UNIT-V:

MARKETING CHANNELS & PROMOTION

Marketing Channels - Nature & Importance
Distribution channels are systems of economic institutions through which a producer of
goods delivers them into the hands of their users.

NATURE/CHARACTERISTICS OF DISTRIBUTION CHANNELS

The main characteristics of distribution channel are as under:

(1) Only those middlemen are included in it who transfer the title of products and services.

(2) Distribution channels are the groups of persons and firms which are included in
distribution process of products and services.

(3) Under distribution channel, middlemen perform various functions in addition to

transferring the title of products.

(4) Under distribution channel, the working middlemen are paid in the form of commission
while retailers are paid in the form of profit.

(5) Distribution channels determine the flow of products and services.

IMPORTANCE OF DISTRIBUTION CHANNELS

In present times, the significance of distribution channels is increasing continuously. Its
significance can be estimated by this fact that it connects two points of pipeline. On one side
of it is producer and the consumer is on other side. The significance of distribution channels
is clear from the following points :

(1) If distribution channel is efficient, then firm develops.

(2) Middlemen deliver the various new products and services on proper time and at proper
place to the consumers or industrial users.

(3) Middlemen play an important role in expanding the market area.

(4) Middlemen provide pre sale and after sale services to consumer.

(5) Middlemen provide various information related to market and product to producers.

(6) Distribution channels perform the activities like advertisement, sales promotion and
personal selling.
(7) The main objective of distribution channel is to make available the right product to the
right consumer at right price and in right quantity.

(8) Distribution channels regulate the purchase decisions. Thus, the cost of business
transactions is decreased.

Marketing Systems - Vertical & Horizontal,

An independent producer, wholesaler and retailer together form a standard marketing
channel. Although as a whole system, they might gain lesser profit, the parts of the marketing
channel are individual businesses that look to magnify their profits. Members of this channel
do not have any significant control over the other members.

Vertical Marketing System

One or more producers, wholesalers and retailers together act as a consolidated system in a
Virtual Marketing system (VMS) A channel captain, i.e. a channel steward, is the most
powerful member of the channel.

It gets the others to cooperate and owns or franchises them. The steward uses its partners’
best interest as a tool to get them to coordinate instead of commanding them or issuing
directives. A channel steward can be from any part of the system. It can be a wholesaler, a
retailer or a producer.

Example – Dominos Franchise Model

As of December 29, 2019, Dominos has above 17,000 locations in approximately 90 markets.
On the basis of global retail sales, it is the largest pizza company in the world.

Dominos is basically a franchiser.98% of the world’s Dominos stores are owned by

individual franchisees. In the U.S. store segment itself, Dominos has 5784 franchised stores
and 342 company-owned stores.

In the international franchise segment, there is a network of stores in around 90 markets.

Dominos had 10,894 international franchises till December 29. 2019. Franchises in the top
ten international markets accounted for around 63% of their stores to date. The table showed
the store count of those ten markets on December 29, 2019.

Example – Coca Cola India Operations

After the economic liberalisation of 1991, TCCC entered the Indian market again in 1992 as
Coca-Cola India Private Limited (CCIPL) as it’s fully owned subsidiary.

The entities that comprise the Coca-Cola System in India are

The Coca-Cola Company (TCCC), Atlanta, USA

 1. Coca-Cola India Private Limited – Anandana The Coca- Cola India Foundation
2. Hindustan Coca-Cola Beverages Private Limited Under Bottling Investments Group.’
3. Franchisee bottlers(Operating in India under License From TCCC)
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Coca-Cola India Pvt Ltd is entirely owned by The Coca Cola Company that makes and sells
concentrates, beverage bases and powdered beverage mixes. There are thirteen companies
that are licensed bottling partners of TCCC.

These licenced bottling partners are allowed to make, pack, sell and distribute beverages
under the specified trademarks of the TCCC. One of them is Hindustan Coca Cola Beverages
Pvt Ltd.

