Role of Marketing Channels – Channel Design Decisions – Channel

Management Decisions – Types, Causes & Management of Channel

Conflicts (See class Notes)– Concept of Logistics. Definition &
Components of Marketing Communication mix – Characteristics of
Marketing Communication Mix – Developing Effective Communication
mix.

Marketing channels are the ways that goods and services are made available for
use by the consumers. All goods go through channels of distribution, and your
marketing will depend on the way your goods are distributed. The route that the
product takes on its way from production to the consumer is important because a
marketer must decide which route or channel is best for his particular product.
Marketing channel is a place to organize an administration and operational activities
and a place to facilitate a product delivery, from manufacturer to end consumer.
Some of marketing channel definitions are below:
1. Marketing channel is a function and an intermediary network system (agent,
trader, retailer, and so on) which is well organized to do all marketing
activities (Berman, 1996).

2. Marketing channel is an external organization to perform physical

delivery from producers to consumers (Rosenbloom, 1995).

3. Marketing Channel is a networking organization that connects

manufacturers with end users (Craven, 1991).

The characteristics of marketing channel

1. Marketing channel is a group of organization or institution, such as agent,
trader, retailer, and so on who are working together to achieve a marketing
goa.
2. Marketing channel is an organization who perform such activities as
planning, analyzing, organizing, and controlling all marketing channel
related.
3. All the people who are associated with the marketing channel do activities
(point number two) to satisfy the end consumer.
Importance/ objectives/ role of marketing channels:
Marketing channels from the soul of the marketing function. Consider a product of
customer’s choice made by a manufacturer at the right price. Now when a customer
wants to buy the product, he will have to locate a manufacturer who may be in a
different region. Just making enquiries about the product, getting it, etc. will take
immense effort from the customer. It has been noted that most of the products in the
market fail if they are not made available to the target customer at the right time and
at the right place. The roles, functions and benefits of marketing channels are listed
below-
1) When the product information is available (promotion), the customer is bound to
make enquires with different retailers, ecommerce sites, wholesalers, etc. It becomes
important for the manufacturers to ensure the product is easily available to the
customers. Else a competitor will take advantage of this opportunity and introduce
the product with different intermediaries for the customer.
2) Presence of intermediaries reduces the number of links between the manufacturers
and the buyers. As shown in the figure, for example, if the producer 1 manufactures
shirts and producer 2 manufacturers shoes. So a customer looking for both these
items will have to contact these 2 manufacturers separately. This effort will be
greatly reduced if both of these items are available with an intermediary like a
retailer. This not only benefits the customer but also the manufacturer in meeting its
marketing strategy, sales, etc.
3) The presence of the marketing channels ensure market coverage and a successful
marketing strategy for the organization. The intermediaries provide a variety of
products from different manufacturers at one place.
The customer doesn’t needs to make extra efforts to reach the manufacturers.
The intermediaries not only provide producers products but also act as hub of
information about the products and manufacturers. A customer can get all the
required information on the product like its features, quality, warranties, guarantees,
and also have a first-hand experience of experiencing the product via demo.
4) The intermediaries provide a variety of products at one place. The buyers get a
great opportunity of comparing the products and their substitutes from different
manufacturers.
5) The intermediaries perform the function of product storage as well as
transportation. In their absence, the manufacturer will have to perform these
functions. They take the risk of transportation and storage.
6) The intermediaries reduce the transaction costs because of the lower number of
links between manufacturers and buyers.
7) They are the source of information for manufacturers. The intermediaries
provide information about the market like demand, competitors, consumer behavior,
consumer buyer behavior, etc. (marketing environment) which helps manufacturers
in altering marketing strategies or identifying new needs and wants in the market
(information on opportunities and threats).
8) Intermediaries take the risk of new product launches. Irrespective of the
acceptance of a new product in the market, the intermediaries take the risk of
managing the new product that requires investment in time, effort and money.
9) Time utility function – the intermediaries perform the function of making the
product available at a convenient time.
10) Place utility function – the product is made available at a convenient location.
11) Products are made available in small as well as large quantities – Break of
bulk services. For example, a customer can buy a single tooth brush or half-a-dozen
at a time from an intermediary. To entertain each and every request of different
quantities from the buyers in the market will be a difficult task for the manufacturer.
12) The intermediaries help promote products via different in-store promotion
activities like distribution of pamphlets, display, assigning shelf space, store
salesman, etc. For example, customers do ask the store representatives about the
value of the product, any complaints from other customers, etc.
13) Knowledge of the region – a manufacturer will need help of local people in the
target market on the expertise on the local language, culture, etc. The retailers, etc.
perform this function, and help the manufacturer in implementing its marketing
strategies.
Distribution Channel Functions:
These Functions Should be Assigned to the Channel Member Who Can Perform
Them Most Efficiently and Effectively to Provide Satisfactory Assortments of
Goods and Services to Target Customers.
1) Risk Taking
2) Information
3) Financing
4) Promotion
5) Physical Explanation
6) Distribution
7) Contact
8) Negotiation
9) Matching
Types of Distribution Channels:

