01. What is channel of distribution? How do channel members add value?

Channel of distribution: A set of independent organizations that help make a product or

service available for use or consumption by the customer or business user.

…………………………….Philip Kotle

The path through which goods and services travel from the vendor to the consumer or payments
for those products travel from the consumer to the vendor. A distribution channel can be as short
as a direct transaction from the vendor to the consumer, or may include several interconnected
intermediaries along the way such as wholesalers, distributors, agents and retailers. Each
intermediary receives the item at one pricing point and movies it to the next higher pricing point
until it reaches the final buyer. Coffee does not reach the consumer before first going through a
channel involving the farmer, exporter, importer, distributor and the retailer. Also called the
Channel of distribution.

http://www.businessdictionary.com/definition/distribution-channel.html

A channel of distribution or trade channel is defined as the path or route along which goods
move from producers or manufacturers to ultimate consumers or industrial users. In other words,
it is a distribution network through which producer puts his products in the market and passes it
to the actual users. This channel consists of: - producers, consumers or users and the various
middlemen like wholesalers, selling agents and retailers (dealers) who intervene between the
producers and consumers. Therefore, the channel serves to bridge the gap between the point of
production and the point of consumption thereby creating time, place and possession utilities.
A channel of distribution consists of three types of flows:-

 Downward flow of goods from producers to consumers

 Upward flow of cash payments for goods from consumers to producers

 Flow of marketing information in both downward and upward direction i.e. Flow of
information on new products, new uses of existing products, etc from producers to
consumers. And flow of information in the form of feedback on the wants, suggestions,
complaints, etc from consumers/users to producers.

An entrepreneur has a number of alternative channels available to him for distributing his
products. These channels vary in the number and types of middlemen involved. Some channels
are short and directly link producers with customers. Whereas other channels are long and
indirectly link the two through one or more middlemen.

http://business.gov.in/manage_business/channels_distribution.php
How do channel members add value? Marketing intermediaries make buying a lot easier for
consumer. Again, think about like without grocery retailers how would you go about buying that
12-pack of coke or any of the hundreds of other items that you now routinely drop into your
shopping cart.

…………………………….Philip Kotle

Intermediaries offer producers greater efficiency in making goods available to target markets.
Through their contacts, experience, specialization, and scale of operations, intermediaries usually
offer the firm more than it can achieve on its own.

• From an economic view, intermediaries transform the assortment of products into

assortments wanted by consumers

• Channel members add value by bridging the major time, place, and possession gaps that
separate goods and services from those who would use them

Channel marketing intermediaries exist because they offer value in making goods and services
more available and accessible to the targeted markets. Channel intermediaries offer contacts,
experience, specialization, and economies of scale to organizations that cannot offer these
attributes on their own. Marketing channels allow producers to realize the benefits that only
larger organizations may be able to support. Each channel intermediary provides value in the
form of:

• Information

Collect and disseminate marketing information about potential and current customers,
competitors, and other aspects of the marketing process.
• Promotion

Develop and share marketing communications designed to inform and attract customers.

• Negotiation

Reach final agreement on the price and other terms of the transaction.

• Funding

Acquire access to funds to finance inventories at different levels of the marketing channel.

• Risk taking

Take on risks associated with performing the functions of the channel. Obsolete or damaged
inventory, bad debt, and slow payment are a few examples of this risk.

• Physical possession

Store and move products from raw materials to the final customers.

• Payment options

The buyers’ payment of their bills to the sellers through banks and other financial institutions.

• Title

Transfer title of ownership from one organization or person to another.

In a functional sense, these are some examples of the types of resources that marketing channels
offer. Each adds value to the promotion, the transaction, or the services associated with the
purchase:

• Accounting services

• Advertising planning assistance

• Catalog services

• Co-op advertising programs

• Consumer advertising

• Employee training

• Financing
• Insurance programs

• Inventory control systems

• Management consultation services

Through their acquired expertise and economies of scale, channel members offer these activities
more efficiently than organizations, particularly smaller ones, could provide on their own. The
marketing channel allows the producer and the channel members to do what they each do best in
higher volumes.

http://www.injs-mali.org/2011/04/channel-members-provide.html

02. What factors are to be considered determining channel of distribution for

Pharmaceutical products? Or Mention the factors which influence the marketing channel
decision.