Example – Apple

Along with direct distribution channels, Apple also employs a range of indirect distribution
channels. Some examples of indirect distribution channels are wholesalers, retailers and
cellular network carriers.

31% of the company’s net sales were accounted for through the direct channels, and 69%
were through indirect distribution channels in December 2019.

Types of VMS

Corporate, administered, and contractual are the three kinds of VMS.

1. Corporate VMS

It is the combination of the stages of production and distribution under one ownership.

Example: Nike own stores & Digital Stores

2. Administered VMS

Here, the size and power of a member are used to coordinate the stages of production and
distribution.

Example: Unilever

3. Contractual VMS

Here, different firms at different levels of production and distribution combine their programs
to acquire more economies or sales impact as compared to what they would obtain
individually.
This integration happens on a contractual basis.

Horizontal Marketing System

An emerging market is exploited through programs and resources that are put together by
more than one unrelated company as a joint effort. This is called a Horizontal Marketing
System.

The companies that are involved in this system individually either lack capital, knowledge,
production, marketing resources to exploit alone or are too afraid of the risk to venture alone.
These companies join hands either temporarily or permanently. For example, many
supermarket chains offer in-store banking due to their tie-up with banks.

Example – Starbuck’s partnership with Spotify

The potential of the combination of food and beverage marketers’ loyalty program with
music streaming services is demonstrated with Starbucks’ partnership with Spotify.
Starbuck’s mobile loyalty program is integrated with Spotify’s music streaming.

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With the My Starbucks Rewards, around 17 million customers in the U.S. can curate playlists
for Starbucks stores. This enables the customers to not only create their own in-store playlist
for the Starbucks stores but also listen to them when they’ve left the premisesThis encourages
loyalty, customer generation, customer comfort and active participation between the
customers.

Indian Departmental Store Brand “Shoppers Stop” partners with Citibank

Citibank and Shoppers Stop has an integrated partnership deal since 2002. This partnership
helps with increasing the number of customers at Shoppers Stop through Citibank’s credit
card offers.

For instance: First Citizen Citibank Credit Card can be used by customers to redeem their
First Citizen Reward Points against their purchases made. Rs.60 monetary purchase value
equals 100 points credited on their card.

Retailers – Types
What Is Retail?

Retail involves the sale of merchandise from a single point of purchase directly to a customer
who intends to use that product. The single point of purchase could be a brick-and-mortar
retail store, an internet shopping website, or a catalog.
Retailing is all about attracting consumers through product displays and marketing. Inventory
must be kept, shelves must be kept full, and payments have to be collected. Retailers are
more than places to purchase merchandise, however—they provide manufacturers an outlet
so that they can focus on creating their products.

Types of Retailers

There are different types of retailers that specialize in various sales techniques and cater to
different consumer types. They each provide different experiences—sometimes offering
direct purchasing from a manufacturer, or providing a wide range of merchandise. Others are
based more on convenience.

Department Stores

Traditional department stores sell a wide range of merchandise that is arranged by category
into different sections in the physical retail space. Some department store categories include
shoes, clothing, beauty products, jewelry, housewares, and more.

Grocery Stores and Supermarkets

These retailers sell all types of food and beverage products, and sometimes also home
products and consumer electronics as well.

Warehouse Retailers

Warehouse-type facilities such as Sam's Club stock a large variety of products packaged in
large quantities and sold at prices lower than retail. They generally sell in bulk or in
quantities not otherwise available in other retail outlets.

Specialty/Outlet Retailers

These specialize in a specific category and brand-name products. Victoria's Secret and Nike
are examples of specialty retailers, generally selling only merchandise that carries their brand
name or is associated with it.

Convenience Retailer

For on-the-go consumers, these are usually a retail location that primarily sells gasoline—
they sell a limited range of grocery merchandise and auto care products at a premium
"convenience" price.