Channel of distribution refers to those people, institutions or merchants who help in

the distribution of goods and services. Philips Kotler defines channel of distribution
as “a set of independent organizations involved in the process of making a product
or service available for use or consumption”

Broadly, Channel of distribution is of two type’s viz., (1) Direct Channel (2) Indirect
Channel.

Channels of distribution provide convenience to customer, who can get various items
at one store. If there were no channels of distribution, customer would have faced a
lot of difficulties.

1. Direct Channel or Zero Level Channels:

When the producer or the manufacturer directly sells the goods to the customers
without involving any middlemen, it is known as direct channel or zero level
channel. It is the simplest and the shortest mode of distribution. Selling through post,
internet or door to door selling etc.

Methods of Direct Channel are:

(a) Door to door selling

(b) Internet selling
(c) Mail order selling
(d) Company owned retail outlets
2. Indirect Channels:

When a manufacturer or a producer employs one or more middlemen to distribute

goods, it is known as indirect channel.

Following are the main forms of indirect channels:

(a) Manufacturer-Retailer-Consumer (One Level Channel):
This channel involves the use of one middleman i.e. retailer who in turn sells them
to the ultimate customers. It is usually adopted for specialty goods. For example Tata
sells its cars through company approved retailers.

Manufacturer→ Retailer→ Consumer

(b) Manufacturer-Wholesaler-Retailer-Customer (Two level channels):
Under this channel, wholesaler and retailer act as a link between the manufacturer
and the customer. This is the most commonly used channel for distributing goods
like soap, rice, wheat, clothes etc.

Manufacturer→ Wholesaler→ Retailer→ Customer

(c) Manufacturer-Agent-Wholesaler-Retailer-Consumer (Three level
channels):
This level comprises of three middlemen i.e. agent, wholesaler and the retailer. The
manufacturers supply the goods to their agents who in turn supply them to
wholesalers and retailers. This level is usually used when a manufacturer deal in
limited products and yet wants to cover a wide market.

Manufacturer → Agent → Wholesaler → Retailer → Consumer

Factors Determining Choice of Channels of Distribution:

Following are the main factors which help in determining the channels of
distribution:
1. Product Related Factors:
Following are the important product related considerations in deciding on channels of distribution:
(a) Nature of Product:
In case of industrial goods like CT scan machine, short channels like zero level
channel or first level channel should be preferred because they are usually technical,
expensive, made to order and purchased by few buyers. Consumer goods Ike LCD,
refrigerator can be distributed through long channels as they are less expensive, not
technical and frequently purchased.

(b) Perishable and Non- Perishable Products:

Perishable products like fruits or vegetables are distributed through short channels
while nonperishable products like soaps, oils, sugar, salt etc. require longer channels.

(c) Value of Product:

In case of products having low unit value such as groceries, long channels are
preferred while those with high unit value such as diamond jewellery short channels
are used.

(d) Product Complexity:

Short channels are preferred for technically complex goods like industrial or
engineering products like machinery, generators like torches while noncomplex or
simple ones can be distributed through long channels.
2. Company Characteristics:
Following are the main Company Characteristics offering choice of channel of
distribution:
(a) Financial Strength:
The companies having huge funds at their disposal go for direct distribution. Those
without such funds go for indirect channels.

(b) Control:
Short channels are used if management wants greater control on the channel
members otherwise a company can go in for longer channels.

3. Competitive Factors:
Policies and channels selected by the competitors also affect the choice of channels.
A company has to decide whether to adopt the same channel as that of its competitor
or choose another one. For example, if Nokia has selected a particular channel say
Big Bazaars for sale of their hand sets, other firms like Samsung and LG have also
selected similar channels.