The choice of a suitable channel of distribution is one of the most important decisions in the
marketing of products because channel affects the time and costs of distribution as well as the
volume of sales.

It also influences pricing and promoting efforts and dealer relations. Choice of a channel of
distribution involves the selection of the best possible combination of middlemen or
intermediaries.

The objective is to secure the largest possible distribution at minimum cost. The channel must be
flexible and efficient. It should be consistent with the declared marketing policies and
programmed of the firm.

Such a channel can be selected by evaluating alternative channels in terms of their costs, sales
potential and suitability. The factors affecting the choice of distribution channels may be
classified as follows:

1. Product Considerations:

The nature and type of the product have an important bearing on the choice of distribution
channels. The main characteristics of the product in this respect are given below:

(a) Unit Value:

Products of low unit value and common use are generally sold through middlemen as they
cannot bear the cost of direct selling. Low-priced and high turnover articles like cosmetics,
hosiery goods, stationery and small accessory equipment usually flow through a long channel.
On the other hand, expensive consumer goods and industrial products are sold directly by the
producers.

(b) Perish ability:

Perishable products like vegetables, fruits, milk and eggs have relatively short channels as they
cannot withstand repeated handling. Same is true about articles of seasonal nature.

Goods which are subject to frequent changes in fashion and style are generally distributed
through short channels as the producer has to maintain close and continuous touch with the
market. Durable and non-fashion articles are sold through agents and merchants.

(c) Bulk and weight:

Heavy and bulky products are distributed through shorter channels to minimize handling costs.
Coal, bricks, stones, etc., are some examples.

(d) Standardizations:

Custom-made and non-standardized products usually pass through short channels due to the need
for direct contact between the producer and the consumers. Standardized and mass-made goods
can be distributed through middlemen.

(e) Technical nature:

Products requiring demonstration, installation and after sale services are often sold directly the
producer appoints sales engineers to sell and service industrial equipment and other products of
technical nature.

(f) Product line:

A firm producing a wide range of products may find it economical to set up its own retail outlets.
On the other hand, firms with one or two products find it profitable to distribute through
wholesalers and retailers.

(g) Age of the product:

A new product needs greater promotional effort and few middlemen may like to handle it. As the
product gains acceptance in the market, more middlemen may be employed for its distribution.
Channels used for competitive products may also influence the choice of distribution channels.

2. Market considerations:

The nature and type of customers is an important consideration in the choice of a channel of
distribution. Following factors relating to the market are particularly significant.
(a) Consumer or industrial market:

The purpose of buying has an important influence on channel. Goods purchased for industrial or
commercial use are usually sold directly or through agents.

This is because industrial users buy in a large quantity and the producer can easily establish a
direct contact with them. To ultimate consumers, goods are sold normally through middlemen.

(b) Number and location of buyers:

When the number of potential customers is small or the market is geographically located in a
limited area, direct selling is easy and economical. In case of large number of customers and
widely scattered markets, use of wholesalers and retailers becomes necessary.

(c) Size and frequency of order:

Direct selling is convenient and economical in case of large and infrequent orders. When articles
are purchased very frequently and each purchase order is small, middlemen may have to be used.

A manufacturer may use different channels for different types of buyers. He may sell directly to
departmental and chain stores and may depend upon wholesalers to sell to small retail stores.

(d) Customer's buying habits:

The amount of time and effort which customers are willing to spend in shopping is an important
consideration. Customer expectations like desire for one-stop shopping, need for personal
attention, preference for self-service and desire for credit also influence the choice of trade
channel.

3. Company considerations:

The nature, size and objectives of the firm play an important role in channel decisions.

(a) Market standing:

Well-established companies with good reputation in the market are in a better position to
eliminate middlemen than new and less known firms.

(b) Financial resources:

A large firm with sufficient funds can establish its own retail shops to sell directly to consumers.
But a small or weak enterprise which cannot invest money in distribution has to depend on
middlemen for the marketing of its products.
(c) Management:

The competence and experience of management exercises influence on channel decision. If the
management of a firm has sufficient knowledge and experience of distribution it may prefer
direct selling. Firms whose managements lack marketing know-how have to depend on
middlemen.