Discount Retailer

Discounters sell a wide variety of products that are often privately labeled or generic brands
at below-retail prices. Discount retailers like Family Dollar, Dollar General, and Big Lots will
often source closeout and discontinued merchandise at lower-than-wholesale prices, which
passes savings onto consumers.

Internet/Mobile Retailer
Internet shopping websites ship the purchases directly to customers at their homes or
workplaces, without the expenses of traditional brick-and-mortar retailers. They usually sell
merchandise for a lower-than-retail price, using warehouses for storage and developing
relationships with warehouses, vendors, and sometimes manufacturers to provide goods at
reduced prices.

Wholesalers -'types
Wholesalers occupy a pivotal place in the marketing channel set-up. In most cases they
perform several critical functions invaluable to the smooth flow of goods, ownership, finance,
and information. Several channel systems however, do not involve a wholesaler or distributor
and directly connect the manufacturing unit to the retailers who are in contact with the
customers. Or else, the system connects directly to the customers.
However, in these instances, either the manufacturer or the retailer (or in certain instances the
customer) performs all the activities that a wholesaler will perform. Of course, the nature of
the product distributed, and the consumption pattern determine the need for a wholesaler in
channel systems.
Definition:
The American Marketing Association has defined the wholesaler as “a business unit which
buys and resells the merchandise to the retailers and the merchants or to the industrial,
institutional and commercial users but does not sell insignificant amounts to the ultimate
consumers.”
“The wholesaler is one who buys goods on a large scale with the objective of selling them at
a profit in smaller quantities. He buys from the producers that is the extractor or manufacturer
and sells to the retailers, and is, therefore, the connecting link between these two”. – Carrad
and Oliphant
“A true wholesaler is himself neither a manufacturer nor a retailer, but acts as a link between
the two”. – Evelyn Thomas
“Wholesalers buy and resell merchandise to retailers and other merchants and to industrial,
institutional and commercial users, but not sell in significant amounts to ultimate consumers”.
– E.W. Cundiff and R.R. Still
Wholesaler – 2 Main Types: Merchant Wholesalers, Agent and Brokers
Depending on the type of industry and the type of market, different types of wholesalers can
be found. In highly fragmented industries as with unbranded clothes or farm produce, there
could even be different levels of wholesalers. Wholesalers could also specialize in one
function.
For instance a wholesaler could specialize in warehousing. Such a wholesaler maintains a big
warehouse and specializes in the storage function and depends on others for other functions
such as transportation or financing. Dibb et al. (2006) classify wholesalers into two broad
classes- (i) merchant wholesalers and (ii) agents and brokers.
(i) Merchant Wholesalers:
Merchant wholesalers buy goods from manufacturers and sell them to retailers or industrial
buyers. Such wholesalers therefore take up the tide to the goods. This is an important
function that has to be performed for the flow of goods from the manufacturer to the ultimate
customer.
Merchant wholesalers can be classified as either full-service wholesalers or limited-service
wholesalers. Some of the types of merchant wholesalers that are seen around the world are-
(a) general merchandise wholesalers, (b) limited line wholesalers, (c) cash-and-carry
wholesalers, (d) truck wholesalers, and (e) drop shippers.
Each is explained below:
(a) General Merchandise Wholesaler:
General merchandise wholesalers deal with a large variety of items without much depth in
each category. A wholesaler could, for instance, deal in grocery items, selling products from
a few manufacturers to retailers. Such a merchandiser provides all the services including
warehousing, transportation, and financing to the manufacturer.
Such large general merchandisers typically dominate a geographic region, supplying
merchandise to most of the retail outlets in a particular region. A general merchandiser
typically deals with multiple brands, though some of them may deal with just one large
manufacturer for a particular line of merchandise.
(b) Limited Line Merchandisers:
A limited line merchandiser typically specializes in just one product category and can either
be an exclusive wholesaler—representing a particular firm—or a multi- brand merchandiser.
Limited line merchandisers deal with products such as pharmaceuticals, hardware, paint,
cement, and steel. Some limited line merchandisers serve a niche market (for example,