4. Market Factors:
Following are the important market factors affecting choice of channel of
distribution:
(a) Size of Market:
If the number of customers is small like in case of industrial goods, short channels
are preferred while if the number of customers is high as in case of convenience
goods, long channels are used.

(b) Geographical Concentration:

Generally, long channels are used if the consumers are widely spread while if they
are concentrated in a small place, short channels can be used.

5. Environmental Factor:
Economic factors such as economic conditions and legal regulations also play a vital
role in selecting channels of distribution. For example, in a depressed economy,
generally shorter channels are selected for distribution.
Developing Effective Marketing Communication Mix:

Marketing communications are the means by which firms attempt to inform, persuade, and remind
consumers—directly or indirectly—about the products and brands they sell. In a sense, marketing
communications represent the voice of the company and its brands; they are a means by which the
firm can establish a dialogue and build relationships with consumers. By strengthening customer
loyalty, marketing communications can contribute to customer equity.
1. Identify the Target Audience:
The process must start with a clear target audience
in mind: potential buyers of the company’s products,
current users, deciders, or influencers, and individuals,
groups, particular publics, or the general public. The
target audience is a critical influence on the
communicator’s decisions about what to say, how, when,
where, and to whom. Though we can profile the target
audience in terms of any of the market segments identified
in Chapter 8, it’s often useful to do so in terms of usage
and loyalty. Is the target new to the category or a current
user? Is the target loyal to the brand, loyal to a competitor,
or someone who switches between brands? If a brand
user, is he or she a heavy or light user? Communication
strategy will differ depending on the answers. We can also
conduct image analysis by profiling the target audience in
terms of brand knowledge.
2. Determine the Communications Objectives:
As we showed with Pottsville College, marketers can set
communications objectives at any level of the hierarchy-
of-effects model. John R. Rossiter and Larry Percy
identify four possible objectives, as follows:
1. Category Need—Establishing a product or service category as necessary to remove or satisfy
a perceived discrepancy between a current motivational state and a desired motivational state. A
new-to-the-world product such as electric cars will always begin with a communication objective
of establishing category need.
2. Brand Awareness—Fostering the consumer’s ability to recognize or recall the brand within the
category, in sufficient detail to make a purchase. Recognition is easier to achieve than recall—
consumers asked to think of a brand of frozen entrées are more likely to recognize Stouffer’s
distinctive orange packages than to recall the brand. Brand recall is important outside the store;
brand recognition is important inside the store. Brand awareness provides a
foundation for brand equity.
3. Brand Attitude—Helping consumers evaluate the brand’s perceived ability to meet a currently
relevant need. Relevant brand needs may be negatively oriented (problem removal, problem
avoidance, incomplete satisfaction, normal depletion) or positively oriented (sensory gratification,
intellectual stimulation, or social approval). Household cleaning products often use problem
solution; food products, on the other hand, often use sensory-oriented ads emphasizing appetite
appeal.
4. Brand Purchase Intention—Moving consumers to decide to purchase the brand or take
purchase-related action. Promotional offers like coupons or two-for-one deals encourage
consumers to make a mental commitment to buy. But many consumers do not have an expressed
category need and may not be in the market when exposed to an ad, so they are unlikely to form
buy intentions. In any given week, only about 20 percent of adults may be planning to buy
detergent, only 2 percent to buy a carpet cleaner, and only 0.25 percent to buy a car.
3. Design the Communications:
Formulating the communications to achieve the desired response requires solving three problems:
what to say (message strategy), how to say it (creative strategy), and who should say it (message
source).
Message Strategy: In determining message strategy, management searches for appeals, themes,
or ideas that will tie in to the brand positioning and help establish points-of-parity or points-of-
difference. Some of these may be related directly to product or service performance (the quality,
economy, or value of the brand), whereas others may relate to more extrinsic considerations
Creative Strategy: Communications effectiveness depends on how a message is being expressed,
as well as on its content. If a communication is ineffective, it may mean the wrong message was
used, or the right one was poorly expressed. Creative strategies are the way marketers translate
their messages into a specific communication.
a) Informational Appeals An informational appeal elaborates on product or service
attributes or benefits. Examples in advertising are problem solution ads (Excedrin stops the
toughest headache pain), product demonstration ads (Thompson Water Seal can withstand
intense rain, snow, and heat), product comparison ads (DIRECTV offers better HD options
 than cable or other satellite operators), and testimonials from unknown or celebrity
endorsers (NBA phenomenon LeBron James pitching Nike, Sprite, and McDonald’s).
b) Transformational Appeals: A transformational appeal elaborates on a nonproduct-related
benefit or image. It might depict what kind of person uses a brand (VW advertised to active,
youthful people with its famed “Drivers Wanted” campaign)