(d) Volume of production:

A big firm with large, output may find it profitable to set up its own retail outlets throughout the
country. But a manufacturer producing a small quantity can distribute his output more
economically through middlemen.

(e) Desire for control of channel:

Firms that want to have close control over the distribution of their products use a short channel.
Such firms can have more aggressive promotion and a thorough understanding of customers'
requirements. A firm not desirous of control over channel can freely employ middlemen.

(f) Services provided by manufacturers:

A company that sells directly has itself to provide installation, credit, home delivery, after sale
services and other facilities to customers. Firms which do not or cannot provide such services
have to depend upon middlemen.

4. Middlemen considerations:

The cost and efficiency of distribution depend largely upon the nature and type of middlemen as
reflected in the following factors:

(a) Availability:

When desired type of middlemen is not available, a manufacturer may have to establish his own
distribution network. Non-availability of middlemen may arise when they are handling
competitive products as they do not like to handle more brands.

(b) Attitudes:

Middlemen who do not like a firm's marketing policies may refuse to handle its products. For
instance, some wholesalers and retailers demand sole selling rights or a guarantee against fall in
prices.

(c) Services:

Use of middlemen is profitable who provide financing, storage, promotion and after sale
services.
(d) Sales potential:

A manufacturer generally prefers a dealer who offers the greatest potential volume of sales.

(e) Costs:

Choice of a channel should be made after comparing the costs of distribution through alternative
channels.

(f) Customs and competition:

The channels traditionally used for a product are likely to influence the choice. For instance,
locks are sold usually through hardware stores and their distribution through general stores may
not be preferred. Channels used by competitors are also important.

(g) Legal constraints:

Government regulations regarding certain products may influence channel decision. For instance,
liquor and drugs can be distributed only through licensed shops

http://www.preservearticles.com/2012022923848/what-are-the-factors-that-influence-the-choice-
of-channel-of-distribution.html

03What are the Types of channel of distribution?

Manufacturers and consumers are two major components of the market. Intermediaries perform
the duty of eliminating the distance between the two. There is no standardized level which
proves that the distance between the two is eliminated.

Based on necessity the help of one or more intermediaries could be taken and even this is
possible that there happens to be no intermediary. Their description is as follows:

(A) Direct Channel or Zero Level Channels:

When the manufacturer instead of selling the goods to the intermediary sells it directly to the
consumer then this is known as Zero Level Channel. Retail outlets, mail order selling, internet
selling and selling

(B) Indirect Channels:

When a manufacturer gets the help of one or more middlemen to move goods from the
production place to the place of consumption, the distribution channel is called indirect channel.
Following are the main types of it:
1. One Level Channel:

In this method an intermediary is used. Here a manufacturer sells the goods directly to the
retailer instead of selling it to agents or wholesalers. This method is used for expensive watches
and other like products. This method is also useful for selling FMCG (Fast Moving Consumer
Goods). This channel is clarified in the following diagram:

2. Two Level Channels:

In this method a manufacturer sells the material to a wholesaler, the wholesaler to the retailer and
then the retailer to the consumer. Here, the wholesaler after purchasing the material in large
quantity from the manufacturer sells it in small quantity to the retailer.

Then the retailers make the products available to the consumers. This medium is mainly used to
sell soap, tea, salt, cigarette, sugar, ghee etc. This channel is more clarified in the following
diagram:

3. Three Level Channels:

Under this one more level is added to Two Level Channel in the form of agent. An agent
facilitates to reduce the distance between the manufacturer and the wholesaler. Some big
companies who cannot directly contact the wholesaler, they take the help of agents. Such
companies appoint their agents in every region and sell the material to them.

Then the agents sell the material to the wholesalers, the wholesaler to the retailer and in the end
the retailer sells the material to the consumers.

http://www.yourarticlelibrary.com/business/what-are-the-different-types-of-channel-of-
distribution/1097/

04. How can you identify the major channel an alternative in term of the number of
intermediaries & types of intermarries? Or identify the major channel alternatives
available to the company.

