CHAPTER EIGHT

MARKETING CHANNELS
 8.0.Learning Goals
Up on the completion of this unit a student will
able to
 Define marketing channels
 Describe major marketing channel function
 Discuss types of channels
 Discuss channel structure
 Discuss channel design & conflict
 8.1.Definition
 Marketing channels can be viewed as sets of
inter dependent organizations involved in the
process of making a product or service
available for use or consumption.
 Channel of distribution can, therefore, be
defined as a path traced in the direct or indirect
transfer of the title of a product as it moves
from a producer to ultimate consumers or
industrial users.
8.2.Objectives of Intermediaries

1. Many producers lack the financial resources

to carry out direct marketing.
2. Direct marketing simply is not feasible for
some products.
3. Producers who do establish their own
channels can often earn a greater return by
increasing their investment in their main
business.
8.3.Functions of Intermediaries

1. Transactional: Buying, Selling and Risk taking (obsolete or

deteriorate inventories)
2. Logistical function
 Assorting: have various products
 Storing
 Transporting
 Sorting: purchase in large quantity and breaking in to smaller
amount
3. Facilitating: financing, grading (inspecting, testing, judging
products) and market information and research
 8.5.Channel Levels
 Producer Consumer
 Producer Retailer Consumer
 Producer _ Wholesaler Retailer___ Consumer
 Producer __ Agent _ Wholesaler Retailer Consumer
Channel Levels
 8.5.1.Direct marketing
 A zero-level channel (also called a direct-
marketing channel) consists of a manufacturer
selling directly to the final customer through
 Internet selling,
 door-to-door sales,
 mail order,
 telemarketing or
 manufacturer-owned stores.
 8.5.2.Indirect marketing

a)Wholesalers: buy products in large quantities

and sell to retailers, industrial consumers and
other wholesaler.
Functions:
– Selling and promoting:
– Buying and assortment building:
– Bulk-breaking: (breaking large lots into small
quantities).
 Cont’d…
 Warehousing: Wholesalers hold inventories
 Transportation
 Financing
 Risk taking
 Market information
 Management service and advise
 Types of wholesalers

 Merchant wholesalers: Independently owned

businesses that take title to the merchandise
they handle.
 Full-service wholesalers: Provide a full line of
services.
 Limited-service wholesalers: Offer fewer
services than full-service wholesalers.
b)Brokers and agents
 Brokers: Chief function is bringing buyers and
sellers together and assisting in negotiation.
 They are paid by the party who hired them, and do
not carry inventory, get involved in financing, or
assume risk.
 Agents: Represent either buyers or sellers on a
more permanent basis than brokers do.
 Brokers and agents do not take title to goods. Main
function is to facilitate buying and selling, for which
they earn a commission on the selling price.
c) Manufacturers' and retailers'
branches and offices
 Wholesaling operations conducted by sellers or
buyers themselves rather than through
independent wholesalers.

d)Retailers
 Retailing includes all the activities involved in
selling goods or services directly to final
consumers for their personal, non business
use.
 Types of Retailers:
1. Amount of Service
 Self-service retailers serve customers who are willing
to perform their own "locate-compare-select“ process
to save money.
 Limited-service retailers provide more sales assistance
because they carry more shopping goods about which
customers need information.
 Full service retailers, such as specialty stores and first-
class department stores, salespeople assist customers
in every phase of the shopping process.
 Types of Retailers:
2. Product Line
 Based on the length and breadth of their product line
I. specialty stores, carry narrow product lines with deep assortments
within those lines.
II. department stores carry a wide variety of product lines such as
home furniture.
III. Supermarkets are the most frequently shopped type of retail store.
IV. Convenience stores are small stores that carry a limited line of
high-turnover convenience goods.
V. Superstores are much larger than regular supermarkets
8.6.Flows in marketing channels

 Some functions (physical, title, promotion)

constitute a forward flow of activity from the
company to the customer;
 other functions (ordering and payment)
constitute a backward flow from customers to
the company.
 Still others (information, negotiation, finance,
and risk taking) occur in both directions.
 Cont’d…

 Product flow
 Negotiation flow
 Ownership/title flow
 Information flow
 Promotion flow
8.7.Channel Design Decisions

