance with a conventional marketing channel system of a producer,
distributor and retailer.

Each of these channel members including the company acts independently and tries
to run a profitable business but entities were to act together as one team to provide
service to the end user tit would be called a'vertical marketing system

Vertical marketing systems are of three types: (i) corporate, (ii) administered, and
 (iii) contractual.

PROMINENT MARKETING CHANNEL SYSTEMS

Vertical marketing systems

A corporate vertical marketing system involves the ownership of all levels of the
production or distribution chain by a single company

This gives a high degree of control over the channel for the company.

Examples: Bata, Bombay Dyeing, Raymond, Titan, Sears and

 Goodyear.

PROMINENT MARKETING CHANNEL SYSTEMS

Vertical marketing systems

A Administered vertical marketing system . Here the ownership of the different distribution
channels is not with one entity rather one entity is of a certain size and it influences that it can
control other channel partners.

Most manufacturers of large market share products like HUL or Nestle can dictate terms to
retailers, for example, on stock levels, shelf space allocation to them and prominence of displays.
 Other examples include Pepsi, Coca Cola and Gillette

PROMINENT MARKETING CHANNEL SYSTEMS

Vertical marketing systems

A Contractual VMS are convenient arrangements between channel members when

they get together to obtain economies of scale or use favorable opportunities to
increase their sales

There could also be a link to one part of the distribution organization-a franchise
organization, like for some pizza brands. Service firm sponsored retailer franchise like
Starbucks, Cafe-Coffee Day, McDonalds and Pizza Hut where a distribution network is
 franchised.

PROMINENT MARKETING CHANNEL SYSTEMS

Horizontal marketing systems

This system operates between two or more totally unrelated companies but the
arrangement of working together provides benefits to both.

Examples could be of supermarkets having ATMs of leading banks in their premises or

Café Coffee Day outlets at airports. Retail outlets in petrol pumps are other examples.
PROMINENT MARKETING CHANNEL SYSTEMS

Multi Channel marketing systems

This system is adopted by companies which use two or more marketing channels to
reach different customer segments. Most FMCG companies, for example, have a
different set of channels to service the retail trade and institutional customers.

Most FMCG companies, for example, have a different set of channels to service the
retail trade and institutional customers.

PROMINENT MARKETING CHANNEL SYSTEMS

Apple: Customer Service And Education
Apple is considered a “click-and-mortal” retailer which means Apple operates both physical
and online stores. However, the situation with Apple’s physical retail stores is unique. Rather
than being designed for sales, Apple Stores are primarily designed to complement Apple’s
E-Commerce business which accounts for the majority of total sales.

“Apple’s own website emphasizes customer level and education instead of actual retail for
its brick-and-mortal stores”.