When the company has defined its channel objectives, it should next identify its major channel
alternatives in terms of:-

1. The type of business intermediaries

2. The number of intermediaries and
3. Responsibilities of each channel participants.
 1. Types of intermediaries:-

The firm has following channel alternatives-

Company Sales force: - Expend the company’s direct sales force. Assign to contact all
prospects in the area. Or develop separate sales force for different products.

Manufacture’s Agency: - Hire agencies in different regions sell the equipment.

Industrial Distributors: - Find distributors in the different regions who will buy and carry
device. Give them exclusive distribution adequate margins and promotional support.

2. The number of intermediaries:-

Company has to decide on the number of middlemen to use at each channel level. Three
strategies are available.

Intensive Distribution:- Producers of convenience goods etc. typically seek intensive

distribution that is stocking their product in numerous outlets. These goods must have place
utility.

This alternative involves all the possible outlets that can be used to distribute the product .This
particularly useful in products like soft drinks where distribution is a key success factor. Here,
the soft drink firms distribute their brands through multiple outlets to ensure their availability at
an arm’s length to the customer. Hence, , on the one hand these brands are available through
countless soft drink stalls, kiosks, sweet marts, tea shops, etc. Any possible outlet where the
customer is expected to visit is also an outlet for the soft drink.

Exclusive Distribution: - Some producers limit the number of intermediaries handling their
products. Through exclusive distribution the manufacturer hopes to obtain more aggressive and
knowledgeable selling and more control over intermediaries polices on prices, promotion, credit
and various activities.

When the firm distributes its brand through just one or two major outlets in the market who
exclusively deal in it and not competing brands, we say that the firm is using an exclusive
distribution strategy. This is a common form of distribution in products and brands that seek high
prestigious image .Typical examples are of designer wares, major domestic appliances and even
automobiles .By granting exclusive distribution rights, the manufacturer hopes to have control
over the intermediaries price, promotion, credit inventory and service policies. the firm also
hopes to get the benefit of aggressive selling by such outlets.
Selective Distribution

This alternative is the middle path approach to distribution .Here, the firm selects some outlets to
distribute its products .This alternative helps focus the selling effort of the manufacturing firms
on a few outlets rather than dissipating it over countless marginal ones .It also enables the firm to
establish good working relationship with the channel members Selective distribution can help the
manufacturer gain optimum market coverage and more control but at a lesser cost than intensive
distribution .Both the existing and new firms are known to use this alternative.

3. Responsibilities of each channel participants.

The commercial policy of the manufacturer often lays down the terms and conditions for
intermediaries and their responsibilities .Generally these include price policies , mode or terms of
payment , returns policy , territorial rights, etc.

Price Policy: This out the price at which middlemen will get the product from the manufactures
and the discount schedule. It also mentions the price at which middlemen may sell the product.
Generally, the company is required by law to stipulate the maximum retail price. The middlemen
have to ensure that everyone involved gets fair and equitable deal.

Payments Terms: The manufacturing firm stipulates mode or payment terms. For example,
some firms as middlemen to put a deposit with them from which the former adjusts the price of
the goods sent to the latter. The middlemen has to then replenish the deposit by the required
amount immediately , failing which he loses the interest on deposit .Some other firms insist
payment to reach them on the day the intermediary takes physical possession of the goods.
Others may accept a letter of credit as a payment mode .Credit policy of the manufacturer
stipulates the period in which it must get paid.

Returns Policy: This indicates the warranty that the manufacturer extends to the
intermediary .Some firms offer spot replacement for any of its products returned by the customer
.Others take time to settle these claims .A distribution policy should lay down the clauses related
to returns and refunds precisely outlining the responsibility of each party-manufacturer and
intermediary .Failure to do so can lead to a perpetual conflict between the manufacturer and the
intermediary.

Territorial Rights: The manufacturer should spell out the territorial jurisdiction of each of the
distributor to avoid any territory jumping. This will also help in the distributor’s evaluation.

