Marketing Channels

• Customer wants assorted products and services at

desired time and place in required quantity
• Channel Goal: Matching customer wants and
preferences with products and services
• Competition is in Marketing Channels where
success or failure takes place??
• Channels could be
– Direct between producer and consumer
– Indirect between producer and consumer with
intermediaries
 Concentrated production causes
• Spatial Discrepancy
– Due to the physical distance between production and
consumption
– Needs to be bridged in cost efficient manner
• Temporal Discrepancy
– Due to the time difference between production and
consumption
– Reduced by stocking adequate quantities at different
locations
• Need to break the bulk
– Products consumed in quantities smaller than produced
• Need to provide assortment
– Customers usually want an assortment of products
– May be less important for expensive items
 Maximizing Channel Potential

Strategic The Question

Focus
Channel Validity Am I using the right channels?
What are the distribution needs of my customer
segments?
Channel Are my channels reaching all customer regions and
Coverage segments?

Channel How do I pick the best channels for my products?

Selection How do I convince good distributors to sell my brand?

Channel Am I getting the most from my channels?

Motivation Am I doing the right things to gain/increase mindshare?
 Maximizing Channel Potential
Strategic The Question
Focus
Channel How do I track channel performance?
Performance & How do I help channels to upgrade or modify behaviour
Competitiveness to increase coverage?

Competition Are distributors stocking a higher % of my products than

Benchmarking those of competitors?
Is my brand the one mentioned ‘first’ to the undecided?

International Roll What channels exist outside my national market and how
Out do they work?
What business practices and regulations is it vital to know?
 Why Marketing Channels
• Provide Distribution Efficiency
– Brings together the manufacturer and the user in an economic manner
• Minimize the Number of Contacts Needed for Reaching
Consumers:
– Impractical for the manufacturer to sell entire production directly to the
consumers. Resource constraint major hurdle
• Break the Bulk and Cater to tiny Requirements
• Supply Products in Suitable Assortments
– Users normally need an assortment of items.
– Channels combine products/components manufactured by different firms
and offer them in assortments that are convenient to users.
• Provide Salesmanship
– Provide pre-sale and after-sale service
• Assist in sales promotion
 Why Marketing Channels
• Help in Price Mechanism
• Look after a Part of Physical Distribution
– Sub-distribution (Reselling, Transport, Handling, Accounting)
– Stock holding (Providing warehouse space, Storing the stocks, Bearing
risks, Transforming static stocks into operational stocks)
• Look after a Part of Financing
– provide deposits; (finance stocks till they are sold to consumers)
– extend credit to retailers/consumer
• Assist in Merchandising
• Provide Market Intelligence
• Act as Change Agents and Generate Demand
– Channels can act as ‘change agents’ among consumers and generate
demand for new product.
• Take Care of the Flows Involved in Distribution
 Value Enhancement through
Distribution
• Provides time, place and possession utility
• Provides bundle of benefits like after sales
service and replacement
• A face to the company/product
 Channel Functions
These functions should be assigned to the channel
member who can add the most value for the cost