Analyzing Setting
consumer channel
needs objectives

Identifying
major
Evaluation
channel
alternatives
 18

a)Analyzing Consumer Needs

 Find out what target consumers want

from the channel
 What segments to serve
 Best channels to use
 Minimize the cost of meeting customer
service requirements
 19

b)Identifying Major Alternatives

 Types of intermediaries
 Number of marketing
intermediaries
 Responsibilities of channel
members
 20

c)Setting Channel Objectives

 Determine targeted levels of

customer service
 Balance consumer needs not
only against the feasibility and
costs of meeting these needs
but also against customer price
preferences
 21

d) Identifying Major Alternatives

Intensive distribution
• Candy and toothpaste

Exclusive distribution
• Luxury automobiles and prestige clothing

Selective distribution
• Television and home appliance
 22

Intensive Distribution

 A strategy in which they stock their products in

as many outlets as possible.
 These products must be available where and
when consumers want them.
 For example, toothpaste, candy, and other
similar items are sold in millions of outlets to
provide maximum brand exposure and
consumer convenience.
 Kraft, Coca-Cola, Kimberly-Clark, and other
consumer-goods companies distribute their
products in this way.
 23

Exclusive Distribution

 producers purposely limit the number of

intermediaries handling their products.
 The producer gives only a limited number of
dealers the exclusive right to distribute its
products in their territories.
 Exclusive distribution is often found in the
distribution of luxury brands. For example,
exclusive Bentley automobiles are typically
sold by only a handful of authorized dealers in
any given market area.
 24

Selective Distribution

 The use of more than one but fewer than all of the
intermediaries who are willing to carry a company’s
products.
 Most television, furniture, and home appliance
brands are distributed in this manner.
 By using selective distribution, they can develop
good working relationships with selected channel
members and expect a better-than-average selling
effort.
 Selective distribution gives producers good market
coverage with more control and less cost than does
intensive distribution.
 25

e) Evaluating the Major Alternatives

Each alternative should be evaluated against:

 Economic Criteria- comparing the sales, costs, and
profitability of different channel alternatives.
 The control issues-Using intermediaries usually
means giving them some control over the marketing
of the product, and some intermediaries take more
control than others. Other things being equal, the
company prefers to keep as much control as possible.
 Adaptability Criteria- Channels often involve long-
term commitments, yet the company wants to keep
the channel flexible so that it can adapt to
environmental changes.
 26

8.7.Channel Design Decisions

 Channel systems can vary from

country to country
 Must be able to adapt channel
strategies to the existing
structures within each country
Channel Management Decisions

Selecting Managing Motivating Evaluating

channel channel channel channel
members members members members
 28

Selecting Channel Members

Producers vary in their ability to attract qualified marketing
intermediaries. Some producers have no trouble signing up channel
members. For example, when Toyota first introduced its Lexus line in
the United States, it had no trouble attracting new dealers. In fact, it had
to turn down many would-be resellers.
At the other extreme are producers who have to work hard to line up
enough qualified intermediaries. For example, when Timex first tried to
sell its inexpensive watches through regular jewelry stores, most
jewelry stores refused to carry them. The company then managed to get
its watches into mass-merchandise outlets. This turned out to be a wise
decision because of the rapid growth of mass merchandising.
 When selecting intermediaries, the company should determine
what characteristics distinguish the better ones. It will want to
evaluate each channel member’s years in business, other lines
carried, location, growth and profit record, cooperativeness, and
reputation.
 29
Managing and Motivating Channel Members

 Once selected, channel members must be continuously

managed and motivated to do their best.
 The company must sell not only through the intermediaries
but also to and with them.
 Most companies see their intermediaries as first-line
customers and partners.
 They practice strong partner relationship management(PRM)
or Customer Relationship Management(CRM) to forge long-
term partnerships with channel members.
 This creates a value delivery system that meets the needs of
both the company and its marketing partners.
 In managing its channels, a company must convince
suppliers and distributors that they can succeed better by
working together as a part of a cohesive value delivery
system.
 30

Evaluating Channel Members

 The company must regularly check

channel member performance against
standards such as
– Sales quotas,
– Average inventory levels,
– Customer delivery time,
– Treatment of damaged and lost goods,
– Cooperation in company promotion and
training programs, and
– Services to the customer.
 31

Cont’d
 The company should recognize and reward
intermediaries who are performing well and
adding good value for consumers. Those
who are performing poorly should be
assisted or, as a last resort, replaced.
 Finally, companies need to be sensitive to
the needs of their channel partners. Those
who treat their partners poorly risk not only
losing their support but also causing some
legal problems.
 8.8.Channel conflict
 A distributer channel consists of dissimilar firms that
have banded together for their common good.
 Each channels are dependent on each other.
 Channel conflict is disagreement between channel
members on goals and roes; who should do what and
for what rewards.
1. Horizontal conflict
2. Vertical conflict
 Cont’d
 Horizontal conflict -occurs among firms at the same level of
the channel.
– For instance, some Ford dealers in Chicago might complain that
other dealers in the city steal sales from them by pricing too low or
advertising outside their assigned territories.
Vertical conflict- conflict between different levels of the same
channel, is even more common.
For example, KFC and its franchisees came into conflict over the
company’s decision to emphasize grilled chicken and sandwiches over
the brand’s traditional fried chicken
THE END