Mutual Services and Responsibilities: These should be spelt out clearly, particularly in the case
of franchised and exclusive agency channels. For example, Parle (Exports) have laid down the
role of each of its quality control, distribution, promotion and selling. Parle gives to these
franchises promotional inputs and support, training and other administration support. Such kind
of a manual helps in avoiding conflicts.
05. How can you differentiate conventional marketing & vertical marketing system?

Conventional Marketing Channel systems

A channel consisting of one or more independent producers, wholesalers, and retailers, each a
separate business seeking to maximize its own profit, even at the experience of profit for the
system as a whole. and there is little control over the other members and no formal means for
assigning roles and resolving conflict.

Vertical marketing systems

A distribution channel structure in which producers, wholesalers, and retailers act as a unified
system. One the other hand owns the others, has contracts with them or has much power that
they all cooperate. Corporate vertical marketing system integrates successive stages of
production and distribution under single ownership.

Some basic differentiate between conventional marketing & vertical marketing systems are as
follows:

Ownership/Contro:

Conventional marketing channels consist of one or more manufacturers,

wholesalers/distributors and retailers that operate under independent ownership. Each business
answers to its own owner, shareholders or board of directors. In vertical marketing systems, one
member of the channel either owns or wields sufficient leverage to control and coordinate the
activities of other members in the channel. The channel members continue to operate as distinct
entities but become accountable to one owner or the most powerful channel member. Walmart,
for example, wields sufficient power to direct much of the activity of manufacturers and
wholesalers, while Firestone owns all the elements of its marketing channels.

Cooperation:

As independent entities, each member in a conventional marketing channel focuses on

minimizing costs and maximizing its own profits with little regard for other channel members. A
powerful chain of toy stores, for example, might negotiate an unfavorable deal with a wholesaler
and give no consideration to the impact of that deal on the relationship between the wholesaler
and various toy manufacturers. Members in vertical marketing systems tend to recognize the
symbiotic nature of the relationship between all channel members and aim to maximize benefits
through cooperation.

Responsibility:

Conventional marketing channels limit the responsibility of each member of the channel.
Retailers focus efforts on selling products to customers, while manufacturers focus on making
products and wholesalers worry about getting the products from one to the other. In vertical
marketing systems, the majority of responsibility tends to fall on one channel member. The
additional responsibility tends to pose fewer problems for large companies with strong
management teams. For a smaller company engaging in vertical integration, buying the next step
in the marketing channel, the management problems can prove significant.

Other Considerations:

Even in well-managed vertical marketing systems, problems common in conventional

marketing channels can crop up for different reasons. Communication breakdowns often occur
between manufacturers and wholesalers or between wholesalers and retailers in the conventional
approach due to technical or logistical issues. Poorly managed personalities in vertical marketing
systems can result in the same problem. Attempting to create a vertical marketing system
through vertical integration can also reduce profitability and, if the company doing the buying
lacks experience, lead to the demise of both businesses through mismanagement.

06. Define channel conflict. Have you any arguments in favor of channel conflict?
When a channel member does something that prevents the goal attainment of another channel
member.
Situation when a producer or supplier bypasses the normal channel of distribution and sells
directly to the end user. Selling over the internet while maintaining a physical distribution
network is an example of channel conflict.

It is a conflict between the channel members due to the perceived unfairness. There are 2 types
of channel conflicts:

Vertical

It is the conflict between producer and intermediary or intermediary at one level and
intermediary at the other level. The primary reason why vertical channel conflict occurs is when
the trade partners in the distribution channels are agonized because the company directly sells its
products to the consumer. These days it is primarily happening due to the advent of internet.
With the help of e-commerce, the companies directly sell their products via internet and hence
the sales volume of other distribution channels is reduced.

Horizontal

It is the conflict between channel members at the same level. Example: between retailer-x and
retailer-y or wholesaler-x and wholesaler-y. It happens due to the perceived unfair practice
adopted by the one channel member which in turn affects the profitability/sales of other channel
member.
Arguments in favor of channel conflict

Conflict in the Channel has always been around exists as a result of the friction created by
businesses sharing the same ecosystem but with differing priorities.

The word ‘conflict’ often has negative connotations but from it can arise some really interesting
new ideas and results. Therefore it’s important not to shy away from conflict as long as you can
find a way through it to benefit you and your business.