4. Message Source:
Messages delivered by attractive or popular sources can achieve higher attention and recall, which
is why advertisers often use celebrities as spokespeople. Celebrities are likely to be effective when
they are credible or personify a key product attribute
Select the Communications Channels
Selecting an efficient means to carry the message becomes more difficult as channels of
communication become more fragmented and cluttered. Communications channels may be
personal and nonpersonal. Within each are many subchannels.
a) Personal Communications Channels Personal communications channels let two or more
persons communicate face-to-face or person-to-audience through a phone, surface mail, or
e-mail. They derive their effectiveness from individualized presentation and feedback and
include direct and interactive marketing, word-of-mouth marketing, and personal selling.
b) Nonpersonal (Mass) Communications Channels Nonpersonal channels are
communications directed to more than one person and include advertising, sales
promotions, events and experiences, and public relations. Much recent growth has taken
place through events and experiences. Events marketers who once favored sports events
are now using other venues such as art museums, zoos, and ice shows to entertain clients
and employees.
5. Establish the Total Marketing Communications Budget:
One of the most difficult marketing decisions is determining how much to spend on marketing
communications. John Wanamaker, the department store magnate, once said, “I know that half of
my advertising is wasted, but I don’t know which half.” Industries and companies vary
considerably in how much they spend on marketing communications. Expenditures might be 40
percent to 45 percent of sales in the cosmetics industry, but only 5 percent to 10 percent in the
industrial-equipment industry. Within a given industry, there are low- and high-spending
companies
 Affordable Method
 Percentage-Of-Sales Method
 Competitive-Parity Method
 Objective-And-Task Method
6. Deciding on the Marketing Communications Mix:
Characteristics of the Marketing Communications Mix

7. Measuring Communication Results:

Senior managers want to know the outcomes and revenues resulting from their communications
investments. Too often, however, their communications directors supply only inputs and expenses:
press clipping counts, numbers of ads placed, media costs. In fairness, communications directors
try to translate inputs into intermediate outputs such as reach and frequency (the percentage of
target market exposed to a communication and the number of exposures), recall and recognition
scores, persuasion changes, and cost-per-thousand calculations. Ultimately, behavior-change
measures capture the real payoff.
8. Managing the Integrated Marketing Communications Process
Many companies still rely on only one or two communication tools. This practice persists in spite
of the fragmenting of mass markets into a multitude of minimarkets, each requiring its own
approach; the proliferation of new types of media; and the growing sophistication of consumers.
9. Implementing IMC
In recent years, large ad agencies have substantially improved their integrated offerings. To
facilitate one-stop shopping, these agencies have acquired promotion agencies, public relations
firms, package design consultancies, Web site developers, and direct-mail houses. Integrated
marketing communications can produce stronger message consistency and help build brand equity
and create greater sales impact.
Marketing Communication Models:
Channel Conflict
Definition: Channel conflict can be explained as any dispute, difference or discord
arising between two or more channel partners, where one partner’s activities or
operations affect the business, sales, profitability, market share or similar goal
accomplishment of the other channel partner.

Types of Channel Conflict

The channel conflict can be classified majorly into the following four categories
depending upon its flow and the parties involved:

Vertical Level Conflict

In the vertical level conflict, the channel partner belonging to a higher level enters
into a dispute with the channel member of a lower level or vice-versa.

Horizontal Level Conflict

The conflict among the channel partners belonging to the same level, i.e., issues
between two or more stockists or retailers of different territories, on the grounds of
pricing or manufacturer’s biases, is termed as horizontal level conflict.

Inter-type Channel Conflict

These types of conflicts commonly arise in scrambled merchandising, where the

large retailers go out of their way to enter a product line different from their usual
product range, to challenge the small and concentrated retailers.
Multi-channel Level Conflict

When the manufacturer uses multiple channels for selling the products, it may face
multi-channel level conflict where the channel partners involved in a particular
distribution channel encounters an issue with the other channel.

Conflict Magnitude

The level to which the conflict is considered critical or needs the attention of the
channel leader, i.e., manufacturer, is known as its magnitude.