laboratory equipment to be sold to medical laboratories).
In certain markets where manufacturers are small and fragmented, limited line merchandisers
can be powerful. The industry must rely on the wholesalers to sell to their customers. Such
wholesalers typically have in-depth knowledge about the market and its players. These
limited line merchandisers are very useful for small niche manufacturers who serve a small
but important market.
(c) Cash-and-Carry Wholesalers:
Cash-and-carry wholesalers are a new wholesale category in India, but have existed for quite
a long while in other countries. The Wal-Mart group’s entry into India is through a cash-and-
carry wholesaling format.
In cash-and-carry wholesaling, retailers could buy goods in bulk (often carton loads) at a
reduced price, to be resold at a higher price in their retail outlets. Cash-and-carry set-ups are
typically large Warehouses with little display and fewer staff. Goods are only sold in bulk
and without any credit lines.
Cash-and-carry wholesalers are hence classified as limited service merchant wholesalers.
Small retailers who can rely on cash-and-carry retailers benefit, as they get access to goods
without any waiting time and at a cheap rate. Cash-and-carry wholesalers only deal with high
turnover items such as groceries and stationery items. With the entry of large wholesale
groups into India in the future, more such cash-and-carry wholesalers can be expected.
(d) Truck Wholesalers:
Many small wholesalers in the Indian FMCG sector which serve small independently-owned
retailers are actually truck wholesalers (sometimes called truck jobbers). These truck
wholesalers typically transport small quantities of typically perishable commodities (such as
bread or biscuits) to retail outlets where the retailer could inspect and purchase goods from
the truck.
Such truck wholesalers are typically small operators and could carry a variety of multi-brand
items. They often do not provide credit lines and are typically owned by other large
wholesalers. These wholesalers provide critical transportation and stocking services to the
distribution channel. They are also involved in managing the inventory of small retailers.
(e) Drop Shippers:
These intermediaries are sometimes called desk jobbers. They take the tide to the goods and
negotiate sales. They do not take physical possession of the goods. They collect orders from
retailers or industrial buyers and arrange for these to be transported to the customers from the
manufacturer. The ownership of the goods will pass on to drop shippers from the time the
contract is signed with the manufacturer, until the goods are received in proper condition by
the buyer.
Such wholesalers are typically seen in commodity markets, where transaction volumes are
typically very large, such as markets for oil, coal, and iron ore. Drop shippers provide value
by linking several fragmented customers to suppliers who are often based in a totally
different continent.
An interesting case is that of ‘rack jobbers’ who are involved in owing and displaying goods
at a retail location on behalf of a manufacturer. Such ‘rack jobbers’ own the inventory and act
on behalf of the manufacturers.
(ii) Agents and Brokers:
Agents and brokers do not take the tide to the goods they provide, even though they may take
physical possession of the goods. Agents and brokers typically provide sales support for the
manufacturers by offering the services of a sales force network and related infrastructure.
Agents and brokers thus enable manufacturers to expand their markets without the overhead
associated with establishing a sales force. Agents could represent just one manufacturer or a
group of manufacturers who have complementary products. Clearing and forwarding (C&F)
agents are quite common in Indian markets as they provide a means to avoid multiple sales
tax regimes.
Different types of wholesalers therefore facilitate the transactions between different players
in the market. They provide value by performing several activities that are important to the
smooth flow of goods and services from the manufacturer to the end consumer.
In certain industries, the nature of demand and supply provide opportunities for wholesalers
to grow in stature and become the most powerful entity in the market.

Promotion mix :
n business, just developing a product isn’t enough to achieve the marketing goals. This is
why the marketing mix includes an important element of the promotion mix.

Promotion involves activities that help a business communicate the offering and its features
to the customer and generate their interest towards the desired action. Numerous activities
can be considered as a promotion. While some market the offering to the customer
organically, some involve paid media or paid communication. All these activities combined
form the promotion mix.