Apple have spent pretty much their entire business life causing conflict within their field
disrupting the status quo and carving new ways we consume technology. When iTunes first
entered the market, the music industry struggled to understand its logic but it marked a step
change in the way we, in the main, purchase audio tracks. Today, we wouldn’t think twice about
this evolution but there is no doubt that the journey to get us to this point was anything but easy.

Fig. Finding ways to work together can often reap greater rewards than continuously
fighting against each other.
Thousands of jobs were lost supporting horse-drawn transportation but gave rise to new and
more innovative ways of travelling creating hundreds of thousands of new jobs in transport,
infrastructure and beyond.

Getting the most out of channel conflict is a pretty easy thing to do, except most people fails to
do so if they even bother. The reason for this is that understanding the various factors that
culminate into a conflict can often mean you have to look under the radar. In most cases, a
broken relationship between vendor and distributor, or reseller and their customer can more often
than not be as a result of a lack of- or miss-communication. Chasing up those who have drifted is
often very difficult if you don’t have the systems in place to track it and if it isn’t part of what
your job is targeted on, the feedback gets harder to capture as the opportunity to drifts further and
further away.

07. Show two-level channel of a company’s product. Nature of distribution channel

The Nature of Distribution Channels:

Most businesses use third parties or intermediaries to bring their products to market. They try to
forge a "distribution channel" which can be defined as

"All the organizations through which a product must pass between its point of production and
consumption"

Why does a business give the job of selling its products to intermediaries? After all, using
intermediaries’ means giving up some control over how products are sold and who they are sold
to.

The answer lies in efficiency of distribution costs. Intermediaries are specialists in selling. They
have the contacts, experience and scale of operation which means that greater sales can be
achieved than if the producing business tried running a sales operation itself.

1) A company's channel decisions should be determined by the company's marketing

strategies, and in turn directly affect every other marketing decision.
For example, “pricing depends, to some extent, on whether the company works with national
discount chains, uses high-quality specialty stores, or sells directly to consumers via the Web.
The firm's sales force and communications decisions depend on how much persuasion, training,
motivation, and support its channel partners need. (why??, I don't understand) Whether a
company develops or acquires certain products depends on how well those products fit the
capabilities of its channel members." (Kotler & Armstrong)
2) Through imaginative distribution systems, companies can gain a competitive advantage,
whereas companies may face damaging results if they pay too little attention to their
distribution channels.
For example, “Enterprise-Rental-A-Car revolutionized the car-rental business by setting up off-
airport rental offices. Apple turned the retail music business on its head by selling music for the
iPod via the Internet on iTunes. And FedEx's creative and imposing distribution system made it a
leader in express delivery." (Kotler & Armstrong)

3) Distribution channel decisions often involve long-term commitments to other firms. They
cannot be change easily or replace readily if the conditions change.
For example, “companies such as Ford, McDonald's, or HP can easily change their advertising,
pricing, or promotion programs. They can scrap old products and introduce new ones as market
tastes demand. But when they set up distribution channels through contracts with franchises,
independent dealers, or large retailers, they cannot readily replace theses channels with
company-owned stores or Web sites if the conditions change. Therefore, management must
design its channels carefully, with an eye on both tomorrow's likely selling environment and
today's." (Kotler & Armstrong)

08. Channel design decision.

Designing a marketing channel system involves analyzing customer needs, setting channel
objectives, identifying major channel alternatives, and evaluating major channel alternatives.

Analyzing Setting channel

consumer needs objectives

Identifying major
channel Evaluation
alternatives

Fig. Channel design decision.