Information
Information Negotiation
Negotiation

Physical
Physical
Promotion
Promotion Distribution
Distribution

Contact
Contact Financing
Financing

Matching
Matching Risk
Risk Taking
Taking
The Value-Adds versus Costs of Different Channels
 Can Channel’s be eliminated?
• Eliminate channels, and eliminate the channel costs?
– Channel functions are not eliminated but transferred to the
manufacturer along with associated costs
• Channels/Middlemen are Parasites?
– They are an essential and valuable part of company’s
marketing activity.
– Used due to economic sense and to improve distribution
efficiency.
– There are always alternative methods of performing a set of
channel functions and a company needs to decide based on
circumstances
• Test question: Are the functions duplicated in a wasteful
manner?
– Duplication by different tiers need not imply inefficiency, or
waste. In cases, this may be essential for achieving the desired
service level in distribution.
 Can Channel’s be eliminated?
• Channel Decisions have a Bearing on Other
Marketing Decisions
– Pricing decisions are related to the channel pattern
adopted and the compensation paid to the channel.
– Decisions on sales force, its size, type, etc., depend
on the nature and size of the marketing channel
adopted.
– Determines to a significant extent the size and
complexity of the marketing department of Company
– Channel decisions usually bind Company to long-
term commitments. Channel types, number of
levels/tiers in the channel cannot be changed often.
 Members of Marketing Channels
• Manufacturers
– Producer or originator of product or service being sold. Could be
• Branded manufacturer
• Private label manufacturer (Supplying to brand owner or Supplying to
resellers)
– Physical possession and ownership till product reaches next
channel member
• Intermediaries
– Wholesale
• Sells to other intermediaries or business end user not individual consumer
end user
• Take title to, physical possession of and store inventory
• Take part in negotiation and promotion flows
– Retail
• Department stores, hypermarkets, convenience stores, franchises etc
• Sell directly to individual end consumer
• Historical role of stocking assorted goods appealing to consumer. Role
has expanded.
 Members of Marketing Channels
• Intermediaries
– Specialized
• Bought into channel to perform specific flow
(financing/promotion/physical possession flow etc)
• May not be involved in core business represented by the
product.
• End Users
– Sometimes buy large quantity of product and
participate in physical possession, ownership and
financing flows
 Manufacturers - Key Issues
• Product Proliferation and Dynamics
– Large number of SKU’s
– Large number of new product launches fail.
Distribution system needs to be cleaned of non moving
inventory
– Accelerated product life cycles
• Total Quality Initiatives
– How to attract and keep high quality individuals in
manufacturing
– Manufacturing processes and technologies are
changing rapidly
• Strategies adopted
– Use flexible or focused manufacturing?
 Wholesaling - Types
• Wholesalers
– Buy and sell merchandise i.e. take ownership
– Could work with one or more brands.
– May offer credit
• Merchant wholesalers
• Cash and carry wholesalers
• Mail order wholesalers
• Merchandise Agents
– Typically may not take ownership of goods
• Manufacturers agents
• Selling/Purchasing agents
• Brokers
• Commission agents
• Manufacturers Sales Branches and Sales Offices
 Wholesaling - Key Issues
• Determine unique business strategy that
defines the niche it wants to operate in
– Role that it wants to perform
• Product assortment
– Complete specialisation vs. broad line
• Arrange operational capabilities so as to be
the preferred supplier
– Service package to be offered
• Geographical area of operation
– Choice of location
 Wholesaling – Emerging Strategies
• Proprietary brands
• National/International expansion
• Value added services
• Niche marketing
– Specialize in limited or unique product categories
• New Technology
– Online order entry systems
– Advanced inventory management
– Computerization of operations
 Retailing – Key Issues
• Retail management is the translation of the business
mission objectives and strategies into specific operating
profile
• Key decisions are regarding
– Merchandise
– Price
– Store Atmosphere
– Communication
– Services
– Logistics
– Location
• Types of supermarkets
– Conventional: offers variety of food and related products
– Superstore: offers wider variety of products
– Hypermarkets: offers wide variety of general merchandise in
addition to grocery items
 Retailing – Emerging Strategies
• Superstore Strategy
– Offer broad, deep selection within limited product
category or
– Cater to very narrowly defined market segment
• Mass Merchandising
• Discounting Strategy
– Have frequent promotions and reduced price sales or
– Everyday low price
• Focused service
• Direct Retailing
• Emphasis on Supplier relationships
 Specialized Service Providers
• Facilitators performing tasks and services important to
the overall distribution process
• Main justification of participation
– Economic justification for involving specialists
• Channel members willingness to outsource
• Resource requirements for performing function
• Increased confidence amongst primary members that they can
maintain control over outsourced services
– Risk involvement of specialists increasing
– Concentration and alliances
• Supply side concentration: Fewer specialists more deeply involved
in primary members activities
– Potential leadership of Specialized Service Providers
• Leveraged buyouts and business acquisitions
• Due to power of Information technology
Classification of Specialized Service Providers
• Functional Specialist
– Engaged in process of moving, modifying or otherwise
physically handling a product during the distribution
process
– Actively involved in getting the products to the right
place at the correct time to support the marketing
strategies of primary channel participants
• Support Specialist
– Facilitates overall channel performance by providing
essential ingredients or services
– While services performed by functional specialists
could be done internally by the primary channel
member, few are in a position to provide the required
support services
 Functional Service Providers
• Transportation
– Critical requirement to move products to customer
– Significant cost attached to this function
• Warehousing
– Could be temporary provision of storage to provide
short term storage requirements
– Services have been expanded to provision of complete
storage solutions
– Contracts gradually becoming longer term
• Assembly
– Modify products while they are being processed in
distribution channel
 Functional Service Providers
• Fulfillment
– Specialized form of handling and arranging for shipment of promotional or
point of sale advertising material.
– Associated inventory physically maintains but does not own associated
inventory
– Common in distribution of sales promotion, catalogue, sales force, point of
sales advertising and support materials
• Sequencing
– Sorting merchandise into unique configuration to satisfy particular customers
requirement
– Retailer can use them to get multiple supplier products in required
proportions
– Manufacturers use them to sequence parts shipments into the order in which
they will be used in assemble
• Merchandising
– May require physical handling or modifications of products to facilitate sales
– Retail shelf stocking and product presentation
– Assembly and distribution of specialized point of sales display units
– Special packs for promotional consumer offerings
 Support Service Providers
• Financial
– Provision of adequate and attractively priced financial support
• Information
– Communication service providers
– EDI mandate
• Advertising
• Insurance
• Advisory/Research
– Provide research inputs for better understanding and evaluation of options
by primary channel members
• Neutral assessment and benchmark channel arrangement w.r.t. competition
• Provide information and training to help planning and adopting new
management procedures and practices
• Facilitation of alliances between channel members
• Arrangers
– Specialized firm providing facilitation services
• Specialised agents and brokers
• Liquidators
 Emerging Developments in Channel
Participants