The magnitude of conflict can be determined through the proper analysis of the
change in market share and the company’s sales volume in a particular area or
region.

Causes of Channel Conflict

What are the reasons responsible for a channel conflict?

Following are some of the key reasons for which the organizations need to face
channel conflict:

Role Ambiguity: The uncertain act of an intermediary in a multi-channel

arrangement may lead to disturbance in the channel of distribution and cause conflict
among the intermediaries.

Incompatible Goals: When the manufacturer and the intermediaries do not share
the same objectives, both work in different directions to meet their ends, this results
in channel conflict.

Marketing or Strategic Mis-Alignment: Sometimes, two-channel partners

promote the manufacturer’s product in a different manner, which created two
different images of the same product in the consumers’ mindset, which creates
conflicting brand perception.

Difference in Market Perception: The manufacturer’s understanding of the

potential market and penetration into a specific region or territory, may vary from
the perception of the intermediaries, which can create conflict and reduce the
intermediary’s interest in capturing that particular market.

Change Resistant: When the channel leader plans to modify the distribution
channel, the intermediaries may or may not accept this change. Thus, it may result
in a condition of discord or non-cooperation.

Improper Geographic or Demographic Distribution: If the sales territory has a

narrow consumer base, and the channel leader allows many selling partners, they
tend to lose interest soon because of low profit and limited sales.

Consequences of Channel Conflict

Now that we know about the causes of such conflicts, we must also understand how
dangerous these may prove to be for an organization.

Given below are some of these outcomes:

  Price Wars: Due to channel conflict, the partners compete with each
other on the grounds of price, and therefore, the consumer may defer
the purchase searching for the best deal.
 Customer Dissatisfaction: If there exists a channel conflict, then the
distributors or retailers may show much interest in the company’s
products and resist to assist the consumers, which results into their
resentment towards the brand.
 Sales Deterioration: Conflicts can adversely affect the sales of the
products due to the decline in distributors’ interest and an increasing
number of consumers shifting to competitors’ products.
 Distributors Exit: For the manufacturers, it is essential to retain the
distributors or partners to increase product sales. When there is a
channel conflict, the chances of various distributors leaving the channel
increases.
 Poor Public Relations: The unsatisfied distributors may negatively
publicize the brand and its products as a result of manufacturer’s
unhealthy public relations with them.

Channel Conflict Management

It is a universal fact that the conflicts cannot be eliminated, though these can be
handled smartly to reduce its negative impact on business.

Following are some of the ways to manage the channel conflicts:

Mediation, Arbitration and Diplomacy

To resolve a dispute, the manufacturer can adopt the strategy of intervention where
a third person intervenes to create harmony. The other option is arbitration, where
an arbitrator listens to the argument of the parties involved in a conflict and declares
a decision.

Co-optation

The manufacturer should hire an expert who has already gained experience in
managing the channel conflicts in other organizations, as a member of the grievance
redressal committee or board of directors, for addressing such conflicts.

Dealer Councils and Trade Associations

To handle the horizontal or vertical conflicts, the manufacturer forms a dealer

council where the dealers can unanimously put up their problems and grievances in
front of the channel leader. To bring in unity among the channel partners or
intermediaries, they can be added as members in trade association which safeguards
their interest.

Superior Goals

Establishing a supreme goal of the organization and aligning it with the individual
goals or objectives of the channel partners, may reduce the channel conflicts.

Regular Communication

The channel leader should take regular feedback from the channel partners through
formal and informal meetings to know about market trends and dynamics. Also, the
channel partner’s issues and conflicts can be addressed through frequent
interactions.

Legal Procedure

When the conflict is critical and uncontrollable by the channel leader, the aggrieved
party can seek legal action, by filing a lawsuit against the accused party.

Fair Pricing

Most of the channel conflicts are a result of the price war, and therefore, these can
be resolved by ensuring that products are equally priced in all the territories and a
fair margin is provided to the channel partners.

Channel Conflict Example

The world-renowned brand ‘Samsung Electronics ‘, faced a multi-channel level
conflict in its Indian market in the year 2014. The company was selling its products
(especially mobiles) through multiple channels, i.e., via offline mode and online
mode.

The offline channel partners raised the issue that the e-retailers are providing high
discounts to attract more and more customers, which had ultimately affected the
offline sale of the product.

Due to this, many retailers and distributors in the offline market, distance themselves
from the brand and its products.

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