Analyzing customer needs:

In designing the marketing channel, the marketer must understand this service output levels
desired by target customers. Channels produce five service outputs:

(a) Lot size, the number of units the channels permits typical customer to purchase on one
occasion. In buying cars for its fleet, Hertz prefers a channel from which it can buy a large lot
size; a household wants a channel that permits buying a lot size of one.
(b) Waiting and delivery time, the average time customers of that channel wait for receipt of the
goods. Customers increasingly prefer faster and faster delivery channels.
(c) Spatial convenience, the degree to which the marketing channel makes it easy for customers
to purchase the product. Chevrolet, for example, offers greater spatial convenience than Cadillac,
because there are more Chevrolet dealers. Chevrolet greater market decentralization helps
customers save on transportation and search costs in buying ad repairing an automobile.
(d) Product variety, the assortment breadth provided by the marketing channel. Normally,
customers prefer a greater assortment because more choices increase the chance of finding what
they need.
(e) Service backup, the add-on services (credit, delivery, installation, repairs) provided by the
channel. The greater the service backup, the greater the work provided by the channel.

The marketing channel designer knows that providing greater service outputs means increased
channel costs and higher process for customers. Different customers have different service needs.
The success of discount stores indicates that many customers are willing to accept smaller
service outputs if they can save money

Setting Channel Objectives:

Channel objectives should be stated in terms of targeted service output levels. Under competitive
conditions, channel institutions should arrange their functional tasks to minimize total channel
costs and still provide desired levels of service outputs. Usually, planners can identify several
market segments that want different service levels. Effective planning requires determining
which segments to serve and the best channels for each.

Channel objectives vary with product characteristics. Perishable products require more direct
marketing. Bulky products, such as building materials, require channels that minimize the
shipping distance and the amount of handling. Nonstandard products, such as custom-built
machinery and specialized business forms, are sold directly by company sales representatives.
Products requiring installation or maintenance services, such as heating and cooling systems, are
usually sold and maintained by the company or by franchised dealers. High-unit-value products
such as generators and turbines are often sold through a company sales force rather than
intermediaries.

Channel design must take into account the strengths and weaknesses of different types of
intermediaries. For example, manufacturer’s reps are able to contact customers at a low cost per
customers because the total cost is shared by several clients, but the selling effort per customer is
less intense than if company sales reps did the selling. Channel design is also influenced by
competitors’ channels. Channel design must adapt to the larger environment. When economic
conditions are depressed, producers want their goods to market using shorter channels and
without services that add to the final price of the goods. Legal regulations and restrictions also
affect channel design. US law looks unfavorably on channel arrangement that may tend to
substantially lessen competition or create a monopoly.

Identifying Major Channel Alternatives:

Companies can choose from a wide variety of channels for reaching customers from sales forces
to agents, distributors, dealers, direct mail, telemarketing, and the internet. Each channel has
unique strengths as well as weaknesses. Sales forces can handle complex products and, but they
are expensive. The internet is much less expensive, but it cannot handle complex product.
Distributors can create sales, but the company loses direct contact with customers.

The problem is further complicated by the fact that most companies now use a mix of channels.
Each channel hopefully reaches a different segment of buyers and delivers the right products to
each at the least cost. When this does not happen there is usually channel conflict and excessive
cost.

A channel alternative is described by three elements: the types of available business

intermediaries, the number of intermediaries needed, and the terms and responsibilities of each
channel member.

Evaluating the Major Alternatives:

Each alternative should be evaluated against:

• Economic criteria
• Control
• Adaptive criteria

Economic criteria: Economic criteria compare the likely sales costs and profitability of different
channel members

Control: Control refers to channel members’ control over the marketing of the product

Adaptive criteria: Adaptive criteria refers to the ability to remain flexible to adapt to
environmental changes
09. Channel management decision. Or explain how companies select, motivate and evaluate
channel members?

The channel management decision has a huge effect on the marketing of our new home pick up
service. What is channel management? According to the web channel management is “The
process by which a producer or supplier directs marketing activity by involving and motivating
parties comprising its channel of distribution.” (www.businessdictionary.com) The channel of
distribution is when goods or services flow from the vendor to the customer. Therefore, channel
management decisions are needed to insure this process does not get interrupted. For example,
the United Parcel Service (UPS) is a competitor that offers their customers the same home pick
up service, so it is imperative that we manage our channels of distribution effectively. The main
advantage of effective channel management decisions is it ensures that we keep an edge on the
competitors and gain more customers in all markets.
Appropriate Distribution Channels
In the Parcel market there are various distribution channels we can utilize. There are four types
of distribution channels: producer-customer, producer-retailer-customer, producer-wholesaler-
retailer-customer, and producer-agent-wholesaler-retailer-customer. FedEx utilizes the producer
to customer channel because our customers can access our new home pick up service online on
our website. The producer to customer channel eliminates the middlemen costs and the
customer has the comfort of knowing that they are working with the producer directly. Since the
middlemen costs will be eliminated this allows us to charge the customer at the retailer rate, thus
making using this service affordable for our customers.