• Integrated Service Providers

– Offer comprehensive packages for specific
channel services
• Consumers as Channel Partners
 Alternate Channel Formats
• Manufacturer Based License Formats
– Manufacturer Direct
– Manufacturer owned Full service Wholesaler – Distributor
– Company store – Manufacturer Outlet
– License
– Consignment Stockist/Supplier operated Depot
– Broker
• Retailer Based Channel Formats
– Dealer direct
– Food retailer
– Department Store
– Mass Merchandiser
– Specialty Discounter – Category killer
– Convenience Store
– Hypermarket
 Alternate Channel Formats
• Service Provider Based Channel Formats
– Contract Warehousing
– Sub processors
– Cross Docking
• Transport company providing warehousing
– Outsourcing
– Direct Mailer
– Bartering
– Value added reseller
– Influencer – Specifier
– Financial Service Provider
• Door to Door Channel Formats
– Individual on site
– Route
– Home Party
– Multilevel marketing
– Service Merchandising
 Alternate Channel Formats
• Buyer initiated Channel Formats
– Co-operatives/Buying group
• Point of Consumption Merchandising formats
– Vending Kiosk/Pay per serving Point of Dispensing
– Computer access information
• Third Party Influencer Formats
– Organisation that has relationship with large number of
people/companies can provide a channel to them
– Company sponsored program
– Customer list cross selling
• Catalogue and Technology Aided Format
– Specialty catalog/B2B catalog/Third party catalogue service
– TV Home Shopping
– Interactive merchandising
– Trade Show
– Database marketing
 Unwanted Channels: Grey Channels
• Grey marketing is the sale of authorised branded
products through unauthorised channels
• Supplies to grey markets could be
– Authorised distributors and dealers in other markets
– Professional arbitragers like importers/exporters,
individuals, professional traders
• How are Grey Markets created?
– Differential pricing to different channel members
– Different prices in different geographic markets
• Purchasers usually gain from grey markets. Others
are against it
 Unwanted Channels: Grey Channels
• Not bad when
– Can be used to respond to competitive pressures
– Manage distribution channels
– Segment markets
– Reach untapped markets
– Adjust to changes in market conditions
• Suppliers are more tolerant to grey markets when
– Violations are difficult to detect or document
– Product is more mature
– Violator does not carry competing brands in suppliers
product category