The Importance Of Promotion Mix

The marketing mix stands on 4Ps for a reason. Once the product is ready and
its price and distribution channels are decided, the business needs to inform the target
audience about its existence. This is where the promotion mix comes in.

It helps the business develop and share the right communication message to the right
audience using the right channel.

While other marketing mix elements ensure that the product is developed according to the
customer’s needs, requirements, and buying capacity; the promotion mix effectively informs
the customers that such an offering exists and gives them reasons to purchase the same.

Even the perfect product, pricing, and place strategy can go waste if the promotion mix isn’t
properly configured by the business.
Promotion Mix Elements

A brand or offering is usually promoted using three mediums –

• Owned Media: It refers to using business-owned channels to promote the brand or

offering. For example, using the company’s website, social media profiles, or emails
to communicate brand offerings to the target audience.
• Paid Media: It involves using paid channels like advertising, influencer marketing,
etc. to promote a brand offering.
• Earned Media: It is the promotion third parties like news channels, media houses,
customers, influencers etc., do voluntarily without getting paid for it.
The promotion mix combines this owned, earned, and paid media into five basic elements.
These components of the promotion mix are:

• Advertising
• Public Relations
• Personal Selling
• Sales Promotion
• Direct Marketing
Advertising

Advertising is a paid promotion method where a sponsor calls for public attention through
paid announcements.

This promotional mix component uses paid media channels like TV, radio,
newspaper, billboards, or even digital advertising channels like social media platforms and
search engines.

Advertisements have the following characteristics:

• Paid form of promotion.

• Focuses on one way communication from brand to the customer.
• Can be personal or non-personal, depending on the channel used.
• Have a mass reach.
Public Relations

Public relations involves communicating to the target audience and getting their attention
using earned media channels like news, word of mouth, government announcements, etc.

Simply, public relations is a strategised process of releasing organisation-related information

to the public using trustable channels like news to maintain a favourable reputation of the
brand.

Public relations involves:

• Trustable sources,
• Brand mission oriented communication messages, and
 • Two-way communication, as the brand releases the message and waits for the public
response to strategically release another set of messages.
Sales Promotion

Sales promotion is the offering’s promotion using attractive short-term incentives to stimulate
demand and increase sales.

The short-term incentives are often used to –

• Promote new products in the market

• Promote unsold inventory
• Attract more customers
• Lift sale temporarily
These incentives include but are not limited to –

• Seasonal discounts,
• FIinancial schemes,
• Target-based benefits for retailers, wholesalers, resellers, and affiliates
• Free samples,
• Exchange schemes
• Shipping schemes
• Bulk purchase discounts,
• Trade deals, etc.
Personal Selling

Personal selling is a personalised promotion that involves person-to-person interaction

between a brand representative and a prospective customer.

It involves personalised conversations and promotion presentations by the salesperson

developed after understanding the needs and wants of the target customer they promote to.

Unlike advertising, personal selling develops a personal connection between the brand
representative and the customer and involves more costs per person reached.

Personal selling is:

• Two-way personal communication between the brand representative and the target
customer,
• Dependent on the influencing and persuasion skills of the salesperson,
• Highly flexible way of promotion, and
• Focused on educating the customer more about the product and give them
personalised reasons to buy.
Direct Marketing

Direct marketing is a promotion strategy where the target customers are contacted directly by
the brand instead of having an indirect medium like a retailer or wholesaler.
It’s a great promotional tool that helps the brand communicate directly with the prospective
customers through channels like –

• Door-to-door promotion,
• Promotional telephone calls,
• SMS, Emails, IM promotional messages,
• Targeted advertisements, etc.
But direct marketing is different from personal selling. Even though it involves direct contact
between the brand and the customer, it not often involves highly personalized sales pitches.

Advertising,
Sales Promotion,
Personal selling,
Direct Marketing,
Public Relation.
Functions of a Salesman,
Characteristics of a Good Salesman.