Channel management involves:

• Selecting channel members

• Managing and Motivating channel members
• Motivating channel members
• Evaluating channel members

Selecting channel Managing channel Motivating channel Evaluating channel

members members members members
Selecting channel members:

After determining what the objectives of the channel sales strategy are and which channels are
the best fit with your company, an understanding of which groups and companies to ally yourself
with is a must. Often times, a quick survey of the industry scene would divulge which groups are
the appropriate ones for your business since not every channel group can properly match the
setting of your company.

Choosing the right channel members would require some work. A simple way of determining
which companies are appropriate for the business is by considering three factors: their operation,
their sales or marketing and their strategic fit.

Managing and Motivating channel members:

These days channel members are being accepted by companies as their partners. The
intermediaries are even being asked to integrate their business with the companies which results
in lesser costs, greater efficiency and improved customer service. Corporate like Airtel are
adopting PRM (Partner relationship management) software to give that added advantage to their
supply chain. They organize rewards and recognition programs for their channel partners and
also organize proper channels though which partners can vent any of their grievances relating to
payments, violation of codes etc.

Evaluating channel members:

The SCPCA method can be used to evaluate channel members.

a. Sales (S): How much sales each channel member can give within a cetain time frame

b. Cost(C): How much cost would be incurred for each channel?

c. Profitability (P): Which channel can give better profitability to the company?

d. Control (C): Whether company can have better control over its channel members or not.

e. Adaptability (A): Whether the channel alternatives are flexible enough to any changes or not.
The channel meeting the objectives of the company is selected.
10. How can you evaluate channel members?

The SCPCA method can be used to evaluate channel members.

a. Sales (S): How much sales each channel member can give within a cetain time frame

b. Cost(C): How much cost would be incurred for each channel?

c. Profitability (P): Which channel can give better profitability to the company?

d. Control (C): Whether company can have better control over its channel members or not.

e. Adaptability (A): Whether the channel alternatives are flexible enough to any changes or not.
The channel meeting the objectives of the company is selected.

11. What do you mean by channel conflict? You can evaluate the middlemen but you
cannot eliminate their functions-discuss

12. Describe in short the major types of retailers & give example of each.

There are 7 main types of retailers which can be defined by the size of their business and the way
they in which they sell their products.

The 7 main types of retailers are;

1. Department Store – This type of retailer is often the most complex offering a wide
range of products and can appear as a collection of smaller retail stores managed by one
company. The department store retailers offer products at various pricing levels. This
type of retailer adds high levels of customer service by adding convenience enabling a
large variety of products to be purchased from one retailer.

2. Supermarkets – Generally this type of retailer concentrates in supplying a range of food

and beverage products. However many have now diversified and supply products from
 the home, fashion and electrical products markets too. Supermarkets have significant
buying power and therefore often retail goods at low prices.

3. Warehouse retailers – This type of retailer is usually situated in retail or Business Park
and where premises rents are lower. This enables this type of retailer to stock, display and
retail a large variety of good at very competitive prices.

4. Specialty Retailers – Specializing in specific industries or products, this type of retailer

is able to offer the customer expert knowledge and a high level of service. They also add
value by offering accessories and additional related products at the same outlet.

5. E-trailer – This type of retailer enables customers to shop on-line via the internet and
buy products which are then delivered. This type of retailer is highly convenient and is
able to supply a wider geographic customer base. E-trailers often have lower rent and
overheads so offer very competitive pricing.

6. Convenience Retailer – Usually located in residential areas this type of retailer offers a
limited range of products at premium prices due to the added value of convenience.

7. Discount Retailer – This type of retailer offers a variety of discounted products. They
offer low prices on less fashionable branded products from a range of suppliers by
reselling end of line and returned goods at discounted prices.